モルガン・スタンレー 2026年第3四半期決算説明会：過去最高のウェルス資金流入と株式部門の成長

モルガン・スタンレー（NYSE: MS）が発表した2026年第3四半期の純収益は203億ドル、希薄化後1株当たり利益（EPS）は3.03ドル、有形自己資本利益率（ROTCE）は22.6%となった。ウェルス・マネジメント部門は過去最高の収益と純新規資産を記録し、株式部門の好調がインスティチューショナル・セキュリティーズ部門の収益を前年同期比18%増加させる原動力となった。

主なハイライト

• 全社純収益は203億ドル、EPSは3.03ドル、ROTCEは22.6%に達した。モルガン・スタンレーのROTCEが20%を超えたのは5四半期連続となる。
• ウェルス・マネジメント部門とインベストメント・マネジメント部門を合わせた総顧客資産残高は、当四半期中に約4,000億ドル増加し、過去最高の10兆5,000億ドルに達した。
• ウェルス・マネジメント部門の収益は過去最高の91億ドル、税引前利益は28億ドル、純新規資産は2,320億ドルとなった。フィーベースの資産流入額はオーガニックベースで過去最高の800億ドルに達した。
• インスティチューショナル・セキュリティーズ部門の収益は前年同期比18%増の100億ドルとなった。プライム・ブローカレッジ、デリバティブ、現物株式に支えられ、株式収益は41%増の58億ドルに拡大した。
• 当四半期末におけるモルガン・スタンレーの標準的手法に基づくCET1比率は14.9%となり、約300ベーシスポイント（bp）の余剰CET1資本を保有し、顧客支援と株主還元を機動的に行う柔軟性を確保している。
• 経営陣は投資銀行業務の案件パイプラインやAI関連設備投資サイクルに対して引き続き前向きな見通しを示している一方、金利上昇、エネルギー価格の高騰、地政学的リスクを主な不確実性として挙げた。

主要財務データ

事業および業績ハイライト

ウェルス・マネジメント部門

ウェルス・マネジメント部門は当四半期における資産集積の主軸となった。純新規資産は過去最高の2,320億ドルに達し、フィーベースの資産流入額もオーガニックベースで過去最高の800億ドルに増加した。2026年年初からの9カ月間で、同部門は約5,000億ドルの純新規資産と約1,750億ドルのフィーベース流入を獲得した。

資産管理収益は市場の上昇と累積的なフィーベース流入を反映し、前年同期比16%増の55億ドルとなった。当四半期のフィーベース流入の約半数は企業年金プランの受託によるものだった。取引関連収益は前年同期のDCP（繰延報酬プラン）給付の影響を除くと6%増の12億ドルとなり、オルタナティブ投資商品が再び四半期として過去最高の売上を記録した。

モルガン・スタンレーのウェルス・マネジメント顧客資産残高は8.4兆ドル、顧客アカウント数は約2,100万件に達した。経営陣は、E*TRADE、ワークプレイス、アドバイザーの各チャネルが、6年前のE*TRADE買収以降、2兆ドルを超える純新規資産をもたらしたと述べた。

預金残高は前四半期比で約300億ドル増加し4,650億ドルとなった。銀行貸出残高は証券担保ローンや住宅ローンに牽引され50億ドル増加した。純利息収入（NII）は預金増加と資金調達構成の変化に伴い、わずかに減少して22億ドルとなった。

インスティチューショナル・セキュリティーズ部門

インスティチューショナル・セキュリティーズ部門の収益は前年同期比18%増の100億ドルとなった。株式部門が全体を牽引し、収益は41%増の58億ドルに達した。プライム・ブローカレッジは顧客の平均預託残高増加が追い風となり、デリバティブ収益は四半期前半の活発な顧客取引やリスク管理ニーズにより増加した。現物株式も全地域で改善した。

投資銀行業務の収益は前年同期比2%増の22億ドルとなった。アドバイザリー収益は過半のセクターで案件完了が増加したことで8億8,700万ドルに達した。株式引き受け収益は前年同期の好実績の裏返しにより5億2,500万ドルに減少した一方、債券引き受けは7億4,700万ドルと好調を維持した。

債券（FICC）収益は20億ドルとなった。為替がマクロ部門の緩やかな収益増を後押しした一方、証券化商品がマイクロ部門の重荷となった。コモディティは底堅さを維持したものの、デリバティブ/構造化取引が寄与した前年同期との比較では減少した。

インスティチューショナル・セキュリティーズ部門の引当金繰入額はポートフォリオの拡大を主因として1億4,100万ドルとなった。貸倒償却額の純額は計1億500万ドルで、主に過去の期間に大半の引当処理が完了していた特定のコーポレートローンおよび商業用不動産ローンに関連するものである。

インベストメント・マネジメント部門

インベストメント・マネジメント部門の収益は15億ドル、長期純流入額は158億ドルとなった。パラメトリック（Parametric）および債券が主な寄与要因となった。全体業績は、主にプライベートファンドにおける2件の投資に関連するキャリード・インタレストの戻し入れにより一部押し下げられた。

業績見通し（ガイダンス）

経営陣は、金利情勢や顧客の動向に依存するものの、2026年第4四半期のウェルス・マネジメント部門の純利息収入（NII）が緩やかに増加すると予想している。また、ローン成長や対象資産の銀行への移管による資金調達上のメリットから、2027年にはNIIが拡大すると見込んでいる。

第4四半期の税率は、第3四半期の23.3%をわずかに上回る見込みである。通期の税率見通しは維持された。

経営陣は、事業規模の拡大に伴いウェルス・マネジメント部門の税引前利益率は中長期的に拡大するはずだと述べたが、利益率を四半期単位で管理する考えはなく、テクノロジー、マーケティング、バンキング機能への投資を継続する姿勢を示した。

経営陣によると、投資銀行案件のパイプラインは堅調であり、プロダクト、セクター、地域全体に分散されている。企業の戦略的活動は、投資、ポートフォリオのリポジショニング、資本配分の優先順位付けに支えられ、引き続き活発である。

リスクと注視すべきポイント

モルガン・スタンレーは当四半期について、対照的な2つのフェーズに分かれていたと説明した。7月と8月は強いリスク許容度とAIエコシステムへの投資に支えられたが、9月中旬以降は中東情勢の再緊迫化、世界的な金利上昇、市場出来高の低迷を背景に取引活動が減速した。

経営陣は、中東やウクライナでの長期化する紛争、指標金利の高止まり、エネルギー価格の高騰、資産割高感、選挙や政策対応の不透明感を警戒要因として挙げた。

名目金利および実質金利の上昇は資金調達を難しくし、持続不可能な資本構造を持つ取引のリスクを顕在化させる可能性がある。経営陣はまた、AIエコシステムの一部で過剰建設や電力制約を含む資金調達のボトルネックが発生する局面もあり得ると認めた。

プライベート・エクイティの出口戦略（エグジット）は潜在的な案件機会の源泉であり続けているが、現在の資本コスト環境下では、公開市場や戦略的買い手が許容できない評価額（バリュエーション）で資産を保有し続けているスポンサーも一部存在する、と経営陣は指摘した。

アナリスト質疑応答の要点

• AI設備投資：テッド・ピック最高経営責任者（CEO）は、ハイパースケーラーの設備投資が現在年間約1兆ドル規模に達していると述べた。同氏はAIを数世代にわたるテクノロジーの構造的転換と位置付け、モルガン・スタンレーはこの機会に対する関心とリソースの配分を「ダブル・オーバーウェイト」にしていると語った。同社は半導体、データセンター、電力、公的資金調達、プライベート・キャピタルに及ぶ包括的なアドバイスの提供を目指している。
• IPOからウェルス・マネジメントへの移行：経営陣は、従業員保有株、初期投資家、ファンド分配、ロックアップ解除などを通じて、IPO関連の資金流入が上場四半期以降も続くと述べた。四半期ごとの流入額には変動があるものの、同社はこれらの資産がアドバイザー主導型やフィーベースの取引口座へ移行する動きを確認している。
• ウェルス・マネジメントにおけるテクノロジー：モルガン・スタンレーは4つの競争上の優位性として、差別化された商品、規模から生まれるデータ、資産保護およびサイバーセキュリティへの投資能力、アドバイザーと顧客との信頼関係を挙げた。アドバイザーのリテンション率（引き留め率）は99%超を維持している。
• AI関連の運用投資：同社は照合、コーディング、スプレッドシート処理、その他の手作業によるワークフローの自動化にAIを活用している。経営陣は、AIを単なる追加費用として扱うのではなく、生産性を向上させ収益成長を支援するツールへとテクノロジー支出を再配分していく方針を示している。
• 株式フランチャイズ：経営陣は、株式部門のポジション強化の要因として、全地域における現物株式、デリバティブ、プライム・ブローカレッジの統合を挙げた。ただし同事業は出来高、投資家心理、株式市場のサイクルに引き続きさらされると注意を促した。
• 資本配分：同社は特定の一地域に集中させるのではなく、グローバルに資本を配分する計画である。経営陣は、株式、債券、コモディティ、投資銀行業務、担保付き貸付にわたる統合された能力の重要性を強調した。

決算説明会（トランスクリプト）全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning. Welcome to Morgan Stanley's Third Quarter 2026 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded.

During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent.

I will now turn the call over to Chairman and Chief Executive Officer, Ted Pick.

Ted Pick

Thank you, operator. Good morning, and thank you for joining us. In the third quarter, Morgan Stanley delivered strong performance on the top and bottom lines with Firm net revenue of $20.3 billion and earnings per share of $3.03, with a return on tangible equity of 22.6%, this quarter marks our fifth consecutive quarter above 20%, speaking to the consistent strength of our global franchise. Total client assets across Wealth and Investment Management grew by nearly $400 billion during the quarter to a record $10.5 trillion.

Against the complicated backdrop, the quarter's overall performance speaks to the momentum of the integrated firm. Wealth Management continues to scale as clients entrust us with additional assets and deepen their relationships with Morgan Stanley. Wealth had a record quarter with revenues of over $9 billion with milestone levels of net new assets of $232 billion and fee-based flows of $80 billion. This sustained performance reflects the strength of our financial advisers. The breadth of our unique capabilities and product offerings and the trusted partnerships that distinguish our integrated firm.

Institutional Securities delivered $10 billion of revenue, up 18% year-over-year. Equities led the way with another outstanding quarter at $5.8 billion. Clients largely remained active as we deepened engagement across our global franchise. On the forward, banking pipelines remain high and strategic dialogues inside corporate board rooms are active and generally receptive to action. Clients are seeking advice to capitalize on the current dynamic growth environment while accepting some additional structural volatility. Pent-up demand and catalysts to drive scale and productivity and a more constructive regulatory backdrop, support an ongoing favorable outlook for investment banking activity. In short, we remain positive about the ongoing ability to monetize the corporate finance life cycle across the investment bank.

Stepping back, the third quarter unfolded in 2 distinct phases. July and August were unusually brisk, as risk appetite was dominated by hyperscaler investment in the build-out of the AI ecosystem. In contrast, as Labor Day approached we observed the headwinds of renewed tensions in the Middle East and higher interest rates globally as central banks move to keep inflation at bay. Market volumes were slower across asset classes as investors and institutional actors gauged risk-reward into the fourth quarter and year-end.

As we move through October, the 2 known unknowns that we wrote about in our March shareholder letter, namely the acceleration of AI at the enterprise level and the risks associated with geopolitical conflict have reached a critical juncture. And the glass is mostly full camp. The enormous capital, which continues to be raised and deployed across the AI ecosystem toward efficiency, resiliency and productivity is driving U.S. nominal GDP growth of 5% to 6%. Large-cap corporate earnings continue to move higher. The economy is at full employment. The Fed is focused on managing long-term inflation expectations and the salutary effects of common sense regulation are kicking in. In the glass is half empty cap, persisting conflicts in the Middle East and Ukraine, meaningfully higher benchmark interest rates and energy prices around the developed world.

Elevated asset prices in a fourth year of a bull market for equities and uncertain electoral and policy responses in both the U.S. and globally are reasons to be more cautious. As we move into the fourth quarter, it is clear to us now that these 2 known unknowns and how they interact and which of the third quarter's narratives, half full or half empty holds the upper hand, will drive investor and corporate behavior into year-end and into the first half of 2027. Against either backdrop, financial strength remains a key pillar of Morgan Stanley. We continue to actively support clients while remaining well capitalized. Our very healthy level of excess capital with 300 basis points of excess CET1 contributes to our financial strength and affords us with substantial flexibility ahead.

We look forward to continued dialogue and upcoming transparency as our regulators finalize the bank capital regulatory framework. As we enter the final quarter of the year, Morgan Stanley remains aligned and cohesive focused on delivering higher highs and higher lows through the cycle, particularly when the environment is as complex as it is today, it is essential that we continue to execute on our clear and consistent strategy to act as trusted adviser to our clients, raising, managing and allocating capital across the integrated firm.

With that, I'll turn it over to Sharon to take you through the quarter in greater detail.

Sharon Yeshaya

Thank you, and good morning. In the third quarter the firm delivered strong results. Revenues of $20.3 billion, EPS of $3.03, and an ROTCE of 22.6%. Growth momentum from the second quarter carried into the early part of the third quarter with markets focused on AI investment and continued economic expansion. However, rising energy prices and interest rates weighed on market activity following a shortened post Labor Day September. Despite market uncertainty, corporate activity remains strong. reflecting continued strategic dialogue.

Ongoing client engagement reinforces the opportunity for our integrated firm to deepen relationships and support future activity. Year-to-date, the firm's efficiency ratio was 66%. Strong revenues drove operating leverage, more than offsetting elevated execution-related costs compared to the prior year. We continue to invest across our technology stack, embracing AI tools to support our infrastructure, business growth and people. Together, these investments position us to strengthen our competitive moats across the integrated firm.

Now to the businesses. Institutional Securities revenues were $10 billion, up 18% versus the prior year. The year-over-year increase was driven by our leading Equities franchise and a pickup in advisory. Exit momentum from the second quarter carried into July before client activity in markets moderated through September. But boardroom dialogue remains strong through the quarter, supporting the build of strategic pipelines and future capital market financing. Investment Banking revenues were $2.2 billion, up 2% from the prior year, reflecting strength in the Americas as well as in Asia, consistent with our expectations of a sequential broadening out of global activity.

Advisory revenues of $887 million drove results. The increase relative to the prior year period reflect higher completed activity across most sectors. Equity underwriting revenues were $525 million, down compared to broad-based strength in the prior year with a few large deals driving the market. Fixed income underwriting revenues continued to be strong at $747 million, supported by a new issue market that remained active. Pipelines remain robust and diversified across products, sectors and regions. Strategic activity remains healthy, supported by ongoing corporate investment, portfolio repositioning and capital allocation priorities. AI continues to contribute to the advisory and capital markets momentum, but activity is broad-based across sectors and products.

Turning to equity. Revenues were $5.8 billion, increasing 41% versus the prior year, reflecting growth across products and across Asia. As client needs become more complex and global, our integrated franchise is well positioned. Our investments in technology and talent have strengthened our capabilities, allowing us to serve at greater scale and manage risk more effectively in fast-moving markets. Prime brokerage drove results led by growth in financing revenues on higher average client balances. Derivative results increased versus the prior year, driven by higher client activity early in the quarter and strong risk management.

Cash results were higher year-over-year, driven by increased client volumes across regions. Fixed income revenues were $2 billion, reflecting lower structured activity and credit and commodities. Macro results modest increased modestly compared to the prior year, aided by foreign exchange. Micro results declined year-over-year, driven by lower performance in securitized products. Commodity results were solid, though declined against a strong comparative period that benefited from structured transactions.

Turning to ISG lending and provisions. In the quarter, ISG provisions were $141 million, driven primarily by portfolio growth. Net charge-offs were $105 million, primarily related to certain corporate and commercial real estate loans, which were largely provisioned for in prior periods.

Turning to Wealth Management. The business delivered records across key growth indicators, including net new assets of $232 billion and fee-based flows of $80 billion. In the first 9 months of the year, we have delivered roughly $0.5 trillion of net new assets and about $175 billion in fee-based flows. These results demonstrate the reach of our multichannel model and our ability to connect clients with trusted advice. Revenues of $9.1 billion and pretax profit of $2.8 billion were also records. The pretax margin of 30.4% shows consistent strength as we invest in technology, marketing and our banking capabilities to support future growth.

Asset management revenues grew 16% year-over-year to $5.5 billion, benefiting from higher markets and the cumulative impact of robust fee-based flows. Fee-based flows of $80 billion set a new organic record with nearly half coming from a corporate retirement mandate. We continue to expand our retirement capabilities and deepen engagement with plan participants, creating more opportunities to build advice-based relationships over time. Transactional revenues were $1.2 billion, up 6% year-over-year, excluding the prior year's DCP benefit. While trading activity moderated from the second quarter, retail engagement across our differentiated product offering remains healthy, with alternatives delivering another quarter of record sales.

Bank lending balances grew $5 billion sequentially, driven by securities-based lending and mortgages. Total deposits grew by nearly $30 billion sequentially to $465 billion, reflected investments to strengthen our bank offering. Net interest income was $2.2 billion, down modestly as deposits grew and the mix shifted. Looking ahead, we expect a modest increase in the fourth quarter, subject to rates and client behavior. Lastly, net new assets of $232 billion reflect the strength of our core business and the differentiated growth opportunities created by Workplace and the integrated firm.

IPO-related flows once again contributed to just over half of the overall M&A. With an active IPO calendar, the pace of our funnel accelerates and client interest in advice increases. While flows will fluctuate as lockups expires, funds make distributions and individuals use assets for consumption our pipeline and our connectivity across channels allows us to build relationships early and deepen them over time. Since acquiring ETRADE and expanding our workplace offering 6 years ago, we have added over $2 trillion of net new assets. Our multiyear track record demonstrates our differentiated client acquisition funnel and its durability.

Today, we have $8.4 trillion in client assets and serve nearly 21 million relationships. Our platform and broad product offering enables us to serve our clients across a wide range of needs, while our scale supports continued investment in future technology, including AI and digital tools. Together, these strengths provide us with a powerful competitive advantage that positions us to lead as the future of wealth management take shape.

Turning to Investment Management. Consistent strength from parametric and fixed income contributed to long-term inflows of $15.8 billion. Parametric continues to benefit from distribution through our scaled wealth management platform, while fixed income was supported by strong performance. Revenues of $1.5 billion reflects steady growth in asset management and related fees. Carry reversal primarily related to 2 investments in a private fund muted overall results. Looking ahead, we continue to invest in opportunities related to global distribution and connectivity with our financial advisers.

Turning to the balance sheet. Total spot assets ended the quarter at $1.7 trillion. Standardized RWAs increased sequentially to $596 billion as we actively supported clients in our markets business and continue to grow corporate lending. We repurchased $1.5 billion of common stock in the quarter and our standardized CET1 ratio ended at 14.9%. Our quarterly tax rate was 23.3%. For the fourth quarter, we expect our tax rate to be slightly above the third quarter's tax rate, and our full year guidance remains unchanged. Amid a changing rate environment and geopolitical uncertainty, we remain a trusted adviser to clients. This environment underscores the value of the integrated firm as we leverage capabilities across businesses to address evolving client needs. With $10.5 trillion in total client assets across Wealth and Investment Management, we have the foundation to build on as we close out the year.

With that, we will now open the line up to questions.

Operator

[Operator Instructions] We'll take our first question from Steven Chubak with Wolfe Research.

質疑応答

Steven Chubak

So this is a meaty one. So I'm just going to limit it to one question, but a two-parter. Just on the topic of digital infra CapEx spending and the implications for future revenue growth. So you guys have been the leader just in digital infra-related financing activity. We see then the league table numbers for both ECM and DCM. As we look ahead, do you think there's room for digital infra-related IB fees to continue to grow off the current base, even as a larger portion of equity in debt financing is expected to migrate from the public to the private markets? And then for the second part, I was hoping you could just speak to some of the ancillary revenue streams tied to a lot of this digital infra build-out that exists outside of the core IB franchise. So certainly, SpaceX and the NAA tailwind it should be a durable source of strength in wealth, but whether there's other sources of revenue related to this opportunity that might be overlooked by the investor community. .

Ted Pick

Yes, media questions. On AI, of course, we're still relatively early in the CapEx cycle, whether it ends up being $10 trillion or more or less we will see as it plays out. But the hyperscaler CapEx is running as we speak at around $1 trillion a year. And our role as an adviser in all pieces of this will remain to be a critical differentiator. We're advising clients on the full ecosystem of their strategic and capital markets alternatives. We're helping them innovate. We're helping them finance through the life cycle, and we're working really across the full ecosystem, whether it's our teams working to help build public solutions or private solutions to act as an innovator across the world and whether we're working with the chips folks, the data centers or the power providers, the activity from here may not accelerate, but I think we all see that the power of AI as an efficiency and productivity and resiliency tools incontrovertible, generational jump in technology, the relationships and innovation that Morgan Stanley brings to our clients will absolutely be critical as friends become friends in certain context maybe not permanent friends, but permanent interest in the context of who does deals with whom and how they are structured in what market, where on the capital structure. That requires real structuring knowledge, real expertise and real trust. And the Morgan Stanley team has shown itself to be quite excellent here as a differentiator. And importantly, what clears the market sometimes the technology will be ahead of what the market will accept and sometimes vice versa. And we have to be cognizant of what the market will accept at a given time. So some judgment there is, of course, experiential judgment is critical.

Steve, on your net new asset question, we see a lot of growth associated with IPO events, but beyond the IPO channel, when we look at workplace and our presence with so many private companies, we believe that this cycle has many years to come. Net new assets will ebb and flow in a given quarter, but as Sharon said, but let's take a step back and remember that we bought ETRADE 6 years ago, this completed the funnel. The funnel is this extraordinary self-directed piece, workplace and then, of course, the financial adviser and we generated $1 trillion of net new assets in the 3 years subsequent to the acquisition of trade. And then the last 3 years, we drew in another $1 trillion. So $1 trillion over 3 years, 2, 3-year sets running shows not only our ability to make the proposition the case that scale begets scale, but the reinvestment from within the funnel is clearly here. And of course, as lockups and funds make distributions, there are further opportunities to retain assets. So we are very excited about the attachment points ultimately that bring clients to ETRADE that we are close with them in the corporate stock plan context, i.e., workplace, but then ultimately, where it's appropriate fee-based flows that make their way to the advisers, which is that why that $80 billion number that Sharon speaks to the fee-based flows is such an important statistic.

Operator

We'll take our next question from Brennan Hawken with BMO Capital Markets.

Brennan Hawken

Was going to follow up on that last point. The net new at $232 billion, really quite impressive. You flagged the benefits from the IPOs despite a slower quarter for issuance. So could you speak to how much of that was the tail from prior deals versus the current quarter? And what's the best way that we should be thinking about that tail as we think about quarters still to come?

Sharon Yeshaya

Sure. Thanks, Brennan. I'll take it. In terms of -- you highlighted a really good point. that we talk about IPOs, and we talk about them as not just one quarter, but you use a word that I use as well, which is there's a tail to this process. So in the second quarter, you'll note specifically even in the press release, I think I spoke about it in my prepared remarks, talked about the flows that came from the IPOs being largely employee-related. This quarter, what you saw is a continuation of these flows that come from IPOs is not necessarily just a 1 quarter event. So as you know, we have a full cap table. We understand early investors you can think, for example, of an endowment that might receive a stock associated with an IPO. He or she might take that and it through from a transfer agent into a Morgan Stanley advice-based relationship. So now you have flows that are under the advice-based channel and our say, a different portion of the cap table. You might, as Ted said, also have flows that are now distributed from funds go into individual-based accounts, right? So the fund takes it and the lockup buyers and they're distributed to the underlying investor or on an individual level. .

So there's a lot of places where that funnel begins to move into an advice-based relationship. Of course, as we move forward, I said it, you can ebb and flow and you can see people actually as lockup expires, selling stock and using it for different acquisitions of different real assets, but the point is that this is the top part of the funnel. It's really a way to continue to aggregate new assets, new employee relationships, and we're seeing that. We're seeing with some of these IPOs the first or the third quarter. So now that some of these IPOs have come to market, real relationships, adviser-led relationships being built. And that's just one piece, right? That's one piece of the top of the funnel. You also have, as you probably saw these corporate retirement flows that are coming through as fee-based assets where we're also talking to the individuals. So all a very big picture that we've been investing in for many, many years. It has to do with both the workplace and the individual and the corporate life cycle of wealth.

Brennan Hawken

Sharon, and good to see the funnel operating so well. I'd love to also ask another question on wealth. The deposit growth was really robust here. And although it was driven realistically by the sort of higher cost variety, could you speak to maybe how this growth is related to the bank and what you're doing there with funding of ISG operations? And how we should think about those benefits pulling through whether there's a lag and how long that might take?

Sharon Yeshaya

Yes, absolutely. So thank you for -- you hit the nail on the head in terms of what you see from NII, which is a very modest decline in the NII from a quarter-over-quarter basis. But a very large increase in the deposits of nearly $30 billion on a sequential basis. It is a very intentional decision, a strategic choice that we've made to grow the bank. We saw an opportunity to do so. I'd say that it's twofold, both from an integrated firm perspective. But also from a wealth management perspective. So from the integrated firm, we've talked a lot about the bank and using the bank strategically as a source of funding. And we saw that as we've begun to move assets into the bank eligible assets moving to the bank over the course of the year. And yes, I think I spoke about it in the first quarter call that, that will be something that we'll see from a funding benefit as we enter into next year. So it's not immediate. It will come over time, and you'll see that playing through our numbers over the course of next year. .

But in addition to the funding benefit, I'd also should mention that we do see really strong attachment points that are coming from the bank. So those clients that are bank of first clients. Over time, we've seen that 1/3 of them end up being a digital client or in a relationship and adviser-based client as well. So that also helps. In addition, they end up also having more multiples more of NNA that comes to the institution. So we see a real opportunity to grow the bank both from the wealth management perspective and the top of the funnel, but also from the funding side that will play out over time.

Operator

We'll move to our next question from Glenn Schorr with Evercore ISI.

Glenn Schorr

So we've all asked the banks on Agentic cash and all that movement. But from time to time, people have the same questions on how changes in technology are going to impact the wealth business going forward. So I know you guys invested in open AI before I knew that was a company. But outside of just the normal efficiency and advisory productivity that you're getting I'm curious as the leaders in wealth, how you see what investments you're making, how you see the wealth advice as a service evolving in this technological backdrop?

Ted Pick

Glenn, it's a critical question for Morgan Stanley as a strategic matter. We are now in a singular position in the industry where the -- where we see the integrated scaling of the funnel that you described, we have the self-directed channel that continues to innovate for clients. We have, as Sharon was describing, a differentiated workplace offering that continues to expand and source new relationships. And we have ultimately the deep trust-based relationships between the financial advisers and their clients. And against that platform, we have built a number of advantages that not only allow us to preserve our moat, but actually make technology a differentiator in our favor.

I'd highlight 4. The first is we all bear in mind that we've got a unique set of products and capabilities as the largest distributor in the world. We're the most important wealth partner to the entire asset management industry. There are significant parts of our old platform, both product and pricing that are not available to clients anywhere else. You are a Morgan Stanley client. You have access to our research. You have access to the calendar. You have access to private markets via equities in, you have co-investment opportunities. And then importantly, for ultra high net worth family office infrastructure solutions. So the scale that we have offers differentiation that will remain and even be aided by agents. Second, unique data. With $8.4 trillion of assets in wealth management and now getting to 21 million households. We have tremendous insights into what works and what doesn't when you talk to your financial adviser. You want to gauge on a particular day or a particular month or a particular year, which are risk reward sentiment ought to be, how you should be thinking about life and some of that can be governed by what others are doing through the use of data. It gives us insights given our size and scale that allow our FAs I tailor advice and equip our own tools to deliver that advice to help clients achieve their goals. Third, and this is critical, is the ability to protect client assets. We're one of a very few number of firms that could continue to invest whatever it takes to protect our clients. Others, you can't engage head-to-head with AI out of your garage. So there will be a resiliency theme that will be super important to clients with real net worth as we go forward.

And then fourth point, and this is really where it begins where it ends is it's a people business. At some level, if the technology is is world-class. Folks want to make decisions with their financial advisers based on the complexity and singularity of their own financial needs at a particular point in life with respect to their parents, their kids, how they want to go about philanthropy, how they want to go about taxes, the whole thing. That is something that technology can help do a lot of the early work, but ultimately, once you know that you have the ability to allocate across the entire asset spectrum, given that we are the largest distributor in the world of any kind of asset management product, given we have insights from the unique data. And given that we are a protective shield for those assets, ultimately comes down to, do I trust my financial adviser. And if I do, I'm at a place where the adviser retention rate is above 99%. And the clients obviously are quite happy, which is why over time, it's so important that we continue to scale not quarter-to-quarter, but over multiple years and that we see the reinvestment in the funnel that the funnel becomes not only a way to preserve our moat, but actually to be a technology winner, which is dating back to some of what you talked about, but continues today. So I'd say of all the many things to be excited about, I'd say now what the management team is most excited about is our ability now to further our scaling and over time, our operating leverage in the wealth management business.

Operator

We'll take our next question from Christian Bolu with Autonomous.

Chinedu Bolu

Maybe first I have a question on the impressive IPO flows into wealth management. Sorry if I missed Sharon, your earlier answer, but are you still expecting incremental flows in 4Q and '27 of what you've had so far? And then more broadly, how should we think about the economics of these flows? Are you seeing any signs that you can ultimately retain and turn them into annuitized fee-based assets?

Sharon Yeshaya

Absolutely. Why don't I take it and I'll take the last one first, which is that we are absolutely seeing that we can retain the assets, and we're seeing a pick up in the ability, and this is a China the last answer is those IPOs that came to fruition in the second quarter that we are building relationships, adviser-led relationships. And there's a lot of opportunities to do so, and there's a lot of interest to move forward, and we continue -- we will continue to build on those relationships, not just with where we've started now, but I think there's more opportunities to go with those individuals. As it relates to retention rates, we're seeing steady retention rates. So what does that mean? It actually means that the dollars of assets is greater. So if you can keep the retention rates where they are, even as you get more flow, more assets at the top of the funnel, that means that eventually, that will help from a fee-based advisory flow as well or an adviser-led product or an adviser-led relationship. .

Now as it relates to the second quarter, there's nothing material to call out in terms of expectations for those flows as you move forward. as we said, assets will ebb and flow. You can think of an individual who might sell assets in order to buy something, but you can also think of individuals that have those advice-based relationships, and begin to aggregate assets held away. And that's been a lot of the strategy even over the course -- if you go back 10 years, we just talked about that, Christian, which is we see a great opportunity with assets held away. These individuals have just stepped into wealth. They begin to consolidate assets and understand the value of a fulsome advice-based relationship.

Chinedu Bolu

Great. Great. On expenses, I guess, non-comp expenses were flat Q-o-Q firm-wide despite sort of lower revenues I think you spoke about some AI investments in your prepared remarks. Give me a sense of like more detail here, what are you spending on? Is it sort of tokens? Or are there more structural AI investments and should we think about this as a sort of multiyear investment program?

Sharon Yeshaya

Yes. I think that you will see that from any company in America is using their technology dollars to think about how to use AI, how to be more productive and how to support greater growth in revenues with their current expense base, with some of that translating into technology itself. So sort of a redistribution of dollars as you move forward? And how do you actually see that productivity? Again, anybody who works in sort of a senior management role can tell you how much AI is fundamentally changing with our other sleeves do, I can speak as sort of just as Head of Finance. What we're seeing is remarkable. The reconciliation that you can see across different books things that usually take so many manual human hours and can have -- obviously, there are controls in place, but the ability to see it with fewer errors and fewer mistakes and fewer checks is real.

And in addition to that, there are just manual processes and manual, what we call EUs, which are spreadsheets and others. They can automatically be written, understood, coded and then moved into our real productivity life cycle, so a front to back of products. So it's an incredible tool. We're seeing it in the actual businesses themselves, even within our equities business, where you have different AI tools that salespeople can use, and I think that, that productivity is real, and that's where a lot of the spend is being seen.

Operator

We'll take our next question from Mike Mayo with Wells Fargo.

Michael Mayo

You talked about half full, half empty. In the half empty column, you've had concerns about the AI CapEx super cycle as it relates to overbuilding, power, financing, politics and you can probably complete that list a lot more. Where is your conviction on the AI CapEx super cycle in light of all these headlines and you've had some pulled IPOs. And last quarter, you talked about CapEx. I think you had numbers like $800 billion to $1.3 trillion to $1.5 trillion. I'm just kind of marking to market the way you're thinking about it.

Ted Pick

Yes. And Mike, I actually think this question is just going to have to be asked over and over again because the quantums are so big and the growth of the U.S. economy is at some level and even the global economy being powered by this AI cap CapEx cycle. I don't know that it necessarily accelerates from the $1 trillion that we're at. It could be $1 trillion, it could be $1.2 trillion, but we are at a level where it is meaningful, 50, 70 basis points of real GDP in the U.S., that is no small matter. And then how many years it takes? I mean, as we've talked about, sometimes the technology is going to be headed to financing, the financing on the technology. But the efficiency and productivity and then obviously, the need to protect all of these are incontrovertibly important for every large-cap institution over time, every institution, of course, it's not just at the enterprise level at the individual level.

The key is our ability to continue to act as an adviser. That is what we are most focused on. And we are able to effectively act as the clearing mechanism in this very complicated ecosystem between all of the players, such that we are viewed as a fair hand in acting as the adviser, the structure, the financing partner. If a deal doesn't clear the public markets, what do they do next do they raise private capital? How do they do that? How do they satisfy the needs of their LPs and other constituencies. So it will be complicated, i.e., there will be moments of uncertainty. And I have no doubt there will be times when it will feel like it's going too fast, and there is a sense of overbuilding in some respects. And then there are going to be other times when it's not fast enough and that there's a different bottleneck in the ecosystem, perhaps it's power. But the reality is the capital is going to have to be provided for this once in a multi-generation change.

As we talked about S&P 500, value is somewhere between $65 million and $70 trillion. Global GDP is, let's say, $120 trillion. These are sort of the denominators one can talk about. So $1 trillion is a heck of a lot in a given year, but $1 trillion against some of the best performing companies of modern times that are still running cash flow positive to something that becomes -- you got to be in it to win it. That is conceivable, really over the course of 5, 10 years that it could be at a run rate that is plus or minus $1 trillion. And our role is when things feel like they're going too fast. And the market is not ready for the next financing or structure innovation, we have to effectively consider what is appropriate. And then when it's not fast enough because the capital is needed, we throttle accordingly. So I am -- I continue to be humble and as querying as anyone with respect to whether the right number for, let's say, 2028 on hyperscale or CapEx is $1.2 trillion or $1.4 trillion, or $1 trillion, but the number is going to be, we see $1 trillion and at some kind of plateau level continue to be a very important part of what we all do. in the capital markets as originators and delivering content and again, in bringing real sustained not just efficiency but productivity improvement to large-cap companies.

Michael Mayo

So where the rubber meets the road, you have to allocate resources for the AI opportunity. So in light of what you just said, the risks and opportunities, are you allocating more or less to the AI opportunity and how are your backlogs?

Ted Pick

We were, as you know, overweighted to AI from the early days in wealth with some of the work we did with OpenAI. We've been overweighted working with other complexes. You know who they are in terms of banking coverage, in terms of usage in our plan in terms of wealth relationships, in terms of thinking about what it's like to go public I would say that we were overweight and in light of it being something that matters not just to our clients. But to us, I would say we are now double overweight. There is just no question that this is existentially important that we are viewed as a trusted adviser in the middle of the ecosystem given that we have a very clear strategy where we are acting as the wealth manager, the asset allocator, the banker. And for us to be part of the content and the thinking and the evolution of this is absolutely the top priority for the firm as the adviser and then also that we're eating our cooking and that we are providing resiliency and all that comes with the need to keep up with all of the innovation. And I appreciate the question, Mike.

Operator

Our next question comes from Dan Fannon with Jefferies.

Daniel Fannon

You guys have talked about fee-based flows being key to the margin expansion within the wealth channel. And as you have more success with migrating workplace clients to advice, should we see this convergence of the total flows and the fee-based flows continue? Or is that something that will always kind of have some spread to it?

Sharon Yeshaya

That's a great question, Dan. It's going to depend really on what flows end up seeking what type of advice and those that want to be part of the fee boost ecosystem. What we've seen is, it can -- let's take this quarter as an example, right? So fee-based flows, we talked about a portion of those fee-based flows coming from a corporate retirement mandate. As you bring a full corporate retirement mandate on board, those will also be considered net new assets, right, because it's coming in immediately as a fee-based flow. But you can have other situations, and we saw big backlogs where we had dollars accumulate just in brokerage, both on the advisory side and on the self-directed side but then move into fee-based flows. And those are just individual accounts. .

And then you might have also relationships between stock plan where people aggregate assets and move them directly into fee-based. So I think it just will depend on what flows you're discussing. But importantly, we do see that, that value of advice they come in directly as a fee-based account or they come in and migrate over time from self-directed or otherwise is critically important. I think a statistic that I gave you guys earlier in the year was that a little bit over 20% of all of the advisor-led flows are fee-based flows. I mean that still holds, is not growing. And so that just shows you how powerful the fee-based model and the advice led model is.

Daniel Fannon

That's helpful. And then just a follow-up on NII, and we heard your outlook for 4Q. But as you look at the rate backdrop today, trends in loan growth still seem to be positive. Is it reasonable to think about loan NII growth as we think about 2027 based upon kind of where things sit today?

Sharon Yeshaya

Yes. We do expect to see NII over next year, expand. And to your point, that's largely on the back of loan growth.

Operator

Our next question comes from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala

I guess just one question first on -- when we think about the wealth management business, like the conversion from Workplace seems to be going extremely well. All the investments you talked about in a world where like there's a lot of focus on just downside risks to the revenue environment. How should we think about that pretax margin? Like it's 30%, I get you're making investments for the foreseeable future. So you're not like short-term targeting a higher pretax margin. I'm trying to get to like is all this conversion going to translate into a better pretax margin environment? And if things were to slow down, does it add to defensibility of earnings within that business and to the firm-wide ROE? If you could help us sort of think through that.

Sharon Yeshaya

Yes. The answer is yes. The pretax margin will expand over time with scale. And to your point, our intention is not to manage it on a quarter-by-quarter basis. It's to make investments over the long term. You've seen us make those investments across our channels, Workplace is self-directed and advisory that increases the breadth of the funnel, moves it to fee-based, and we see an expansion of margins since the beginning -- this inception of this larger business model well over a decade ago.

Ted Pick

I mean, Ebrahim, just to add to that, we have we've really tried to be very disciplined about the slide deck and these targets, these objectives and to really meet them and beat them. And as you know, 5 quarters of above 20% ROTCE and some would say, okay, then are you going to raise that. And then you're at 30%, you're going to raise that. And we're really trying to, again, speak to, as you know, the core of our very long-term real money shareholder base. They want multiple year returns, higher highs, higher lows in all seasons. Now obviously, for risk off, and things are really tough, and the glass is more than half and gets 3 quarters empty, we're going to be slower because it's going to be less to do. But this idea of having something that really is close to all weather but then can actually power higher over time just on scale and the ability to actually activate the funnel. That is what the team is most focused on.

So if there was one statistic of all of the CF statistics, and I know that the market backdrop in the last couple of days has been more mixed. But if there's one takeaway, it's $1 trillion of net new assets over the last 3 years, which was preceded by $1 trillion of net new assets in the preceding 3 years. And the key then is will those assets make their way ultimately to fee-based flows into the financial adviser and in many cases, yes. And the ability for us to -- with the financial adviser monetize that singular experience and actually to have Technology Act as our friend here over the long expensive time, the long expense of time that should create incremental operating leverage. So the answer is, ultimately, yes.

Ebrahim Poonawala

That's good color. And maybe separately, I mean it still seems like a sandbox, but the SEC put out some rules around tokenized equities. Just talk to us, what does that mean for your business? How are you investing and the ability of the firm to 1 defend share gain share if we move -- if it gains steam as far as just broad-based tokenization of equities is concerned?

Sharon Yeshaya

Sure. I think that Ted and one of his comments said, we're excited about the future of wealth and investing in this and what does it mean to think about the future of wealth management. The tokenized world is just a portion of that. And the tokenized world means it's faster and easier to move assets around and you will need advice to think about those assets and how do you move those assets quickly. What are the right assets to move? And how do you think about token usage? So our perspective, it's just an opportunity. Another opportunity that we've been investing in. We've been investing in the digital space, more broadly across both wealth and ISG. And I think we'll continue to be a leader, specifically as investors and clients demand device.

Operator

Our next question comes from Devin Ryan with Citizens Bank.

Devin Ryan

I want to start on institutional equities. Obviously, as we continue to see these really impressive results come through revenues are almost double where they were in 2024. I think a lot of us and clients are trying to understand better contextualize the cyclical versus secular involvements. And obviously, we see the largest firms consolidating share, the prime businesses are doing great. And it seems like geographies like Asia are structurally larger, but can you help us unpack like from your lens, how much of this feels cyclical versus just you're seeing a bigger pie and there's new areas that are contributing that weren't historically and you're gaining market share in those areas?

Ted Pick

Well, we're still in a stock-based world. equities are still all things being equal, the attractive asset class. The question would be if interest rates were to back up further and it would start pinching corporate earnings, would you see earnings multiple contraction and then it becomes less attractive to be allocated to equities. I mean, just sort of vanilla. But we're still in an equities world, and we're seeing growth and we're seeing the returns on capital being generated by very healthy large-cap corporates. So when you put that together with the need for private equity and other private capital underwriters to effectively harvest their portfolio through the public markets. that is all kind of in our favor.

If we go way back in time, it's just, I guess, 15 years ago, when we created the 9 boxes, cash derivatives and prime brokerage in 3 regions, we were recovering post GFC, and we got the prime brokerage piece right early because we had world-class technology in MSET, that linked us to a world-class high-touch cash product. That continues today. You see it in our mandates to stabilize IPO. You see it in our ability to work large transactions for asset managers. You see it in our ability to deliver research content. What's changed here in recent years under the leadership of Ellen and Gokul is really the build-out of a world-class derivatives business. This is something that I just didn't get done. And they have figured it out. It's really the missing link in a world that has gone way beyond cash to hedge, to express a customized view. It's a global business, and they've done a wonderful job knitting cash to prime brokerage through the derivatives product. So in that sense, I'd say the equities business is more robust than it was 7 or 8 years ago. But it would be silly to say that it's not subject to cycles and investor sentiment.

We saw in September when volumes were drying up in Asia, and that became sort of the re-underwriting moment in the U.S. Of course, the volumes are lower, which means the output is going to be lower for everybody in the ecosystem. But we clearly have found a position now that's an enviable one, where we act as a trusted adviser now in the secondary context to asset managers across the 9 boxes. And here, a little like wealth, actually much like well, scale is existentially important, you have to be faster, better, cheaper in addition to having the ability to get the trust of the client and you got to be global, which is why it matters that we are -- we're big in London, and we're big in Paris. But so too in Hong Kong, Tokyo, in Seoul, in India and, of course, in the U.S. So it's a business that I think inures to the benefit of the largest players. We will continue to focus on scaling that. We're also very focused on use of capital.

One of the underlying themes of today for us, in addition to the $1 trillion every 3 years, and I know there's potential for distraction with all that's going on in the world and the whole group are reporting is the fact that we have a 300 basis point CET1 buffer. That is not a small matter. That is something we have worked to achieve assiduously at the top of the house in partnership with the business unit. And of course, there are other ways to measure usage SLR and the like, but we like the capital buffer because it in different areas will allow us to actually put more capital to clients through the equities and fixed income businesses when the opportunity arises.

Operator

[Operator Instructions] Our next question comes from Chris McGratty with KBW.

Christopher McGratty

Just going back to the prior question. So it's more of a geography capital allocation, where are you most excited about in the next couple of years to lean into capital allocation domestically, internationally by product? So maybe just a few comments there would be great. .

Ted Pick

I'll take a crack at it. I'm interested, Sharon will improve my answer. I think the answer geographically is a global allocation. I think part of this is you can't decide you wanted to be big in Hong Kong over the last 3 years. You already were in Hong Kong for the last 20, 25 years with a world-class team or you weren't, and we have been there. Tokyo, of course, is super hot. We've been there with our partners at MUFG, we have the largest capital markets franchise in Japan, both clearing FX and also working in the equity space amongst the global firms. And you just sort of go down the tick list, a number of us who have been in Europe the last couple of weeks, need to be big across the U.K. and the continent. And of course, the U.S. continues to be fertile especially in a world of dispersion where you want to own new issues and performance that is just beyond beta. So I think the answer is a geographic matter. We've had edge in Asia for sure, but I think the answer is global.

And again, I would give a similar answer with respect to the products. I think it's the integrated solution across cash, derivatives and prime brokerage. I don't think you can just be the prime broker of choice. You have to have proper risk management and margin around the right clients. and you need to be able to monetize them not just through the financing product, but through your ability to execute low and high-touch cash and the derivatives product as well. And I would add that what's most critically important in this period is the integration across the markets businesses, some clients, and this goes back to some of the AI questions. It isn't just a banking phenomenon, it becomes a fixed income secured lending securitized lending phenomenon where we have a world-class group. So the micro and macro and commodities folks working closely with equities and an integrated markets offering where folks have sat in each seat and they want to generate the best risk-adjusted return for the client. That's something that is not just kind of a technocratic exercise, but also a behavioral one and something that is tried and true here because people get along real well. And that actually matters and the clients see it.

Operator

Our next question comes from Erika Najarian with UBS.

L. Erika Penala

Just to take a step back, Ted, you asked a lot about the pipeline as it relates to the AI super cycle, and I appreciate your prepared remarks. Just to zoom in on this a little bit. Clearly, the equity market or at least bank investors are starting to worry about the impact of sustainably higher rates obviously, both in the direction of the Fed and the 10-year. And as you talk to your clients broadly across sectors and across the type of capital need, how are higher rates in the sort of sustained level and the 10-year impacting, if at all, sort of their decisions in terms of capital raising?

Ted Pick

An excellent question. It's not just higher nominal rates as you're saying, it's also higher real rates and the reality that the cost of capital is nothing like it was during a financial repression or the years following with COVID and stimulus. So you have to have real capital structure. And if it doesn't work, it's something that resembles in some cases, an investment-grade capital structure in other cases, a sub-investment-grade capital structure at sub-investment cost of capital on a traditional basis. If that's not working, the immediacy of the market is going to find that out. And we, as a structure, as an underwriter, of course, we want to try to pick winners, and we want to be giving advice at the right place, but where we are committing capital as a lender or helping in any respect, again, putting our own balance sheet to work.

This is part of the implication of double overweight. Double overweight doesn't mean just that we're going to send bankers out to try to get business, but that we are being incredibly rigorous and sharp about where we want to allocate risk capital. where a bridge or where a relationship loan that in theory was a piece of debt turns into a piece of equity, which eventually gets provisioned. I imagine there are going to be cases where we are going to make mistakes. That is just an inevitable reality of something that is a generational change. But our job is to minimize the foolishness and to make sure that we are active and where it makes sense for us to help bridge capital, but ultimately, our value add, again, is the M&A advice, the strategic advice versus just putting a bunch of balance sheet out. But you are right, when there is elevated and elevated interest rate world, if interest rates are higher as a function of higher productivity and higher GDP all is good. That is back to a world that we saw pre-GFC, where we see real GDP at 2% or 3%. And if this is helping stimulate that, I think that would be viewed as a very healthy and necessary phenomenon.

If higher interest rates are the result of a lack of control over inflationary expectations or supply-side shocks as a result of some of the geopolitical tail risk. Well, then obviously, people are going to be less excited about putting up illiquid risk capital. And that's just the reality of private and public markets checking each other, and that's why we have super sharp people in our capital markets business, GCM, constantly working with the entire ecosystem to see what works not just in the long term but whether a market window opens or closes.

Operator

We'll take our next question from Scott Siefers with TD Cowen.

Unknown Analyst

A little bit of a follow-up on the capital markets state of play. I do have to say that the glass half full, half empty analogy is probably the clearest and the most balanced short-form commentary I've heard sort of regarding where we are and can go. I was just hoping you could speak specifically to...

Ted Pick

Thank you for that. Could you repeat that? Could you repeat that? I want to be sure there are probably some listeners left. Just if you don't mind give me a feedback on that.

Unknown Analyst

Whether you wrote it or others?

Ted Pick

No, dude, I wrote it. I wrote it. I wrote it. No chat. It's me. Okay. Military College.

Unknown Analyst

Excellent. Excellent. I was hoping you could speak to the backlog in sponsor mandates specifically. That's an area that hasn't necessarily ebbed and flowed as much. It feels like it's been more of a waiting game for the last couple of years. How does that long-term break, what sort of the holdup as you see it? I mean, is the answer the same as what you just said in response to the last question or is it anything different as you see it?

Michael Mayo

Yes. I'll give you 2 answers on that. First one is that at some point, the Piper must be paid, i.e. the investment portfolio needs to be harvested. On the other hand, there's been, of course, a ton of engineering, continuation funds, the ability to put some assets and new funds and in fairness, there are some very smart private equity investors and others in the private universe who have decided they actually want to keep some of these investments on their balance sheet that these investments work in a higher interest rate world back to Erika's question and that actually, over time, they can generate, low to mid double-digit IRRs with whatever they think is the appropriate leverage. Maybe they want to keep it for themselves or maybe they want to bring the harvesting out later. That's my positive response.

My less positive, less salutary response would be, it is a little frustrating. There are some sponsors in the universe that are stuck on marks and moist that are just not going to come to pass given the market is very sharp to what is in folks portfolio and very sharp to the reality of what the new weighted average cost of capital regime is around the world and what incremental country risk or supply risk or AI risk means for that asset. So the question is going to be at what point are they going to come? And how are they going to come? And I think in some cases, the leading private equity firms and others have an incredibly smart and agile about bringing some stuff that maybe doesn't have a higher mark, but it's ready for prime time, and maybe they bring that along with stuff that is a big winner. So they've had sort of portfolio composition mix.

And then in other cases, they're holding on and hoping for better. And I think it is probably a longer odds bet that we are going to have a low interest rate, low inflation non-recessionary environment. I think that I would not bet on that, in which case, you really have to think about what old-school corporate finance looks like for these companies. And I think the smartest and most important private equity partners that we have we'll be continuing to find ways to bring these companies market against a favorable regulatory backdrop, whether they IPO them or go the M&A route. So in short, I think it is with some conditionality here, I continue to think it is a positive tailwind where perhaps I was mistaken was a couple of years ago thinking it might lead the corporate finance life cycle. It's very clear to all of us that it's the strategic real corporate universe that's leading the life cycle and the sponsors have to hustle to keep up with effectively the strategic bid and the strategic demand for capital.

Operator

We'll take our next question from Ben Gerlinger with Citi.

Benjamin Gerlinger

Well, it's admittedly not the easiest or best way to look at your franchise relative to others. But if you just look at league tables of equities or FICC or investment banking, you guys have stood out well in the areas that have been strong, and it's obviously not trying to say the pie has gotten bigger. So you've clearly made strategic investments. But when we look you guys versus peers within FICC itself, it seems like you have excess capital, you have a unique funding opportunity in front of you, but is FICC an area where there's a substantial amount of investment opportunity to take market share? Or is it an area more so focused on equities because equities on a global scale has so much more expansionary opportunity in front of it?

Ted Pick

Appreciate the question. The -- as you may recall, there was a time when fixed income was an Achilles heel of the Morgan Stanley Investment Bank dating back 15 years. And what is extraordinary about the leadership that Jay and Yaakovian brought to bear is the other stability of this business. against some headwinds and cross wins. These folks are generating efficient returns on capital and $2 billion a quarter. There was a time when we wanted to get to $1 billion a quarter. Importantly, the business is integrated with investment banking and capital markets on the private side and equities in a way that this institution has never seen, which is an extraordinary thing. So there's a lot of time that is spent helping to prosecute equities product or banking product that may not book into fixed income as an external segment matter, but absolutely books existentially in the underwriting line, the advisory line, the equities line. .

So I think it is a world-class business. We are not a traditional natural in the sense we're not a commercial bank dating back to all that. But given the work that we've done to bring assets on the bank. And given now the cost of funding is more pari-passu with the group and given the talent we have and given the importance of the AI ecosystem and important Importantly, that we've built the product out globally, I think our commodities business, over the 2 miles, our macro business and our micro business, Salv and Europe and others, these are folks that get the entire proposition of the integrated firm, and it's a business that we will continue to invest in over time.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day.