DWS Group GmbH & Co. KGaA (DWS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to DWS Q4 and Full Year 2025 Preliminary Results Investor and Analyst Conference Call and live webcast. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Oliver Flade. Please go ahead.

Yes. Thank you very much, Lorenzo, and good morning to everybody from Snowy Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the fourth quarter and full year of 2025. Before we start, my usual reminder that the upcoming Deutsche Bank analyst call will outline the asset management segment results, which have a different parameter basis to the DWS results that we are presenting now. So I'm joined also as usual, Stefan Hoops, our CEO; and Markus Kobler, CFO. I'm pretty sure you have seen our notification yesterday evening and the material that we published this morning. So Stefan will start with some opening and some closing remarks, and Markus will take you through the main part of the presentation as usual. [Operator Instructions]. And I would also like to remind you that the presentation may contain forward-looking statements, which may not develop 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 over to Stefan.

Good morning. So this happens when you have a live TV. My Head of Investor Relations just put me on mute. So let's start over. Good morning, ladies and gentlemen, and welcome to our Q4 and full year 2025 earnings call. Even though today marks not only the end of our 2025 financial year, but also of our 3-year strategic plan, we would like to spend most of our time looking forward at where we see DWS heading over the next 3 years. But let me begin with a brief recap of our financial plan before handing over to Markus to walk you through the numbers in more detail. This is not intended as a victory lap. That is not our style. Rather, it is a fact-based assessment of what we delivered, what we learned and how that shapes our priorities for the next phase. When we announced our last 3-year plan in late 2022, the chips were not exactly stacked in our favor. We faced a difficult environment for asset managers alongside DWS-specific challenges requiring us to reduce costs, drive organic growth and address structural issues. As you've seen in our release, we exceeded our EPS target, reaching EUR 4.64, which represents an increase of 56% over the 3-year plan. We also delivered well below our cost/income ratio target of 59%, even on a reported basis, increased the share of funds with more than EUR 1 billion in AUM and made tangible progress in building and scaling our digital business with the launch of our stablecoin joint venture and crypto ETPs. We closed the year with a strong Q4 with positive inflows across Active, Xtrackers and Alternatives as well as being positive across all regions and client types. Since our Capital Markets Day in 2022, management actions across both costs and revenues have played a material role in our performance. We focused on structural measures that we took early, combined with disciplined planning and consistent execution. That approach allowed us to deliver through different market phases. As with every multiyear plan, some things turned out better than expected and others less so. Clearly, the market provided helpful tailwind to the industry, while margin compression and inflationary pressures were tougher than we anticipated at our Capital Markets Day in 2022. While our organic growth has been solid, client demand skewed primarily towards Xtrackers with less momentum in active and alternatives developing below our original expectations. In terms of client progress, we feel good about our wholesale partnerships while recognizing there's still room to grow with institutional clients. On costs, discipline has been strong overall. At the same time, we continue to see opportunities for further simplification, automation and efficiency gains across the organization. Compared to 3 years ago, DWS is now recognized for the right reasons, our market views, innovation and business relevance. But we continue to see strong upside potential in our brand awareness outside of Continental Europe. Look, I could go on with areas for improvement, but rest assured, we grade ourselves tougher than any of you would. The past 3 years have been hard work, but they have strengthened our execution credibility and give us the confidence to be bolder in our targets, which brings me to how we have designed our game plan for the next couple of years. In Q4, also informed by feedback from you, analysts and shareholders, the Executive Board stepped back to reassess whether the financial targets we communicated 1 year ago still fully reflect the opportunity set for DWS today. This led to a comprehensive internal strategic review supported by a rigorous planning process focused on reassessing our priorities, challenging assumptions and allocating capital and resources to the areas with the highest return potential. The outcome is a refined and more ambitious set of financial targets compared to what we communicated a year ago, reflecting both the progress we've made and confidence in what we can achieve going forward. Our new targets include an EPS growth of 10% to 15% per annum until 2028, a cost/income ratio below 55% by year 2027, performance fees in the range of 4% to 8% per annum and net flows of more than EUR 160 billion over 2026 to 2028. I will walk you through the thinking behind these targets in a moment. But before that, I will hand over to my partner, Markus, for a closer look at the 2025 numbers.

Thank you, Stefan, and good morning, ladies and gentlemen. As Stefan already highlighted we clearly outperformed the financial targets we set for the full year 2025. Let me briefly walk you through our key financial highlights. Our EPS increased to EUR 4.64, representing a year-on-year improvement of more than 40%. This reflects a combination of operating leverage from higher revenues and continued cost discipline across the organization. Total revenues increased to EUR 3,155 million, representing top line growth of 14% year-on-year. Driven by our disciplined cost management, our reported cost/income ratio improved to 58%. Turning to flows. Our long-term net flows reached EUR 33.7 billion with total net flows of EUR 51 billion. This demonstrates our diversified product offering and our strong access to clients and distribution partners. Based on these strong results, we are proposing an ordinary dividend of EUR 3 per share, consistent with our dividend policy and reflecting our confidence in the sustainability of our earnings profile. Together, these results demonstrate that DWS can grow, improve efficiency and deliver attractive returns for both shareholders and clients. Let's look at the financial performance snapshot for the full year. Total assets under management increased by 7% year-on-year to EUR 1.085 billion, mainly driven by long-term net flows as well as favorable markets. On the top right, revenues totaled EUR 3,155 million, representing a 14% increase versus 2024 and the highest level since IPO. The main drivers were higher performance fees and increased management fees as a result of higher average assets under management. Total costs remained flat year-over-year and totaled EUR 1,831 million, resulting in an improved reported cost/income ratio of 58% for the full year 2025. And as a consequence of operating leverage, we reported a 42% net income increase versus 2024, reaching EUR 928 million. Moving to the financial performance snapshot for the fourth quarter of 2025. Starting at the top left, both total and long-term assets under management increased by 3% quarter-over-quarter, predominantly driven by net flows and market depreciation. Moving to the top right. Revenues increased to EUR 902 million, marking a 20% rise compared to Q3 2025. On the bottom left, costs amounted to EUR 486 million, up 12% quarter-on-quarter, resulting in an improved cost/income ratio of 53.9%. This marks an improvement of 3.8 percentage points quarter-over-quarter and 10.7 percentage points year-on-year. As a result, our net income reached EUR 296 million representing a 35% increase versus Q3 2025. Let me now share some insights into the client dynamics during Q4. In Q4, the overall picture remained constructive, but client behavior remained cautious in the light of macroeconomic and political uncertainties. We were able to retain positive flow momentum across all client segments and regions, capturing client demand for risk management and diversified strategies. Overall, we reported net flows of EUR 10.5 billion and long-term net flows of EUR 8 billion, underscoring the enduring strength and resilience of our diversified product suite. Long-term retail flows stood out with EUR 6.9 billion of net flows marking the 12th consecutive quarter of positive flows. Germany was a key driver of retail success with flows skewed towards SQI as well as active equity. Long-term institutional flows were positive at EUR 1.1 billion, mainly focused on high-margin strategies, including infrastructure and LRA. As we move into the start of 2026, we continue to see clients reassessing allocations in the institutional space. Looking at regions. Long-term net flows into our home market Germany amounted to EUR 4.2 billion, driven by an ongoing demand for Passive including Xtrackers. EMEA, excluding Germany, saw EUR 2 billion of long-term flows, demonstrating strong client engagement across the region as clients are increasingly receptive to European investment opportunities. The U.S. region recorded EUR 1.1 billion in long-term net flows. Client demand further shifted towards highly liquid, short-duration products especially in the U.S. fixed income. In APAC, the flow picture turned positive with EUR 0.8 billion in the fourth quarter. Moving to the quarterly highlights within our Active business. The fourth quarter marks a positive turnaround in Active supported by SQI, where client demand remains structurally strong as well as a positive contribution from Active equity. Active assets under management stood at EUR 460 billion, up 1.5% quarter-on-quarter. We continue to report positive flows into SQI, our bright spot reporting EUR 0.9 billion in the fourth quarter with new product launches as well as retirement products being a key contributor. Active equity reported positive net flows of EUR 0.2 billion, mainly driven by retail. Fixed income maintained its positive momentum and saw net inflows of EUR 0.2 billion, mainly driven by net flows into credit strategies as well as our top-selling DWS floating rate funds, which continue to attract strong inflows, partially offset by institutional outflows. Multi-asset also minor outflows, which were largely driven by a change in sales focus in certain distribution channels. However, the segment remains overall well positioned to deliver performance and support client demand. Product innovation continues to support the Active franchise. Recent launches include our Xtrackers floating rate notes Active usage ETF based on a proven and successful strategy. Moving to our Xtrackers business. Passive, including Xtrackers a solid quarter and delivered net flows of EUR 6.6 billion, marking 12 consecutive quarter of positive flows. Assets under management increased to EUR 395 billion, up 5% quarter-on-quarter. The main flow contribute was our usage business which delivered net flows of EUR 6.1 billion. This was mainly driven by equity usage ETFs with good momentum in MSCI Emerging Markets, MSCI Japan and Euro Stocks 50. Our mandates and solutions business delivered EUR 1 billion in net flows driven by major mandate wins in Germany and Switzerland. These wins support the continued expansion of our Xtrackers institutional footprint and our core equity exposure. Our U.S. domiciled ETFs saw outflows of EUR 0.6 billion in the fourth quarter, mainly driven by outflows in ForEx hedged ETFs. Xtrackers remains one of our core strategic growth pillars. As mentioned in previous quarters, our Xtrackers multiyear growth plan is focused on accelerating digital distribution, expanding our regional footprint and scaling our active ETF offerings. To support this, we have now 42 digital partnerships. While our initial focus was Germany, we are progressing -- we are progressively expanding across EMEA driving further expansion across key European markets. The contribution of these digital partnerships to our overall Xtrackers flows continues to increase. Q4 concluded a year of innovation and significant activity for the Xtrackers platform with more than 100 product events across the UCITS and U.S. 1940 Act business. We further launched a partnership product in the Middle East region to address growing demand for Sharia-compliant investment solutions in the GCC region and Southeast Asia. Let me turn to our Q4 highlights for our Alternatives platform. In Q4, our assets under management totaled EUR 108 billion remaining stable versus the previous quarter. Our Alternative business delivered overall net flows of EUR 0.3 billion in the quarter with infrastructure remaining the growth contributor within our Alternative platform, followed by liquid real assets. Infrastructure contributed EUR 0.8 billion of net flows largely supported by fundraising efforts across various strategies such as PEIF IV fund and our infrastructure debt strategies. They continue to generate positive momentum and position us for future growth. We further continue to benefit from strong investor appetite for the European transformation. In liquid real assets, flows remained positive in the quarter, recording EUR 0.1 billion. We saw a momentum shift in client sentiment with increasing levels of renewed interest in core tailored strategies, particularly in listed real estate and infrastructure. The sentiment for real estate remains challenging. We reported outflows of EUR 0.9 billion in Q4 as traditional real estate strategies faced continued pressure this quarter. However, overall momentum continues to build slowly. On the private credit side, our platform build-out is progressing steadily, benefiting from strong origination capacities with our Deutsche Bank partnership. DWS and Deutsche Bank recently signed a memorandum of understanding with Al Mirqab Capital, a Doha-based family office to launch a German opportunities mandate, underscoring continued interest in transformational investment themes. Let me now move on to our Q4 revenue development. Total revenues reached EUR 902 million, marking a 20% increase quarter-on-quarter. Management fees increased by 3% quarter-on-quarter to EUR 673 million. This was largely due to higher average assets under management mainly driven by rising markets and net flows. Performance and transaction fees totaled EUR 173 million and include a substantial contribution from our flagship multi-asset fund concept Kaldemorgen, with EUR 93 million as well as the fee recognition from PEIF II with EUR 60 million. Other revenues amounted to EUR 56 million which reflect the EUR 24 million contribution from Harvest, EUR 22 million for net interest income and EUR 12 million from fair value of guarantees. Let me move on to the contribution from our joint venture, Harvest Fund Management in China. For over 2 decades, we have owned a 30% stake in Harvest Fund Management, providing us with access to one of the world's fastest-growing asset management markets. Harvest strength at the -- as the sixth largest mutual fund company in China in 2025. In full year 2025, our stake in Harvest generated EUR 67 million of revenues, including EUR 24 million in Q4, which is a strong increase compared to prior quarters. This resulted mainly from a one-off tax item in the fourth quarter. At the end of 2025, Harvest assets under management stood at EUR 219 billion, up 2% year-on-year driven by positive flows into Passive equity funds and fixed income retail products. This was coupled with currency appreciation and partly offset by negative market performance. Moving to our cost development in the fourth quarter. In Q4 2024, our cost/income ratio declined remarkably. This outcome once again underlines the disciplined way of managing our resources and our cost base at DWS, something which we are extremely proud of. In Q4, total cost stood at EUR 486 million being 12% up quarter-on-quarter, but almost unchanged year-over-year despite higher volume-based costs and ongoing investments. Compensation and benefits increased to EUR 248 million. It is important to stress that this figure should not be taken as the future run rate. It contains several nonrecurring items, including performance fee-related carry costs, share price-related effects and some severance expenses. Excluding the Q4 specific items, our compensation and benefit costs are below both the previous quarter as well as Q4 2024. General and administrative expenses totaled EUR 238 million, up 9% quarter-on-quarter, but down 6% year-over-year. This reflects some seasonal adjustments, which typically occur in the fourth quarter. Active cost management means that in the light of positive revenue development in Q4, we took some measures, which triggered these additional costs. As a result of these concerted efforts, our reported cost/income ratio improved by 10.7 percentage points versus Q4 2024, standing at 53.9%. Once again, this result demonstrates disciplined cost management alongside strong revenue growth. It gives us substantial capacity to invest in future growth initiatives while maintaining our profitability. Let me now elaborate on our financial targets before handing back to Stefan. Let me briefly build on what Stefan already said regarding our refined financial targets and provide some context. After thoroughly reassessing our strategic priorities and challenging the key assumptions, we agreed to set ourselves even more ambitious financial targets in order to reflect the progress we have made over the past year and emphasize great confidence in our strategic direction, particularly in the areas where we see sustainable competitive advantages and attractive growth prospects. Our intentionally ambitious targets until 2028 include an uplift in our EPS growth to 10% to 15% for the next 3 years, which is driven by 3 elements: disciplined cost management, improved operating leverage and a more dynamic revenue profile. Correspondingly, our cost/income ratio will improve over the next years. More precisely, we expect it to be below 55% by 2027. For performance and transaction fees, we guided towards the upper end of 4% and 7% of total revenues in 2025. Going forward, we expect contribution to be between 4% and 8%. We maintained our target of at least EUR 160 billion cumulative long-term net flows over '26 to '28. As already communicated at Deutsche Bank's Investor Day in November 2025. And finally, we will continue to manage capital in a shareholder-friendly manner, consistent with our disciplined approach to capital allocation and a payout ratio of around 65% for our ordinary dividend. As per our disclosure, we also updated you that our excess capital stands at around EUR 1 billion at the end of 2025. You might remember that you consistently reiterated that organic growth and M&A are an important part of our strategic agenda. In addition, since the IPO, we said that we will give capital back to shareholders if we don't find adequate options to deploy our excess capital in a shareholder value-accretive way. Recognizing the excess capital position, we are committed to propose to use a substantial part of our excess capital for the payment of an extraordinary dividend in 2027, subject to capital commitment for organic and inorganic growth initiatives. With that, let me hand over to Stefan to address the specific cost and growth priorities supporting our increased ambition.

Thank you, Markus. You've now seen our new financial targets. While our strategic direction remains unchanged, let me walk you through the logic behind these targets and the specific cost and growth priorities that underpin our increased ambition. Starting with costs. As discussed in previous quarters, we continue to distinguish between volume-based costs that grow with the business and discipline-based expenses. The measures I will outline are all designed to further reduce the disciplined cost base. First, human capital management. While the term may sound technical, it reflects a simple reality in asset management. People are the key differentiator. Over the past few years, we have invested heavily in training and talent development, quadrupled our graduate intake, strengthened performance management and clarified functional roles. Internal mobility remains a core focus, and we will continue to invest to ensure that DWS is a place where the best people want to build their careers. Going forward, the focus is on deploying talent more effectively, thereby rebalancing workload and aligning skills where they create the most value. This includes targeted senior restructurings and a disciplined approach to external hiring with limited replacement of levers. Together, these measures are designed to improve workforce cost efficiency while maintaining talent quality. Second, target operating model adjustments. This sounds straightforward, but in practice, it really is. Every few years, organizations need to reassess whether structures remain fit for purpose. Regulatory requirements, client needs and technologies evolve, yet there's often inertia when it comes to updating org charts and value chains. As part of our strategic review, we identified areas where simplification and consolidation are warranted. As in previous transformation phases, we intend to take the pain early with the bulk of these restructuring measures implemented by the end of Q1. Third, IT and operations optimization. You may recall around 18 months ago, we updated you on our transformation program focused on areas that differentiate DWS as an asset manager. Since then, we've exited our own cloud migrated applications into Deutsche Bank's environment. And by doing so, freedom resources for automation and AI. In parallel, this work is accelerating further through operating initiatives, including the development of a nearshore hub in Spain, aimed at strengthening resilience and efficiency as teams refocus on higher-value automation-led work. Turning to growth. What has worked well will continue. We will further invest in Xtrackers, build up our private credit capabilities and continue to scale infrastructure, why we'll deploy the capital already raised. In Active equities, we are encouraged by recent improvement in flows and we'll continue to prioritize this pumping heart of our company. There are a number of growth initiatives that cut across our franchise, asset classes and client types. Several are already embedded in our strategy, well advanced. And as these early investments are now bearing fruit, we are confident in raising our ambitions. Gateway to Europe is one. We've invested here for some time and market sentiment towards Europe has clearly improved. Recent examples include the opening of our Abu Dhabi office in December, and a EUR 1 billion mandate from a Middle Eastern investor illustrating growing client engagement. With expanded alternatives capabilities and increasing engagement from sovereign wealth funds, we see tangible upside and will track progress transparently. Future of finance is another. We provided an update at the last quarterly call and the focus is now firmly on revenue generation, particularly across embedded investment solutions and digital assets. We will continue to provide updates and are assessing whether this should evolve into a dedicated business line. Our ambition to be one of the top 5 foreign asset managers in the world's top 5 economies is gaining traction, both organically and through selective partnerships. The intended joint venture with Nippon Life India Asset Management that we announced at the end of last year is a platform in one of the fastest-growing asset management markets globally and supports growth across Active, Passive and Alternatives. This collaboration will build on a well-established franchise with strong local capabilities and will allow us to combine on-the-ground expertise with DWS' global reach. We remain constructive on China, and we are exploring selective partnerships in the U.S. Germany remains our home market and a core pillar of the DWS franchise. Attracting strong interest from shareholders and analysts. As Germany's #1 asset manager by assets under management, we are well positioned to benefit from the current momentum and structural developments in our home market, driven by the ambitious reform packages of the German government. Even in our largest market, we see further growth opportunities across pension reform, infrastructure investments, subsidized scheme, collaboration with Deutsche Bank. We identified the partnership as a source of additional value creation at our 2022 Capital Markets Day, and the opportunity is now being addressed more clearly from both sides. Being part of Deutsche Bank Group represents a significant competitive advantage for DWS, giving us access to origination and distribution capabilities that few asset managers can replicate at scale. The private bank is already our #1 distribution partner globally with further upside across joint product development and discretionary portfolio management. Beyond that, through collaboration with the Investment Bank and the Corporate Bank, we see significant additional opportunities to expand our offering to institutional and corporate clients, including comprehensive pension solutions across all pillars. Hopefully, this gives you a sense of what we've been working on for quite some time and why we felt encouraged to improve our financial targets. Managing costs requires discipline and consistency. It is not always easy, but it typically delivers results relatively quickly. Sustainably growing revenues is more complex. It requires a rigorous assessment of opportunities, honesty about where we truly have an edge, disciplined resource allocation and then patience. Sales capabilities need to be built, investment platform scale and track records established over time. We have laid much of that groundwork over the past 3 years. This gives us increased confidence in our growth trajectory, translating into EPS growth of 10% to 15% per annum until 2028. Performance fees are expected to play a more prominent role with updated guidance of 4% to 8% and while operating leverage will drive the cost income ratio below 55% by 2027. e will continue to manage capital in a shareholder-friendly manner, consistent with our disciplined approach to capital allocation. At DWS, we believe in being paranoid-optimist. Optimistic about the future, but uncompromising in execution. That means continuously challenging assumptions, learning from experience and staying focused on delivery. This is what you can expect from us, and it is the approach we will continue to take as we move into our next chapter. With that, I will hand back to Oliver, and we look forward to your questions.

Thank you very much, Stefan. And operator, we're ready for Q&A now. If I just might remind everybody to limit yourself to the 2 most important questions that would be very kind. Thank you very much.

[Operator Instructions] The first question comes from the line of Hubert Lam from Bank of America.

Thanks for the new ambitious targets for the next few years. I guess the first question is on that. Can you maybe just discuss a little bit more on the EPS bridge from 2025 to get to your 10-plus percent EPS growth. '25 has obviously benefited a lot from performance fees and other revenues, which almost doubled year-on-year. Just wondering how sustainable this is? Or you probably need that to grow even further. At the same time, you're seeing headwinds from fee margin pressure, but you've obviously done a very good job around the cost. So just wondering how we also should think about cost growth over the next few years. That's the first question. Second question is on your Alternatives, particularly on the credit side. I just wanted an update in terms of your initiatives around there. And just to the product launches over the next year.

Hubert, thank you very much. So let me start on the EPS bridge. A couple of comments. So firstly, the jump-off point is the EUR 4.64. So I just want to clarify is the EPS achieved in 2025 that we suggest you use at least we use it as a jump-off point. . Now then when it comes to the bridge the way we think about it, to get to at least 10%, and obviously, we want to get higher than 10%. I mean, otherwise, we wouldn't have increased the guidance. But at the baseline, look at 10% that would get you to at least EUR 5.10, which would be EUR 1,020 million of net income, which would translate roughly to EUR 1.46 billion of profit before tax. I'm sure Markus -- and I'm sure you sensed his passion for capital discipline and cost discipline, we'll say something about cost. But honestly, we don't see costs going up from here, meaning the [ 18, 30 ] we had this year wouldn't expect this to be higher in '26. If you then assume that our other revenues are typically EUR 50 million a quarter, so 2025 was a bit higher than usual and you accept our guidance on performance fees of 4% to 8% and 2026 should be at the upper end, which would add EUR 260 million. It sort of requires us to generate EUR 2.83 billion of management fees, right? So the bridge is sort of EUR 2.83 billion of management fees, EUR 2.60 billion performance fees, EUR 200 million of other revenues and then it's like flattish costs, that would get you to 10%. And again, obviously, we want to get higher and can speak about upside. Now in order to get to that level of management fees, at 25 basis points would require roughly EUR 1.13 trillion of AUM. And then just for reference, the average AUM in 2025, was EUR 1,038 million, so EUR 1.38 trillion. So it need to be roughly EUR 100 billion higher in the average of 2026. Now we're currently at EUR 1.1 billion and whatever market you assume probably doesn't look too difficult to get to EUR 1,130 million on average. So your question will be around average margin, I would imagine. One thing to keep in mind is that PEIF IV which obviously is well known to all of you, will have essentially catch-up fees for those coming into the final close, which will be end of Q2. We currently stand at roughly EUR 2.5 billion when active fundraising, which is why I can go into any deeper, but want to get to EUR 4 billion to EUR 5 billion, so you can sort of kind of do the math of how much should come in, in Q1, Q2 and how much catch-up fees will help us keep the average margin stable in 2026. But that's sort of what you have to believe, if you believe 10%. Now we see we have given with those growth priorities, a bunch of levers that we feel could lead to even more upside on AUM, therefore, management fees. But I would just leave it at that -- happy to take more questions on that Hubert or your colleagues, but that's how we look at the EPS bridge. Markus looks eager to add something on cost.

I'm happy to do so. As a side remark, it's Stefan's birthday today. And besides famous Swiss soft drink, which I brought to him this morning, I also told him that he's allowed to answer all questions, but happy to step in. On the cost side, we expect to remain essentially flat in 2026. And there are a few reasons behind and Stefan has alluded to them all. We have added on a net base, about 260 FTEs in terms of our workforce, we expect to remain stable in the current year. We're also benefiting from investments which we have been taking in the past, which should help us on the productivity side. We have pretty much completed most of the remediation work, which is also freeing up resources and makes our processes more productive and robust. And lastly, we are also much better in terms of managing projects to stay within budget, within time and deliver the scope. And so you have 2 counterbalancing effects. We have volume driven costs, which we see as good costs. We have also investments, which we increased in '26 compared to '25. But on the other hand, we also benefit from efficiency improvements. So costs remain flat or expect to remain essentially flat in 2026. So back to you, Stefan.

Hubert, coming back to your question on private credit, I would differentiate between capabilities, essentially the team and then fundraising. Team is now mostly complete. We'll have a senior person or Managing Director join us to run asset-based finance in mid-February. So that person is currently guarding leave. But then the team is complete. We are currently actively fundraising for direct lending fund, which is why I can't go into detail. We'll then raise money for an asset-based finance fund where we see good interest. In the last earnings call, I basically implied that there are a couple of specific large mandates we're working on. You've seen one being announced, both Markus and I spoke about it from a Qatari investor. There are more such projects or larger mandates in the works. So we are quite optimistic on the capabilities of the team, but also on fundraising capabilities and fundraising progress to have like a meaningful impact in 2026 revenues.

Next question comes from the line of Nicholas Herman from Citi.

Can I just come back to the guide, please? I think 2026 is pretty clear. And as you said, given the strong markets that we saw last year, given catch-up fees, I think that's all pretty clear. I'm just trying to understand, I'd like to clarify the drivers for the growth outlook beyond '26 and kind of what is driving the uptick in growth outlook versus what you previously guided and whether it's revenues or costs. as part of that, can you clarify whether you're assuming similar levels of fee margin compression? And I guess the reason I'm asking that is my interpretation is that the stronger growth outlook is maybe not due to management fees because the guided annual flows are relatively similar to the previous targets? And I guess, finally, does the guide include anything for your digital and crypto initiatives? And in which case, if it does, could you please quantify those?

Thank you, Nicholas. So the way I understood your question is what changed from when we communicated 10% EPS growth 12 months ago. So a couple of reasons why we felt ambitious. I mean, 12 months ago, the German government was not yet -- I mean, it was pre-election. And when you look at the progress, most of the things that happened in 2025 gives like a nice fiscal boost, which is nice for DAX, nice for corporates, but wasn't specific to asset managers. Most of the things which they are now deciding or have already decided will directly translate into opportunities for us. I think the biggest one being the [indiscernible] reform that I think most of you have probably seen, which will come into effect in 2027. You will have the early start pensions. I mean, a variety of things on the pension side. You will have seen the announcement on the Deutschland fund. So I guess the point I'm trying to make, Nicholas, much more bullish Germany and much more bullish the opportunity set. Most of that will be in 2027 and beyond. So many things happening this year. But for example, the pension reform will really kick in, in '27. When it comes to DB partnership, again, a lot more optimistic now than 12 months ago. When you listen to my partners, Fabrizio and Claudio speak at the Deutsche Bank Investor Day back in November, all of them essentially gave themselves specific targets for collaboration with DWS which previously we simply didn't have, right? So before that, we were all friends, but it was essentially friendly engagement. And now there's much more accountability on both sides to deliver. So that's why we're more optimistic. I think the gateway to Europe, again, 12 months ago, it was like a neat idea. There was before Liberation Day, before euro strength and all of that. So the gateway to Europe, which maybe 12 months ago was like nice idea into something nobody wanted to invest in, now seems to be much more investable. So we are more optimistic on that. I could continue, right? But you see that most of those growth levers, growth priorities we've spoken about before, had invested in before are now much more optimistic simply based on market circumstances, development, mandates won and so on. When it comes to the market outlook, we sort of remain constructive, but there are no heroic assumptions in our updated guidance, right? So this is if you will, alpha over beta. So we assume sort of constructive markets, but nothing compared to '25 or '24, right? We're obviously market appreciated significantly. When it comes to margin, we do think that margin compression at DWS will be less than 1 basis point going forward, given the outlook on alternatives, right? I mean I think as all of us know and like we probably speak about more than any of you would, we feel that we've underperformed in alternatives capital raise over the last 3 years, which is something where we're more optimistic for the next couple of years, which is why we think margin compression will be less than that. On your final point, like future of finance, that is something which I do think will contribute probably '27, '28 less so from digital assets and more in what we call embedded investment solutions, right? So that's essentially a fancy term for engaging with platforms in an embedded way or any other type of digital distribution channel. One of the stats I had mentioned in the past is the percentage of Xtrackers sold through digital platforms, which, if you recall, was like 30% when I started talking about then was 1/3. It was almost 40% in Q4. So we feel that we're doing pretty well with those new brokers and platforms. And embedded investment solutions is essentially our technical build in order to be even more relevant to those important distribution partners. So that will start to contribute, but probably more '27, '28 than before.

That's very helpful, Stefan. If I could just follow up with that, please, just quickly. But I think everything that you said makes total sense to me. I guess, though, I look at that and say, on the growth outlook, but your guide for long-term flows is still about it's EUR 53 billion per annum. It was EUR 50 billion per annum. So I don't really see that being translated in terms of the financial targets. And then the other thing I kind of noticed is that your guidance -- your assumptions on fee margin compression seem kind of fairly similar to before. But since you set the prior targets a couple of years back, One thing that has changed is we have seen an acceleration in active ETF growth. And you've talked a couple of times about how active ETF fees are notably below your active fee margins. So why is it reasonable to assume a similar level of fee margin compression compared to the past?

Thank you. So flows first and then margin. So in flow, look, we have given the guidance of 10% to 15% I think if we want to get to 15%, flows need to be more than the EUR 160 million cumulatively over 3 years. That's the simple answer. I think there are plenty of reasons to be more optimistic. I mean, right now, pension reform in Germany could -- should be a significant driver of highly profitable inflows starting in '27. So there are a bunch of levers of why we aim to outperform the target. But again, I think the EUR 160 million translates into the 10%, and then we would want to get higher in order to get to, well, the upper end of that range. When it comes to margin compression, I think a couple of things which make us optimistic. If you look in our presentation, the trajectory of equity of active equity flows, you will see that essentially every quarter, we improved over the last 6 quarters or so and finally had positive inflows in Q4. Now Q4 has some seasonality. So I'm not saying that every quarter will now be positive, but you definitely see the trajectory which is why when you think about the sort of destructive contribution from active equity outflow on margin over the last couple of years, we feel that this is going to be less going forward. We really like our inflows in SQI, which is above our average margin. So that's something that you see like drove EUR 4 billion of inflows last year. And then again, Alternatives didn't really contribute over the last couple of years and should contribute going forward. So our hope is that Xtrackers is going to continue outgrowing a growing market as they've done over the last 3 years. So that's obviously our aim and there's essentially some margin dilution because of that. But going forward, we think that the active high-margin products plus alternatives is going to counterbalance that. Now as you rightly said, active ETF will have an average margin below active, but a margin higher than Xtrackers, so probably more -- or the typical Passive business. So therefore, that I would imagine having sort of a neutral impact on average margin overall.

Hopefully, Nicholas had clarified your question. But I suspect that your peers will have similar questions. So therefore, if any of that is unclear, please.

The next question comes from the line of Oliver Carruthers from Goldman Sachs.

Oliver Carruthers for Goldman Sachs. So Stefan, I know this was not intended as victory lap, but I think you're probably well within your rights to do so. You've grown revenues EUR 500 million over the last 2 years and held costs flat. So could you perhaps zoom out -- and this is really a backward-looking question, but can you give us a sense of over the last 2 or 3 years, where the key net cost savings have come from? Because you've -- as you've highlighted, you've been fighting asset-linked or volume-linked costs and inflation and investing for growth? So that's the first question. And the second question really interesting to hear your remarks on the German pension reform. Can you really frame what the opportunity is here for DWS. Is it just that the average effective exposure of the German [ Sabre ] to equity is likely to rise given this reform and then you should be well placed to capture this? Or are there other components to this that we should be thinking about?