DWS CEO steps forward as private credit unit struggles to attract cash

(Bloomberg) — Stefan Hoops, months into his tenure as chief executive of Deutsche Bank AG’s asset management unit, is presenting shareholders with a vision of “private debt muscle” as part of the strategy key part.

Nearly three years in, the program is sputtering.

Frankfurt-based DWS Group is struggling to attract huge commitments from investors for a private credit fund targeting 1 billion euros ($1.05 billion), a person familiar with the matter said. Meanwhile, some senior salespeople have headed for the exits because salaries are higher at U.S. rivals.

With his blueprint to tap the $1.6 trillion private credit market failing to take off, the 44-year-old now plans to put in more hours to give the company a much-needed boost, another said. One idea to consider is leveraging parent Deutsche Bank’s customer relationships more strongly for direct lending, the person added.

All of those who spoke to Bloomberg News asked to be identified because the information they discussed was private.

DWS is one of the newcomers struggling to make a mark in an increasingly crowded private credit space, even with BlackRock Inc. In the case of such deals, the allure of high returns and management fees is turning into a mirage.

Last year, Fidelity International halted its European direct lending activities and trimmed its private markets team. On the other hand, U.S. alternatives giant Ares Management Corp. announced this month that it raised 30 billion euros for its latest European direct lending fund, the largest of its kind in the region.

A DWS representative declined to comment.

Hoops had little experience in asset management before joining DWS as CEO in June 2022. He was brought on board following a period surrounding allegations that investment firms exaggerated their green credentials. Now the faltering private credit business is a major setback for him.

At Deutsche Bank, the basketball team caught the chief executive’s attention with Christian’s sewing as Germany’s biggest lender faced the threat of a costly settlement in the United States. As head of the company’s client division at the heart of Sewing’s turnaround plan, Hoops oversees a rebound in business that has long struggled with negative interest rates.

The Hoops have also had some wins over the DWS, including settling with U.S. regulators probing greenwashing allegations. He oversaw a 16% growth in total assets under management to €963bn at the end of September, driven by inflows into lower-margin passively managed funds. The company’s shares have outperformed their European peers in recent years.

Now, those credentials will be put to the test as Basketball faces one of the biggest challenges of his career: building the company’s private credit business.

Analysts estimate that DWS’s replacement unit, which holds full-year results on January 30, appears unlikely to achieve its target of 10% compound annual growth until the end of 2025. The unit had assets of 1,006 billion euros at the end of September, down from the 133 billion euros it expects to take over in 2022.

The only bright spot for the alternative unit in recent years has been its infrastructure business, which has attracted consistent inflows.

To build the division, the company did make some star employees. Paul Kelly joins the replacement unit from Blackstone in 2022. It also made Man Group Plc’s Dan Robinson its head of EMEA alternative credit. The business is currently launching its first mortgage obligation.

To be sure, Hoops told analysts in October that he wanted investment in alternatives to be in place for the long term, promising a “packaged agenda” in 2025. However, the lack of fundraising has impacted the company’s business.

People say the weak record is making it more difficult to mobilize capital. Getting clients to invest in DWS’s private credit products is also challenging because most clients prefer the new kid on the block to better players, one person said.

As a result, the department saw some attrition among its sales staff. Nestanlin Garcia, who oversaw alternative client coverage in Germany, Austria and Central Europe, left for Blackstone in November. Alexander Hütteroth, who heads private debt coverage in the region, has joined Brookfield Asset Management.

If organic growth fails to materialize, Basketball may revisit its list of potential acquisition targets for European asset managers with direct lending capabilities. Bloomberg News reported that any deal size would be in the low to mid range.

DWS has also been a suitor studying a German life insurance merger with Viridium Group. Bloomberg News reported in October that the group of potential bidders also included BlackRock Inc. and Blackstone.

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