Tikehau Capital

Ladies and gentlemen, welcome to the TKO Capital Q3 2020 Assets Under Management Announcement conference call. Today, I am pleased to present Mathieu Chabron, co-founder and Henri Marcoux, WCEO. Gentlemen, the floor is yours.

Thank you. Hello, everyone, and thank you for joining us today. I hope you're all doing okay. and weathering well what is clearly a new operating challenge for many of us, brought by the new government restrictions across many countries. I'm Mathieu Chabran, co-founder of TKO Capital, and I'm now joining you from New York, where we are actually all happily still working in the office. We're certainly, you know, the outliers here. And I'm joined today by our Deputy CEO, Henri Marcoux, who's in Paris. We will run you through the main highlights of what has happened at TKO Capital during the third quarter, and then be more than happy obviously to answer your questions. Before we get started, let me maybe give you a quick reminder of how we define ourselves and approach our platform. TKO Capital is an alternative asset manager that we created 16 years ago, which has built strong positions across private and public markets. Our unique model consists in proposing to our shareholders an exposure to alternative asset classes in two ways. First, by an asset manager with a majority of long-dated closed-end investment vehicles with recurring revenues coming from management fees, as well as performance-linked revenues that carry interest on top of that. Second, by benefiting from the underlying performance of each of our alternative strategies, by having access to what I like to call the factory, given that the group deploys its balance sheet in our own funds alongside our clients. So in addition to aligning our interests with one of our clients, this second to none skin in the game is generating portfolio revenues, which are the reflection of the performance we are delivering to our clients, our LP, at the fund level. I also want to highlight that management is the largest shareholder of the group. So there is a total alignment of interest between management, shareholders, and clients. This is a unique setup in our industry and I wanted to reiterate that. Moving on to slide number five, which I guess is quite self-explanatory, we wanted to remind you how much the group has grown over the past five years and confirm that we're on track to deliver our main targets set for 2022. First, in terms of assets under management, we ended up the year 2015 with a bit more than 6 billion of assets under management. Then at the time of the IPO in March 17, we were managing shy of 10 billion euro of assets when we set then our AUM target at 20 billion euro for 2020. Today, at the end of September 2020, we are managing 27.2 billion of assets and we are on track to achieve our 2022 guidance, which is to exceed 35 billion euros. Looking now at the profitability of our asset management business, I'll remind you that in 2015, we were hardly breakeven. When we IPO'd in 2017, we were profitable for the first time with a couple million of euros of operating profit. By 2019, our NOPAM reached a bit less than 60 million euros, and we now aim at generating more than 100 million euros by 2022. And for those who did not have the chance to follow our first year, our H1 results for this year, 2020, I remind you that our NOPAM was up by 39.5% year on year for this first semester, for this first H1 2020. This is another milestone on TKO profitable growth. Moving on to slide number six and our third quarter highlights. Let me start this trading update by saying that we are very pleased with the way the group has grown so far in 2020, and in particular over the third quarter. That is clearly the result of the outstanding dedication of our team. which has remained focused on delivering and totally fully operational despite the circumstances, the unprecedented context that we've all been experiencing. So I wanted to here reiterate all our gratitude to the TKO Capital team across our offices around the globe. We have indeed recorded a solid growth in our assets under management, which has increased at group level by 12% over the last 12 months. and 6% over the third quarter of 2020. This has been achieved thanks to a very solid growth for our asset management business, which as you know is our core strategic focus, and which increased its assets under management by 16.5% over the last 12 months, and by close to 8% over the third quarter. Net new money was, in fact, very high in Q3 at 1.5 billion euro, which is more than what we had recorded during the whole H1 2020 at 1.1 billion euro. And that was mainly thanks to our private equity and our private debt businesses. If we look at the first nine months of 2020, net new money amounts to 2.6 billion euro. of which two-thirds was achieved in private equity and real estate, which is incremental to our average management fee mix, and therefore future revenue generation. As you may have picked up, we have also completed the acquisition of Star America Infrastructure Partners over the course of Q3, which is at the same time a great way to address a large, growing, and profitable asset class for the group, as well as a way to accelerate our expansion here in the Americas. Star America is now accounted for in our real assets business line, which has exceeded for the first time the 10 billion AUM mark at the end of September. During Q3, we have also further demonstrated our willingness to align our interests with one of our investors, and the group balance sheet has committed around 400 million euros to our asset management strategies across private debt, real estate, real assets, sorry now, and private equity. We view our strong balance sheet as a key differentiating factor of our model, which is at the same time leveraging our asset management business fundraising and also providing our portfolio with a direct and diversified exposure to the performance of the private asset classes and the underlying investment originated by the group. Finally, in spite of all the current uncertainties on the sanitary and on the macro funds, we France, sorry, we are pleased to confirm both our guidance for the full year 2020 AUM, which we think will exceed 27.5 billion euros, as well as our 2022 targets to reach more than 35 billion euros of assets under management and to generate more than 100 million euros of NOPAM. I'm moving now to slide seven. So overall, as at the end of September 2020, total group AUM stands at 27.2 billion euros, which is a 12% growth over the last 12 months. As you can see on the chart on this slide, AUM for asset management activity represents 95% of our total AUM, meaning 25.9 billion euros at the end of September 2020. We are invested in diversified and complementary asset classes, and we have also been rebalancing our business mix towards more private equity and more real assets, as I was saying earlier. We achieve that through organic and non-organic growth initiatives, while at the same time maintaining a solid momentum in all the other asset classes. On top of that, keep in mind that 80% of our asset management AUM stands within long-dated, closed-end structures, which leads to a good level of visibility on future management fee generation. And finally, I would also remind you that our assets under management are rather young and our model does not rely on short-term carried interest generation. At the end of September 2020, the dry powder, the capital raised but not invested within our funds, reached 6 billion euros. That gives us significant resources to invest going forward, whilst remaining, as you would expect from us, very disciplined. Direct investment asset under management amounts to 1.3 billion euros at the end of September, which is 400 million lower than at the end of June. And that is due to new commitments that have been made in our own funds as per our strategy once again to align our interest with those of our clients. So I guess it's fair to say that we keep on delivering on the strategy we have been implementing since our IPO. And with that, I will hand over to Henri Marcoux.

Thanks Mathieu, good evening to all of you. So now let's have a closer look at our asset management activity and more specifically the fundraising trend since the beginning of this year. During the third quarter we've been raising 1.5 billion euros which is actually more than what we have achieved during the first semester and it is as well more than what we had achieved in Q3 2019. Even though, I mean, quarterly trends can sometimes be misleading, it is, in our view, quite a strong achievement for Q3 of this year. Now, looking at the split by asset class on the slide, you can see that private equity and private debt are leading the way in Q3, with a €700 million raise for each strategy. If you remember well, our June disclosure, private debt contribution to fundraising was quite limited for the first semester, which was actually in accordance with our fundraising cycle, as we didn't have any flagship on the market. On the contrary, in Q3, private debt is back to fundraising mode, with, as an example, the fifth generation of our flagship direct lending fund, TDL5. or the gain of an evergreen mandate, or lastly, the warehousing of our fifth CLO that started early September. There again, we are clearly demonstrating the benefits of being exposed to diverse and complementary asset classes. Finally, I'd like also to mention the evolution of our business mix. TKO Capital is gradually evolving toward higher fee generating strategies and this is what you can actually see on the two pie charts with the increased share of assets under management coming from private equity as well as the growing contribution from the real assets business line which is now our largest strategy. Now looking at our different business lines on page 9, and starting with private debt comments for Q3. So after a rather quiet start of the year, which was in line with our natural fundraising cycle, private debt has experienced a solid Q3, thanks in particular to the first closing of TDL5, which took place in July, actually for 220 million euros. We also raised €55 million as part of the institutional fund Novo 2020, and we have been chosen on top of that to manage a €150 million evergreen mandate for a top-tier French institutional investor. This is actually the first evergreen SMA we've been closing in private debt. Finally, I'd like to add that we have launched the warehousing of our sixth CLO in September, adding an extra 200 million euros to the private debt assets under management. As far as private equity is concerned, so AUM has grown over the first nine months, very strong. And it comes actually both from our energy transition fund as well from our gross equity funds. I'd like to highlight that actually these two funds have recently been attributed, you know, with the RELANCE, the recovery label, which actually qualifies these funds as consistent with providing corporate with efficient equity financing as part of the French state recovery plan. So AUM growth also factors in a strong contribution from ACE management, you know, our subsidiary specializing in investment in companies in the aerospace, defense, and security sectors, which has been selected by the leading aerospace players and the French state through BPI France, actually, to manage the support fund for the aerospace industry. The first closing of that fund amounts to 630 million euro and it has been achieved at the end of July in the early summer. Now moving to page number 10. So looking at our real assets business. So the growth over the last 12 months has been very robust at about 20% and our AUM have actually exceeded the 10 billion mark at end of September 2020. So FIDI has contributed strongly to that performance, and I'd like to remind you as well that we have finalized the opportunistic fund called TREO, TECO Real Estate Opportunity, in Q1 of this year. Finally, the AUM at the end of September do include the integration of Star America to this perimeter. Finally, our capital market strategy has been growing strongly over the last 12 months and has proved very resilient in 2020, both from a year-to-date or a Q3 perspective, with good performance across our funds, in spite, I would add, in spite of the unprecedented context we've been experiencing. Moving to slide 11, maybe I'd like to emphasize a little bit more what have been the moving parts allowing us to reach the 25.9 billion euros of AUM for our asset management perimeter. Maybe a quick comment before that on our disclosure. As a listed entity, our ambition is clearly to be fully transparent and to be in a position to provide regular trading updates to the market and not only through our quarterly AUM updates. That being said, I would like to remind that we are in a business which is actually benefiting from long-term tailwinds with long-term commitments from our clients and therefore long-term investment horizons from our funds. My point is actually to emphasize that quarterly analysis can sometimes be misleading and can sometimes experience cut-off effect. This is why our growth momentum should always be considered on the long-time horizon. And I do think actually that page 11, the following charts are actually putting our Q3 performance into perspective. And regardless of the time or reason you may have, you may choose, you may have a look into, the broader picture points to very positive momentum with, for instance, €4.2 billion fundraising, which have been achieved for the last 12 months, and an AUM growth of virtually double digits over the last 12 or 9 months. Now I'll move to page number 12. So the second component for AUM is actually the direct investment and what has been the evolution over Q3. The quarterly evolution is actually pretty straightforward and quite simple for the quarter. At the end of September 2020, our direct investment AUM stands at 1.3 billion euros, actually representing a 400 million decrease to the figure that was disclosed at the end of June 2020. This evolution is clearly linked to new commitments from our balance sheet within our funds in line with our strategy of alignment of interest with our investor clients. I'd like to add on top of that that market effects on the group direct investment portfolio have been limited during the quarter at minus 25 million euro. And finally, that our edging strategy has had a plus 6 million impact on our AUM at end of September. On top of that, at end of last night, the impact of those edging strategy was standing at minus 145 million euro. Mathieu, I let you maybe comment the private debt activity page 13. Thank you.