DWS Group GmbH & Co. KGaA

Ladies and gentlemen, welcome to the DWS Q2 2026 results with investor and analyst conference call and live webcast. I am Sandra, the course call operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Oliver Flade. Please go ahead, sir.

Operator, thank you very much, and good morning to everybody from Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the second quarter of 2026. Before we start I would like to remind you that the upcoming Deutsche Bank analyst call will outline the asset management segments results which have a different parameter basis to the DWS results we're presenting today. I'm joined as usual by Stefan Hoops our CEO and Markus Kobler our CFO and Stefan will start with some opening as well as closing remarks and Markus will take you through the main part of the presentation. For the Q&A afterwards please could you limit yourself to the two most important questions so that we can give as many people a chance to participate as possible. And I would also like to remind you that the presentation may contain forward-looking statements which may not be as we currently expect. I therefore ask you to take note of the disclaimer and the precautionary warning on the forward-looking statements at the end of our materials. And with that, I will now pass on to Stefan.

Thank you, Oliver. Good morning, ladies and gentlemen, and welcome to our Q2 2026 Earnings Hall. Let me start with the overall picture, and I'm going to borrow one from Formula One for this quarter. After the pit stop early in the year, we have re-accelerated and are showing very strong client momentum across the business. Assets under management reached a new record high, our flows improved significantly, and we delivered our best-ever first half. As we discussed on the last quarterly earnings call, we like to take pain early. As such, we made fundamental changes to our front office at the start of our new three-year strategic plan. What we've completed since the beginning of the year is significant. Let's start with clients. We reorganized our coverage around our clients. Two global segments, private wealth, which serves individual investors, and institutional, each spanning all asset classes and regions. and Anna Dürr-Gürgen, our new Chief Commercial Officer, we've tied client insight, solutions and revenue accountability together in one place. On the investment side, we brought our liquid and illiquid businesses under the single leadership of Vincenzo Vedda, our Chief Investment Officer, completing a transition we began last year. The result is clearer accountability, faster decisions and a sharper investment focus. We've set up the product division to differentiate between asset class expertise and a factory-like wrapping and product delivery function. And we combined various teams into one strategy and M&A function that encompasses strategy design, organic implementation, and inorganic growth. As you saw in our Q1 flow numbers, you cannot retool the car and set a personal best on the same lap, which we knew going in. However, Significant front office reorganizations can paralyze a company for long periods of time, and our deliberate decision to do everything swiftly at once meant that we could fully focus on clients, markets, and investing for most of Q2. You can see that momentum most clearly in our flows and AUM development. In Q2, we gained almost 100 billion euros of AUM, taking us to a record of 1.19 trillion euros. This was not just a market story alone. Long-term net flows were significantly higher quarter on quarter, comparing favorably with our peers. We are particularly pleased with our momentum in active equity, the heart of DWS, where we had our strongest active equity flows in six years. Our flagship funds, Top Dividend and Accumula led the way, with strong investment performance leading to net inflows of more than 1 billion euros across the franchise. Active SQI also continue to deliver, generating net flows of more than 1 billion euros this quarter. It also bears out what we said in Q1. Volatile markets are fertile ground for active asset management, and that is exactly when clients value it most. After a tough Q1, Xtrackers has regained momentum as our focused actions on client engagement, product innovation, and pricing take effect. We have sharpened our competitiveness in core exposures, stepped up client and sales activity, and continued to expand into higher value products and partnerships. This is now translating into stronger flows and an improved competitive position across key segments, particularly in usage. On alternatives, infrastructure remains our strongest growth engine. Capital raising remains positive across the franchise in both equity and debt, and our flagship European private infrastructure fundraise is developing nicely. In private credit, several strategies are approaching first close. While alternatives reported net outflows during the quarter, these were influenced by capital distributions to clients which are recorded as outflows despite reflecting value realization for investors. While we do not disclose our net new revenues earned through client inflows, I'm pleased to say that this has been the best quarter since we started recording this number. Financials in Q2 were solid. Earnings per share came in at 1.19 euros, which brings us to 2.51 euros for the first half of the year. Revenues were 773 million euros, up 4% year on year, the net result of two counterbalancing effects. Management fees grew strongly, up 13% year-on-year, on the back of higher average assets under management. This was offset by much lower performance and transaction fees, which simply follow a different timing pattern in 2026 than in 2025, as we flagged last quarter, with a large infrastructure performance fee recorded in Q1. Total costs were €468 million, up 6% year-on-year, Our cost-income ratio was 60.5% for the quarter, which is an increase of 1.3 percentage points year-on-year. Let me address costs head-on, as I want to be precise about how we think about it. Our controllable costs, which are the vast majority of our costs, were flat year-on-year, and we frankly do not see a reason for them to go up. However, the significant increase in AUM led to higher volume-driven costs, While our positive stock development increased share price link compensation. Combined, these two items amount to almost 30 million of costs, implying that our total cost in Q2 would have been lower than Q1, excluding these two items. I hope you'll agree that these are good costs. They come with growth and they leave us on a good path towards our medium term goal of a cost income ratio below 55%. Step back from the quarter. and a picture of the first half is one to be proud of. Revenues up, costs stable year on year, profit before tax up 16%, EPS up 21% and record net flows. That is the best half in our history. With that, let me hand over to Markus to take you through the financials.

Thank you, Stefan. And good morning, ladies and gentlemen. Before I take you through our financial performance, let me start by saying that I am very pleased and proud of the fundamental changes which Stefan just outlined. They will help us to focus on clients and organic growth more than ever before. What has been accomplished across the organization over the first half of the year has been significant. We undertook a comprehensive transformation of our front office, simplified structures, clarified accountability, adjusted financial steering, and aligned the organization more closely around our clients and investment capabilities. With that, let me turn to our financial snapshot for the second quarter. Total assets under management increased by 18% year-on-year and 9% quarter-on-quarter to 1 trillion 190 billion euros. Total revenues stood at 773 million euros representing a 4% increase year-on-year and a 6% decrease quarter-on-quarter. Our total costs increased 6% year-on-year and 5% quarter-on-quarter and totaled €468 million. This resulted in a reported cost-income ratio of 60.5% for the second quarter of 2026. Our net income increased by 11% year-on-year and decreased 10% quarter-on-quarter, reaching €237 million. That includes a positive tax effect of 25 million euros. Moving to our client dynamics during Q2. Looking at client activity in the second quarter, we saw a clear improvement in momentum compared to the previous quarter. As market conditions stabilized and risk appetite gradually returned, Clients became increasingly willing to deploy capital across a broader range of investment strategies. This resulted in total net flows of 24.8 billion euros and long-term net flows of 11.6 billion euros representing a significant acceleration versus Q1. Looking at our client segments. Our private wealth business, formerly reported as retail, delivered net flows of €18.9 billion, marking the strongest quarterly result since our IPO. Private wealth flows were supported by continued demand for ETFs as well as a recovery in active investment strategies. Institutional flows amounted to €5.9 billion, The result was driven by selected mandate wins, particularly in APEC alternatives, as well as positive US flows into cash products. These inflows were partly offset by capital repayments from infrastructure products, reflecting value realization for fund investors. To reiterate what Stefan outlined in his opening remarks, going forward, we will refer to the following two global client segments, private wealth On the one hand side, and institutional on the other. Turning to the regional picture, we generated positive net flows across all regions, reflecting the re-acceleration in client activity we observed during the quarter. In the Americas, net flows amounted to €10.8 billion, reflecting strong institutional activity and positive flows into cash products. Our home market, Germany, delivered net flows of €10.5 billion, supported by continued client demand for our extractors' business. EMEA, excluding Germany, generated €3.2 billion of net flows, continuing the positive momentum we have seen across the region. APEC reported net flows of €0.3 billion. While overall flows were modest, client activity was supported by selected institutional mandate wins Overall, the second quarter was characterized by stronger client activity, resulting in positive net flows across both client segments and all regions. Moving to the quarterly highlights within our active business. The second quarter marked an important improvement for our active franchise, with positive contributions from both Active Equity and SQI. Active assets under management increased to €409.489 billion, up 7% quarter-on-quarter, supported by positive market performance and net inflows across key parts of the platform. Thank you very much. by successful product launches and continued demand from key distribution partners. Multi-assets reported broadly flat flows during the quarter. Continued demand for AWS concept Calde Morgan and selected mandate wins were offset by two mandate losses. Fixed income reported net outflows of 1.6 billion euros, primarily driven by planned client redemptions. At the same time, We continue to see positive demand for selected strategies, including DWS floating rate notes. Product innovation remained an important contributor to our active franchise. Recent launches included our DWS Invest step-in global equity high conviction and DWS Invest special situations, further enhancing our product offering. Moving to our Xtrackers Business. The second quarter marked a clear improvement in flow momentum following the challenging environment which we experienced towards the end of the first quarter. We implemented a range of measures aimed at improving competitiveness and strengthening client engagement. These measures are now translating into stronger business activity across the platform. As a result, passive including X-Trackers delivered net inflows of €11.7 billion during the quarter, further reinforcing its role as one of DWS key growth drivers. Asset under management increased to €455 billion, up 15% quarter on quarter, reflecting both positive markets and strong net inflows during the quarter. Looking first at usage, net inflows amounted to 12.6 billion euros and were the key driver behind the improved flow picture. Flows were primarily directed towards core exposures, particularly S&P 500 and MSCI World Strategies. Our US domiciled ETF business generated net inflows of 0.9 billion euros, supported by continued demand for fixed income ETF strategies. Mandates and solutions reported net outflows of 1.7 billion euros, primarily reflecting a large redemption of a German corporate client. Distribution remains an increasingly important growth channel for our extractors platform. During the quarter, we have further expanded our access to retail investors and strengthened our positioning in selected European markets. These partnerships are becoming an increasingly recurring source of flows and help to diversify our distribution channels. The increase in our European ETP market share to 10.2% demonstrates that the measures implemented early this year are gaining traction. Let me turn to our Q2 highlights for our alternatives platform. In Q2, assets under management stood at €105 billion, down 6% versus the previous quarter. Our alternatives business reported overall net outflows of €0.7 billion. This flow picture was largely shaped by capital returns of €1.3 billion following successful asset realizations within PIEF 1 and PIEF 2, without which alternative net flows would have been positive. Starting with liquid real assets, quarterly flows were broadly flat, reflecting continued reallocation by investors from listed real assets into private market strategies. Importantly, this was less of a question for product-specific demand and more a reflection of broader asset allocation decisions by clients. Real estate reported net outflows of 0.3 billion euros as market conditions remain challenging, although we see a more constructive sentiment than in the previous quarter. In particular, transaction activities have started to recover gradually while investor engagement and fundraising discussions show first positive signs. Infrastructure saw net outflows of 0.4 billion euros. which was primarily driven by 1.3 billion euros of capital returns, 1.3 billion euros of capital returns associated with piece 1 and piece 2 asset realizations. As outlined in the previous quarter, capital repayments to fund holders are a normal part of our infrastructure business. In this case, they resulted from successful asset sales in Q1 which created value for our clients and performance fees for our shareholders. Excluding these capital returns, infrastructure would also have generated positive net flows. Within private credit, the focus remains firmly on fundraising and platform execution. Several products continue to progress towards first closing milestones in the next six months, Moving then to the next phase of capital deployment for this important strategic initiative. Recent product highlights included the launch of DWS Invest Essential Materials Producers Fund, as well as the successful final close of our second Vintage US Infrastructure Debt Fund. Let me now move on to our Q2 revenue development. Total revenues reached €773 million, up 4% year-on-year and down 6% compared to the first quarter. Management fees increased to €709 million, representing a 5% increase quarter-on-quarter and a 13% increase year-on-year. The increase was primarily driven by higher average assets under management, supported by strong net inflows and positive market development during the quarter. Performance and transaction fees total 11 million euros. As expected, performance fees were significantly lower than in the previous quarter, following the infrastructure-related performance fee contribution of 104 million euros recorded in Q1. The quarterly development is therefore fully in line with the timing of the performance fee recognition we have communicated throughout the year Despite the low performance fees this quarter, we still expect our performance and transaction fees to be at the upper end of the guidance range of 4% to 8% of total revenues in 2026. In 2027, we expect performance and transaction fees to be in the lower half of that respective guidance range. Let me move on to our cost development. In Q2, total costs stood at €468 million, up 5% quarter-on-quarter and 6% year-on-year. Compensation and benefits decreased to €232 million, down 3% versus the previous quarter, mainly reflecting lower performance-related costs. General and administrative expenses totaled €236 million A 15% increase quarter on quarter. The increase can partially be explained by positive one-off effects in Q1, which did not reoccur in Q2. In addition, approximately 30 million euros of so-called good or volume-based costs can be attributed to our share price appreciation and volume-driven banking services costs. Share price-related compensation costs amounted to €16 million, which are hedged and reflected in other revenues. Whereas there is no impact on our pre-tax profit, movement in our share price do affect our cost-income ratio and also our cost base. For additional transparency, the cost and revenue sensitivity for each €1 of share price movement Our cost-income ratio stood at 60.5%, which is an increase of 1.3% each point year on year. Despite a higher cost base in the second quarter, we remain confident and firmly on track for flat costs and a cost-income ratio between 55 and 57% in 2026. With that, let me hand over back to Stefan.

Thank you, Markus. I would like to spend a few minutes on something we believe will be one of the most significant structural growth opportunities for DWS in the coming years, the reform of the German pension system. Let me briefly set out the starting point. The German state pension is pay-as-you-go. Today's workers directly finance retirees, and nothing is invested along the way. That model works while the workforce is growing, and it breaks down when it isn't. With an aging population and even fewer workers supporting ever more retirees, the numbers simply no longer hold. The government's answer is the most far-reaching pension reform in a generation. The introduction towards funded, Capital markets based retirement provision across all three pillars of the system. In plain terms, more of Germany's retirement savings will be invested in capital markets. We believe no asset manager is better positioned to provide the expertise this reform will require than DWS. We are Germany's number one asset manager with deep local expertise and long-standing client relationships. and our connection with Deutsche Bank gives us distribution reach into precisely the clients this reform will activate. Let me take the three pillars in turn. Pillar one is the state pension, the mandatory scheme covering almost all employees with approximately 400 billion euros flowing through it every year. Here, the government's pension commission has recommended adding a mandatory funded component for the first time. Under this model, additional contributions of income may be invested in capital markets with a state fund as the default and an opt-out into certified private funds. The government aims to complete the legislative process by the end of 2026. For DWS, this is about positioning ourselves for the additional capital that will need to be managed. That could mean asset management mandates or offering certified private alternatives to those who opt out. and the potential is significant. Assuming an increase of two percentage points of contributions, it would mean around 34 billion euros of recurring annual inflows into capital markets. The final volume will of course depend on how the legislation is designed, but the direction of travel is clear. Pillar two is occupational pensions, the voluntary workplace schemes. This is a substantial market. We estimate more than 770 billion euros of assets and a revenue pool of around 1.1 billion euros for asset managers in Germany today, with further growth to come from the reforms. The reform aims for near universal participation in the longer term, with key measures expected by the end of 2026 focused on SMEs and lower income employees, where coverage today is thin. Within Pillar 2, DWS starts from a position of strength. We already manage close to 100 billion euros of assets across the German institutional pension market. One structural point worth understanding. German occupational pensions have historically been defined benefit, where the employer promises the pension and carries the risk. Much of that obligation remains unfunded. as it sits on employers' balance sheets rather than being invested. At the same time, schemes are now shifting to defined contribution where outcomes depend on invested contributions as is already common in the US and the UK. On the defined benefit side, we are already serving existing commitments including our pension joint venture with Zurich. And while pension risk transfer is still at an early stage in Germany, It is a trend we are closely monitoring and are building capabilities for. For the future of defined contribution, we see two distinct opportunities. With multinationals and large corporates, we intend to build on our existing relationships and expand our offering of tailored advice and individualized investment solutions. For German mid-sized companies, the opportunity is different. We are building a scalable, defined contribution solution, combining Deutsche Bank's distribution with our lifecycle-based investment expertise. In this pillar, our relationship with Deutsche Bank is especially valuable because it gives us access to corporate clients across every segment. And finally, pillar three, private retirement savings. This is where the reform is furthest advanced. The centerpiece is the Altersvorsorge Depot or retirement savings account. Think of it as Germany's answer to the ISA or the IRA. It has already been adopted and goes live on January 1st, 2027. It comes with significantly increased government subsidies and extends eligibility to around 4 million self-employed citizens. Importantly, it also opens the door to products without a capital guarantee So savers are no longer confined to expensive, low-returning products. And this is the part I would emphasize. With the subsidies and tax benefits on offer, the government is creating a compelling incentive to participate. So this is not a narrow product aimed at a narrow segment. It should appear to approximately 50 million private individuals who are eligible, more than half of Germany's population. We will launch our own retirement savings solution with a DWS product offering, including a standard product and differentiated propositions beyond it. Deutsche Bank will be a key distribution partner, giving us a reach into private clients, the self-employed and SMEs. A dedicated project team is driving all of this towards the January 2027 start. Alongside it, the government has also set out plans for the Frühstartrente or Early Start Pension, which will seed capital market savings for children from age six. This has the potential to foster a new generation of investors from the beginning of their savings journey, and we will monitor developments closely. The long term potential is enormous. Millions of Germans have not yet made any meaningful retirement provisions, and as that changes, we see a substantial opportunity over the years ahead. So step back and the strategic fit is obvious. This is bullish Germany in action. A once-in-a-generation shift of German retirement plans are being channeled into capital markets at scale. As Germany's number one asset manager, it plays to every strength we have. We bring a large German client base, trusted relationships, access to Deutsche Bank's distribution reach, and the product breadth to serve all three pillars. So let me close where I began. We took pain early, we have re-accelerated, and we intend to keep that momentum. The pension reform is one of several opportunities ahead of us, alongside our growth in alternatives, our strength in extractors, and the momentum in active. And we intend to make the most of every one of them. That is what gives us confidence in our targets of 10 to 15% annual EPS growth for this year and on our path to 2028. Thank you, and back to Oliver for Q&A.

Thank you very much, Stefan. Operator, we're ready for Q&A now. If I just might remind everybody to limit yourself to the two most important questions, that would be very kind. Thank you very much.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questions on the phone are requested to disable the loudspeaker mode and eventually turn off the volume of the webcast while asking a question. Anyone with a question may press star and one at this time. Our first question comes from Hubert Lam from Bank of America. Please go ahead.

Hi, morning. Thanks for taking my questions. I got two of them. Firstly, Stefan, thank you very much for the overview of the German pension reform. Can you talk a bit more about Pillar 3? What flows would you expect from this? The size of the opportunity? And how long do you think it will take for individuals to kind of ramp up on this? That's the first question. The second question is about your EPS target. I know you reconfirmed the 10% to 15% EPS growth. For 2026, it seems like consensus have bought into this. But for 2027, it feels like consensus is below this. Maybe if you can talk a bit about the building blocks to get there for 2027 and how much of that is dependent on performance fees again. Thank you.

Thank you Hubert. I suspect that many of your colleagues will now need to think of different questions to ask because I suspect those two would have been on probably everyone's list. So let's start with pension reform and you asked about Pillar 3. Although I would emphasize that I think that for us over the long term, Pillar 2 will actually be even more exciting, but maybe that's a follow-up question from somebody else. So Pillar 3, this will go live on GEN 127 that is done, that's announced. You will see lots of discussions in Germany, lots of distribution partners are preparing themselves. I think it's going to be a combination of some distribution partners where the products are based on advisory, and essentially sold. I think those clients in many cases will be the ones being advised by branches or IFAs and so on. I think in that case, there will be inflows into a combination of some ETFs, lots of active, some alternatives. In terms of size, it's somewhat difficult to say and I really don't want to be the one putting gigantic numbers out there. But when you think about the reasonably unattractive current Rista product that has somewhere between 200 and 300 billion of invested capital across multiple providers, with the pension reform, that should go up a lot. So I think most Germans that you would know, Hubert, so your colleagues, wouldn't have Rista Rente because it just wasn't appealing, because it had to be capital guaranteed, so I wouldn't have invested in it. I think going forward, It will be illogical to not participate because there's going to be subsidies and tax benefits. So I would imagine every logically thinking German will participate. So I think there should be lots more inflows than into Riester. Now, on the other side, you will see very low margin ETF based products being provided through new brokers, platforms and so on. I don't know what will be greater over time. I think the beginning would likely be balanced in terms of flows. Obviously, the first component I spoke about is going to be higher margin than the second. Now, that applies to the industry. When you think about DWS, we are the only German asset manager with an ETF platform. So we will be the go-to partner for some of those new brokers and platforms. So we definitely intend to benefit from inflows into ETFs. But at the same time, through Deutsche Bank, through DVAG and other partners, we also want to be front and center of those German investors that will require advice as they invest for long-term pension. Some of the numbers you see in the market are gigantic. I don't want to quote them. I just would want to remind people it's not all going to be into actively managed funds. It will be a combination of actively managed and ETFs. But again, all of that, and I will now switch over to the second part, all of that will come up on top of our current growth rate. So when we spoke about 10% a while ago, this was before any of those reforms materialized. And when we upgraded to 10% to 15%, they were saying, well, there are a bunch of things that we now have going for us, the German pension reform being the most significant one, and that should lead to additional growth above the 10% that we had anticipated so far. Now, most specifically, in our wonderful head of investor relation, Oliver Flade, told me to never refer to consensus. But given that you brought up the term, I'm just now sort of responding to your questions and sort of violating the advice that Oliver has given me. Having grown up on the trading floor, let me first emphasize that the market is always right, that our stock price depends on consensus. Some of you didn't like our numbers in Q2 because it came in below consensus. Profit Before Tax. However, I think when you look at the composition, I think we've hopefully made it clear that on the cost side, our cost in Q2 would have been below Q1 if it hadn't been for higher AUM and a higher stock price. Needless to say, I sort of like people to buy our stock. I like our salespeople to get in more flows. I like markets going up. So those are good costs. They're also PBT neutral, essentially pass-through items. So the miss in PBT is entirely due to performance fees. AUMs, higher management fees are higher. It's entirely performance fees. And I would just emphasize what we said in Q1, that if you look at the monetizations of PEEF to assets for the first half, we're looking strong. We simply monetized much more in Q1 than we had anticipated, which is why performances were 100 million in Q1 and almost nil in Q2, but that was simply because of more monetization in Q1, not because of any deviation from plan. When you look at consensus for 2026, it's sort of in line with what we are expecting. Now, when it comes to 2027, I think that's slightly more interesting. I'm in no position to agree or disagree with the consensus. I mean, again, the market is always right. But I think on cost, you believe what Markus and I are saying. You do think that cost will go up a little bit in 2027. I think we will be more disciplined, but I think there we are broadly in line. I think the biggest deviation is the composition of revenues in 2027. I think that, frankly, the market so far has been underestimating our AUM growth. And when you look at consensus at 1180 for 2026 at end of the year, given that we're now at 1190, I would imagine that, you know, we tried not to lose AUM between now and end of the year. So it should be higher at the end of the year, which also should translate to higher average AUM in 2027. When you look at our average margin, that is keeping a lot more stable than in prior years. That's because of Inflows and active equity, SQI doing well, and a bunch of other things. But therefore, when you then simply do the math, I think that I see management fees frankly higher than what's currently reflected. But at the same time, I would caution a bit on performance fees. So the way we look at the performance fees is that for this year, we continue to believe that it's going to be at the upper end of our range of 4% to 8%. However, for next year, We would expect it to be at the lower to mid part of the range of 4% to 8%. If you break down performance expectations for next year, then the one remaining asset in PEEF 2, I would expect to be monetized in 2027. So that's a nice chunk of performances coming in next year. We have some performance fees in private credit, some performance fees in real estate. We have concept Calder Morgan and so on. So I'm confident that we'll be at the low to mid part of the range in 2027. But therefore, again, I don't want to criticize, challenge or anything the consensus, but I think it's on the conservative end of what Markus and I want to get to with a composition where I think it's going to be more geared towards management fees and a bit lower on the performance fee side.

Great, thank you, very comprehensive. Thank you.

Next question comes from Jacques-Henri Goulard from Kepler-Chevreux. Please, go ahead.

Good morning, gents. Stefan, you talked about the pension. You could have talked about the investment super cycle, the fact that obviously we need to have much more investment coming to get to this defense to GDP ratio to 3.5, not to mention the grid, not to mention Ukraine, not to mention all things like that. It looks on the back of what we're having on the stock price that financials shares are going to go up. That means that your cost base is probably going to go up as well on the back of growth. That's the good cost. Wouldn't you be better off to be able to actually do these 10 to 15 or confirm that to just drop the cost income ratio target? And if Markus could very kindly give the sensitivity again, I would be very grateful because I didn't put it down very well. Thank you.

Hey, Jacques-Henri, sorry, we were just debating for three seconds of how to best answer it. So I think for the record, and I look into Markus's very serious face, we will not drop the cost income ratio target. We're not advocating for it. But we continue to think that you need to be disciplined. And I also continue to believe that very interesting inorganic opportunities will arise for DWS if markets ever wobble. Thank you very much. For example, those two items that are almost 30 million in Q2, they were also obviously higher revenues, so PBT neutral, but increasing our cost income ratio. So that's sort of bad, but all of you are obviously smart enough to see through that. Now, what I also want to say is that we do see plenty of interesting investment opportunities. So please, nobody should think that we are just saying no to every investment. We're investing a lot, for example, in the Pillar 3. So the way that you need to think about our solution for pension reform is that we will have a full product offering where we will have service staff, we'll have call centers. So this is a real investment that we're making, investing in alternatives, investing in growing Middle East and a bunch of other things. So within a flat, controllable cost base, we're making significant growth investments. Again, those good costs, hopefully we'll have more of that, but I think that all of you will be able to isolate that. We stand by our cost-income ratio target of below 55% by next year, and we feel that we're on a good path there. Okay, thank you. Thank you.

The next question comes from Arno Gibla from BNP Paribas. Please, go ahead.

Yeah, good morning and thanks for talking more about base fee growth. I think that's a really important KPI and looking to having a bit more disclosure in the future around the base fee growth. My two questions are first on pensions and second on a potential mandate that's been announced, I think. So on pensions, if I could just take Hubert's question and apply it to Pillar 2 there. Now, I'm just wondering what the addressable market looks like and over what time frame does it grow to? How do you think of the distribution? I suppose a lot of the distribution will be tied to Deutsche Bank, so what sort of market share do they have or potentially can they get? That's sort of like just trying to frame the flow opportunity of a certain time frame. And secondly, there was, I think, a piece of news flow that The second one is pretty straightforward to answer. There are some

State level pension funds and in those specific cases those assets are managed by Bundesbank. So in Germany you don't really have a sovereign wealth fund or any specific sovereign fund except for Bundesbank managing assets and then the fund for the nuclear fund, what we call the nuclear fund, that is also managing essentially German assets and in that case those state pension assets are managed by Bundesbank They are outsourcing some mandates. We want a very large one. We're proud of that large mandate. It is reasonably low margin. So don't think that this is six billion of active equity is reasonably low margin. But we like about it is when you think about pillar one, we think that those assets will likely be managed either by some newly established fund or Bundesbank or the nuclear fund. And by us being a primary partner to them and being allowed to advise them here and there, that should position us nicely. Now, pillar two, and this is a topic that has kept me busy for the last probably 12 years in various roles I had at DB Group, so I'm quite passionate about it. You need to basically look at it, I'm simplifying a little bit, think firstly about promises made in the past and secondly about future promises. When you think about promises made in the past, a lot of promises to German pensioners were defined benefit but unfunded. This is completely different to, I think, any major country in the world. It means that mid-caps 40 years ago told people work hard and then when you're 65 you'll get a nice pension of X because it was defined benefit. However, that money was never set aside. It's essentially an obligation, a provision on the balance sheet on the passive side It obviously becomes cash flow relevant once those people actually want to have their pension. And that is now when you think about when those big cohorts born in the 50s and 60s, when they are retiring, that's sort of now. That's a big problem for Germany that's now being addressed. And there will be significant pension risk transfer solutions to be provided and so on and so forth. That's essentially unfunded defined benefits from the past. That market is just sort of getting real because now people see the cash flow necessity, the government is actively weighing in and I think there's going to be reforms, in many cases making it mandatory to fund those. Secondly, when you look at future promises, which mostly will be defined contribution, I would differentiate between large corporates and the many, many hundreds of thousands, millions of small cap companies. I think for the large ones, you will have specific solution, advice, tailor-made, and so on. For the mid-caps, you will, and that's what I refer to as scalable defined contribution, you will need to have certain products which are simple to administer, simple for companies to sign up for, and again, something not tailor-made or scalable. For the very small, let's say 10 employees companies, I would imagine them to actually lean heavily into the third pillar and use that. Now all of it is quite complicated and when you ask the question about which financial institution is best positioned for it, I would say that this is Deutsche Bank given the access to all of those corporates plus having an asset management company. So when you think about the competitors to Deutsche Bank in the corporate space, those are German banks that actually don't have and their own asset managers. So we feel that Deutsche Bank is pretty well positioned. At the Deutsche Bank Board, I'm the one tasked to coordinate Deutsche Bank's response to the pension reform across all pillars. I'm quite involved. But I think that for DWS, that presents a unique opportunity, in many cases for alternatives, because those long-dated liabilities should be invested into illiquid, higher-yielding asset classes Oliver Carreter from Goldman Sachs

Thank you for the presentation and for taking my question. I've just got one. I guess, Stefan, would you be able to share your perspective on how you're thinking about the durability of the improvement inflows that you've seen in your active equity business? I think I basically counted three, I guess, positive tailwinds. I think you're talking to the recent improvement in risk appetite, calling out this improvement in fund performance that we've seen, and then I guess this more long-dated tailwind of the German pension reform. I guess offset against the long-term active to passive shift the industry is facing but a little bit of a crystal ball question but you know we're obviously watching this nice improvement in the inflows in 2Q but just how are you thinking about the durability of that thank you thank you Oliver so firstly and absolutely most importantly flows follow performance so if you recall and most of you have been our partners for quite some time

Two years ago, one of you challenged us on this call on the declining outperformance in active equity. And you're right, like at that time, we had significantly below 50% of our funds beating the benchmark. And it makes it very difficult to say now, at that time, we are also not very strong relative to some competitors. And when you look at the flows in 23, when we had 5 billion of outflows, you know, 24, 25 getting better. But to some extent, the poor flow performance during those times was because of, well, not very appealing performance. That has changed significantly. So when you look at the fact that now 82% of our equity AUM that has a benchmark beats its benchmark, then you can see that the changes we've made, you know, more than 12 months ago, where we brought in a new head of equities who is an exceptional people leader, but equally importantly, had our prior two cohorts of equities, do what they enjoy most, meaning manage funds, because they are managing our two largest funds. Then it just worked out perfectly. When you look at Andre Köttner's performance in Acumula and VBI, he's more than 10 percentage points above the benchmark over the last 12 months. So that's significant, and it has led to nice inflows in his funds. And Top Dividend has said, one of the best flow pictures of the last 12 months, More than, actually not more, 400 million of inflows just in Q2 in top dividend. So those inflows in active equity came into our largest flagship funds that had really, really strong performance. I think risk appetite has obviously looked better in Q2 than in March. There's no question about it. But when you look at our relative benefiting from increasing risk appetite, it's really due to performance. I think longer term, yes, the pension reform will be additional tailwind for sure. But most importantly, we need to keep performance up.

I mean, if I add, Oliver, it is about, again, what we have communicated in terms of guidance over the next three years, that we have about 160 billion of total long-term flows. If you break that down, it's about 50 billion and 12 to 13 billion per quota. The robustness of DWS goes back to our diversified business model but also on the other hand that over the years we're working on focus topics which we internally call our growth agenda and we spoke about that at the beginning of the year. And I just would like to highlight, in addition to what Stefan said, with regard to gateway to Europe and being bullish on Germany. I mean, passive, where we expand now into Europe and beyond, is on digital platforms, it's on active ETF, and it's on the white labeling and building of solutions. We're going to see next year, from next year onwards, on the alternative side, flows which we're then going to report, hopefully, on a continuous base on the private credit side, if that strategy now moves, as we said, from fundraising into capital deployment. And again, if you take that all together, having, I mean, like last quarter, we have been positive on all asset classes, I mean, that's the main pillars, We have also been positive with regard to the client segments and the regions, but certain regions and certain strategies have performed better. But, you know, over the quarters, we're confident that we're going to see us delivering according to whatever, around 50 to 55 billion long-term flows, especially towards the end of the year and then 27, 28.

Actually, one last thing, Oliver, on active equities. So you would have seen that our AUM in active equities went up almost 20 billion in Q2, right? So significant. Now, 1 billion, a little bit more than 1 billion is flows. The vast majority we count as markets. Now, what the equity PMs have been saying, I'm still looking at markets as I speak, because the CFO wouldn't need to sign off on it. They're saying, well, not all of it is markets. It's not beta. There was actually a large alpha component. Again, if you just look at the two funds managed by Andre Köttner, he created by 10 percentage points outperformance. They'd created 3 billion of additional managed AUM just because of the outperformance of 20 million in management fees. So the equity folks are asking that we sort of reflect that in their compensation, probably something for us to discuss at some point. Not openly here. 20 billion of extra AUM in equities, probably the strongest part of the Q2 numbers.

Very helpful. Thanks for the additional, Kader. Much appreciated.

The next question comes from Nicholas Herman from Citi. Please go ahead.

Morning, gents. Thanks for taking my questions. Two from me, please. On X-Trackers, Markus, you referenced some measures that were implemented to improve the performance. Could you just go into that and, I guess, does that include pricing? Or just more broadly, I think in the past you said that you were going for more higher-margin business in passive. Are you now pushing more into lower-margin business, too?

That's the first one.

and then on secondly on alternatives don't disagree on the potential opportunities particularly pillar two and three on pillar one specifically and winning in private markets but clearly DWS is strong in real estate but it seems to me at least that there is increasing preference from European investors for value-adding core plus relative to core where I think that's where my understanding is where you have traditionally been strong and also an infrastructure where I guess, do you have that capacity as a middle market manager? I'm just wondering about your right to win versus larger and more diversified peers. Thank you.

Thank you, Nicholas. I'm going to start. So on X-trackers, look, it will always be a combination of things that are planned and properly implemented, but you also need luck here and there. Just if we start with the numbers, so Q1, quite poor. While we have a market share of 10.2%, our flow share was around 5% in Q1. It was sort of 11.4% or 5% in Q2, and it looks like we are at about 14% flow share in July so far. So significant improvement in flow share. Pricing measures had small impact, but we kind of improved or whatever, cut pricing on about 5%. of our extractors AUM, so not significant. But here and there, we obviously saw increased competition had to address it. I think mostly it's simply a combination of campaigns that maybe were somewhat unfortunate in Q1, worked out much better in Q2, staying very close to our digital distribution partners and things like that. But again, you also need luck here and there. But I think it's the pricing part or the Thank you very much. So I think the right to win, I think it's easily or easiest answered by saying you simply have a large cap market where we do not compete and a mid cap market where we compete very, very well. Now, the interesting part of it is most of our former competitors in mid cap at some point wanted to have larger funds because, you know, average fund size in mid cap is four to five billion for us. That's what we're targeting now. Large cap is 10 billion plus, so obviously that looks a lot more attractive. But therefore, a lot of our former competitors are now the ones buying assets from us. So as we develop something from mid-cap to being larger, one of the outlets, one of the exits is into large cap funds. So we feel that we have less competition in mid-cap. and at the same time, more buyers for our assets. So we feel very well positioned and do not intend to move into large scale. We feel very comfortable with the mid cap space. Real estate, more complicated to answer because you're exactly right, Niklas, that there's much less demand for core than for core plus or value add. And that is frankly capability that we have, but at the margin. So we have some competent people In Corp Plus, we're currently actively fundraising in Corp Plus, but we are better known for core, for European real estate. That is probably an area in which we would seek to inorganically expand because if I have the option to hire people but then have to build a track record or being able to compete for the playoffs from day one because we buy somebody with an existing track record, Then the latter is certainly favored. So you're completely right. This is where there's a lot of demand and also an area in which we have to simply acquire capabilities.

That's really interesting. Thank you. If I could just have two quick follow-ups and I'm sure Oliver will scold me afterwards on that. So you said looking to inorganically expand, is that something that's kind of actively, that's a clear focus area in terms of M&A on value add? and the second one I had was just within alternatives. I appreciate there was a 1.3 billion outflow from capital return, but there was still a 6 billion drawdown in alternatives at UM. How much of that was LRA and just could you provide some of the moving parts there please? Thank you.

Very happy. So I will answer one and a half and then maybe Markus is going to give more content on You know, that big reduction in AUM in alternatives. So, yes, specifically for real estate value add, that is something which we don't possess at scale, need to acquire. It's very difficult to retrain people. You can hire people, but you don't have a track record. So it's easier to simply inorganically acquire. Now, that would be for core European. So when I say core, what I mean by continental European. I don't think that the world needs another U.S., Value Add or Core Plus for the estate manager. We're actually quite good in Core Plus in the U.S. But we would only inorganically grow with capabilities where you would frankly say, this is something DWS should have already built in the past. So things that you wouldn't find random, and especially German or continental European real estate value add capabilities, something we should have built in the past, didn't, is what it is. But therefore, that's where we would inorganically add that. On your second question, this is not LRA. It's simply repaying funding in infrastructure, but Markus can give more color if you like.

Yeah, so happy to quickly answer that one. And again, the driver behind was Triggered by a sale of an asset, a property sale in the first quarter, which is related to infrastructure. And it's a 5.7 billion leverage paydowns which we made in the first quarter. That is not reported as flows, but under other assets.

Understood. Thank you.

The last question for today comes from Pierre Chedeville from CIC. Please go ahead. Yes, good morning.

Thank you for taking my question. Most of them have been asked, to be honest. Maybe a question regarding a marginal point, but I think it's interesting for the future. Regarding Asia, we have the impression that your participation, your partnership with Harvest is something a little bit sleepy and I was interested to know if you have really a strategy so far in Asia or if it's just the result of the past, your presence there and you stay there because you have a foot in the door but no particular ambition in the short to medium term there. My second question is linked to the fact that you said that flows follow performance, of course. But more generally speaking, we see, of course, a consolidation in the business. We see also a lot of players watching carefully, focusing on Germany, French, Italy, competitors. And I was wondering if you were, I would say, a new CEO and you look at coldly DWS today, would you say that the most important thing to improve If it's the case, would be distribution or innovation in order to keep your rank in this competition? And maybe it seems that I'm the last question there. Could you say a word regarding where you stand regarding ESG products and ESG strategy? Because it's been a long time since you didn't talk about that.

Thank you very much.

Thank you, Pierre. If I'm not mistaken, I think you asked three questions. But, you know, it's okay. I think it would be odd if I dropped. I'm just joking. I thought it would be odd if I didn't answer the ESG question because I said there was like the one excess question that I choose not to answer. So Asia, sort of distribution versus innovation, specifically in Germany, and then ESG. So we do have an Asia strategy. It's part of our top five and top five. So being amongst the top five foreign asset managers in the top five economies of the world. And obviously Asia is home to India, China and Japan. So three of those five countries. Now, I think you will find that very few people have a Asia or even APEC strategy in the sense of, you know, one strategy for the region, given that the markets are so incredibly different. I mean, Australia and Japan are obviously very different to ASEAN, very different to Korea, you know, other markets that really depend on large sovereign players. So in Asia Pacific, you need to have, maybe with the exception of ASEAN, where you can be more, a little bit treating it like a region that in many cases, in our case, we cover from Singapore, but for the rest, you need to have country-specific targets. Now, in China, that is through harvest. When you look at the performance of Harvest, actually since I handed over the board mandate to Markus, he's now our board representative on the Harvest board, the Harvest performance improved massively. I think their net income is up, what, 40% in the first half? Thank you for pointing that out. So the first quarter when I was still on the board was okay. Second quarter when Markus was on the board, much better. So CFO adding alpha. That is China and India. We obviously have our alternatives joint venture with Nippon India where we are progressing nicely. This will close imminently. So therefore, that is something where I would expect inflows starting in 2027 as our India strategy and the partnership with Nippon India goes much further. But we also have distribution agreements For the other markets, we have country-specific plans, but that's more distribution. Even in Japan, where we'd like to be bigger, that is where, as interest in Europe goes up, where people rotate from just dollar assets into European assets, that will be benefiting. but that is just a recent story you know we call it gateway to Europe that it's going to lead to us being better positioned in other markets in Asia. You're right plenty of competition Germany and you know as a German I'm sort of biased and saying that this is a great country but it is a great country and a country that you know many competitors also like to play a larger role in the pension reform isn't the secret everyone thinks that this is going to be Interesting opportunity. It is also complicated. So, you know, it would take some time for some of the competitors to have the same, you know, comprehension that, you know, frankly, we feel we have. But I think that distribution will continue to be the most important aspect other than performance, you know, having standout products for an asset manager. Now the distribution itself, and you may accuse me of being cute with words, But the distribution itself will need to be quite innovative. So when you think about our focus on digital distribution channels, that is sort of an innovation, but a new means of distributing. None of you have asked an AI question. I'm not going to just wobble about it for the next 10 minutes. But when you think about an increase in transparency, a reduction in friction, a reduction in barriers to entry, all of that is going to have a massive impact on distribution channels. So you need to be quite innovative. So therefore, I think my answer would be you need to be innovative in distribution. I don't think that you need to innovate completely new products. I don't think that that's as relevant. Now, ESG remains absolutely core to us. As many of you know, as an executive board, one of our KPIs is to offer a certain percentage of new products as ESG products. So therefore, we are launching a certain minimum percentage, Just about half of our new product launches are ESG products, and then we simply let our clients choose what they want to have. Now, what you could see is that there is interest in ESG, but maybe less than in the past. As a producer, as a manager, this is not our choice. We can only offer compelling products, and then we let clients decide.

Can I add to the ESG question? And again, what is really important is that we are only one of only two asset managers. It's not talking about ESG as an investment theme, but it's also DWS as a company. And we take the topic extremely, extremely seriously. I mean, we are one of two asset managers that is issuing a sustainability statement. which is quite comprehensive, which is part of our annual report and that gives probably more transparency than any other asset manager is providing. And secondly, internally, we also track ESG flows and it's an important, even if it's not on work, apparently, Thank you very much, very clear. Thank you Pierre. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Oliver Flade for any closing remarks.

Thank you very much everybody for listening in and your great questions as usual. You know, the IR team stands ready in case there are any open questions left that you might have and otherwise we wish you all a fantastic summer day and talk to you very soon. Thank you and bye-bye. Thank you. Thank you very much. Bye-bye.

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