(Bloomberg) — A few months into his role as chief executive officer of Deutsche Bank AG’s asset management unit, Stefan Hoops presented shareholders his vision for growth with a “private debt muscle” as one key part of the strategy.
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Almost three years on, that plan is sputtering.
Frankfurt-based DWS Group is struggling to attract sizable commitments from investors for a private credit fund targeting €1 billion ($1.05 billion), according to a person familiar with the matter. Meanwhile, some senior sales staff have been heading to the exit because the pay is higher at US rivals, several other people said.
With his blueprint to tap the hot $1.6 trillion market for private credit failing to take off, Hoops, 44, now plans to dedicate more of his time to give the business a much-needed boost, another person said. One idea being considered is to more strongly leverage parent Deutsche Bank’s client relationships for direct lending, that person added.
All the people who spoke with Bloomberg News asked not to be identified because the information they discussed is private.
DWS is among newcomers struggling to make a mark in the increasingly crowded private credit space, where even BlackRock Inc., the world’s largest asset manager, has turned to acquisitions to rapidly scale up in a global market that Moody’s anticipates will grow to $3 trillion by 2028. But for some traditional active fund managers, the allure of high returns and management fees is turning into a mirage in the absence of such deals.
Last year, Fidelity International halted its European direct lending activities and trimmed its private markets team. On the other hand, US alternatives giant Ares Management Corp. announced this month that it raised €30 billion for its latest European direct lending fund, the largest of its kind in the region.
A representative for DWS declined to comment.
Prior to joining DWS as CEO in June 2022, Hoops had little experience in asset management. He was brought in to steady the ship after a period of tumult surrounding allegations that the investment firm overstated its green credentials. Now the faltering private credit business has come as a major setback for him.
At Deutsche Bank, Hoops caught the attention of CEO Christian Sewing with his cool head when Germany’s biggest lender was facing the threat of a costly settlement in the US. As head of the corporate clients unit that was central to Sewing’s turnaround plan, Hoops oversaw a rebound in the business that was struggling for a long time with negative interest rates.
Hoops also scored some wins at DWS, including settling with US regulators probing allegations of greenwashing. He oversaw a 16% rise in total assets under management to €963 billion at the end of September, driven by inflows into lower-margin passively managed funds. The company’s shares have outperformed European peers in recent years.
Now, those credentials will be put to the test as Hoops faces one of the biggest challenges of his career: establishing the firm’s private credit business.
The alternatives unit of DWS, which is reporting full-year results on Jan. 30, looks unlikely to achieve its goal of a 10% compounded annual growth until the end of 2025, analyst estimates compiled by Bloomberg show. The unit had €106 billion in assets under management at the end of September, down from €123 billion in 2022, when Hoops took over.
The only bright spot of the alternatives unit in recent years has been its infrastructure business, which has attracted consistent inflows.
In a bid to build out the unit, the firm did make some star hires. Paul Kelly joined from Blackstone Inc. in 2022 to run the alternatives unit. It also brought in Man Group Plc’s Dan Robinson as its EMEA alternative credit head. The business is currently launching its first collateralized loan obligation, Rhine CLO I.
To be sure, Hoops told analysts in October that he expects the investments in alternatives to pay back over the longer term and promised a “packed agenda” for 2025. But the lack of fundraising has weighed on the business.
A weak track record is making it even more difficult to mobilize capital, the people said. Getting clients to invest in DWS’s private credit offerings is also challenging because most customers prefer better established players over the new kid on the block, one person said.
As a result, the division has seen some attrition among sales staff. Nestanlin Garcia, who oversaw alternatives client coverage in Germany, Austria and central eastern Europe, left for Blackstone in November. Alexander Hütteroth, who oversaw private debt coverage in the region, joined Brookfield Asset Management, their LinkedIn profiles show.
Should organic growth fail to materialize, Hoops might revisit a list of potential acquisition targets of European asset managers with direct lending capabilities. Any deal size would be in the low to mid-single digit billion range, Bloomberg News has reported.
DWS has also been among suitors that were studying a bid for German life insurance consolidator Viridium Group. The group of potential bidders also included BlackRock Inc. and Blackstone, Bloomberg News reported in October.
