Tikehau Capital

Welcome to the TKO Capital Half Year 2022 Results Conference Call. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you will be connected to an operator. Today, I am pleased to present Mathieu Chabron, co-founder, and Henri Marcot, deputy CEO. Gentlemen, the floor is yours.

Thank you. Thank you so much. And good evening. Good evening, everyone. Thanks for joining us on this TKO Capital H1 2022 results conference call. I'm Mathieu Chabron. Philippe Metzger- co founder of the company and i'm joined effectively tonight by Henry mark who deputy CEO, as well as our investor relation team with Theodore I do and we eagerly. Philippe Metzger- will go through a brief overview of the results and then we'll be more than happy to take your questions. Philippe Metzger- So, starting with a slideshow maybe on the on slide number four with a couple of highlights, I wanted to put forward first H1 2022 has been a strong H1 for TKO. We have seen our dual model clearly playing out and leading to strong performance across the board, ultimately translating to material net income growth for the first six months of the year. Second, on top of our fast-growing asset management activity, our investment portfolio delivered strong revenue growth in H1, mainly driven by our own strategies. Indeed, the TKO capital funds, in which we are investing a vast majority of our balance sheet, are delivering increasingly predictable and growing returns. Third, we delivered strong fundraising. Client demand remained strong for our strategies, so we managed to increase the pace of fundraising in H1 2022, despite the uncertainties linked to the geopolitical and economic environment with an acceleration in Q2 compared to Q1. In addition, we kept a strong deployment pace without any compromise in terms of selectivity. Fourth, we have invested in our asset management platforms. After a period marked by COVID, during which we had slowed down in terms of OPEX, we accelerated since H2 2021 in platform investment. That means staffing, reinforcing our teams and our infrastructure to support new strategies and secure future growth. We view this active hiring and OPEX investments as very timely in order to make sure that our platform is at full capacity to seize opportunities linked to future dislocation caused by raising interest rates, And the return on inflation. Now, let's be clear from now on, in H2, we will be more selective when it comes to hiring and OPEX investments. Finally, I mean, obviously, we're happy to, of course, to confirm our 2026 outlook, the one we gave you at the Capital Market Day a few months ago. And we get back to that a bit later with data. So maybe before we go through the various achievements of the first half, a word on the current environment and our position. I'm now on slide number five. During our Capital Market Day, our Deputy CEO, Thomas Friedberger, explained in detail our approach when it comes to investments and our positioning in the private markets industry. We think that in the context of rising rates and return of inflation, we have built a resilient setup. We can navigate the current environment, and as such, we've been incorporating cycle change within our operations and anticipating the end of what we think was not sustainable. Unreasonable valuation, complacent financing conditions, and high leverage. I think we've been very consistent on that, and you have heard us delivering this message repeatedly over time. First, we are typically, as we've always been, very disciplined in the way we're investing our own funds. I remind you that alignment of interest is at the heart of our model and that our balance sheet is invested in priority in our funds alongside our clients. And so we have been keeping a very strong approach when it comes to investment selectivity. Second, we are positioned on complementary asset classes tackling specific verticals that provide investors with a compelling risk-reward balance in the current environment. We prioritize downside protection, limited leverage, focus on long-term megatrends, nurture a contrarian mindset, not necessarily embracing mainstream trends that you may have seen in the industry during the past few years and which we've been leading to excesses. Third, we remain convinced from the discussions we're having with clients that long-term allocations have not been met yet and that LP's demand for alternative assets is set to remain strong. We'll get back to that. The current cycle, you may see fundraising decisions that can take more time. That's a more cyclical situation. I would say that on a more structural note, we don't see any change in client appetite for our products, actually quite the contrary. If I move now on to slide eight, starting now with our capital deployment momentum, which was very strong in the first half, during which we selectively deployed 3.3 billion euros across our asset classes. This is 1.8 times what we deployed in H1 2021. And there, my first comment would be that this step up in deployment is in fact representative of the growth and expansion of our platform globally. Because what is important to bear in mind is that even though we're deploying more capital, we are maintaining a very high level of selectivity and discipline across our funds. And this is evidenced by the 97% average exclusion rate recorded during the first half. We've been consistently maintaining over the years an exclusion rate of above 95%, even though the number of transactions we've been analyzing and reviewing through our funds has increased dramatically. So it's less than 5% of everything we look at that eventually gets done. As you can also see on this slide, private debt accounted for the majority of H1 2022 deployments, followed by private equity, in particular energy transition and aerospace strategies, and real assets, with mainly the deployment made by SOFIDI over the period. You see here on this slide a couple of examples of the deals that we've been concluding so far. Very high quality companies on strong verticals that we've been supporting across our asset classes. Last KPI maybe on this slide, and an important one, is that we have 5.8 billion euros of dry powder at the end of June 2022, which is down from the 6.2 level at the end of December, but stable compared to end of March, meaning that we've been raising capital, but we've also been able to deploy capital selectively and once again without compromising on asset quality. This dry powder will allow our funds to seize opportunities that will arise in the current context. No doubt that we will see dislocations in the market and review our strategies as very well positioned in the current space, as I said before, be it in private debt or private equity, or obviously with our special opportunity funds. Moving on now to slide nine on realization, which are another interesting part of our model as well, since it shows our capacity to exit some investments and crystallize value for our clients. First, The preliminary comment on that, as you know, most of our closed-end strategies are rather young and still in their investment phase. Second, our closed-end funds have long durations, so we currently are happy to hold onto these assets. We're not a forced seller of anything, so we're delivering performance when we can exit assets in good conditions, but we're also happy to hold onto assets for longer if necessary. Third, we're very cautious in the way we book carried interest in our P&L. There is no carried interest accrual, so we do not rely on short-term realizations to grow our profits. In private debt, obviously, this is where the realization flow is probably the largest, accounting for 52% of realization, the first half, followed by real assets and private equity and tactical strategies. A word on private equity. We've been delivering strong performance for investors in this asset class, and we have started to diversify in good conditions. Typically, with the exit of our investment in Aciteca in Italy, which we already announced, and it generated a 2.6 times multiple and a 45% IRR. Also, I'm happy to share with you, you may have picked up over the news flow of the day, that we just signed two additional exits by our Energy Transition Fund in July 2022, with a partial disposal of our stake in Green Yellow, a leading French developer of smart energy solutions, which crystallized a 1.9 times multiple and 18% IRR to date. We will be partly reinvesting the company to support the shareholder recompensation alongside our friends at Ardian. We also signed an agreement for the disposal of our stake in Groupe Réunion, specialized in energy efficiencies of building, and this investment generated a 1.9 times multiple and an IRR of around 25%. In our real assets division, our infrastructure business in the US, disposed another asset from FundOne with a 2.8 times exit multiple and a 22% IRR for our LPs, our limited partners, our investors. Finally, In February 2022, our Special Opportunities Fund divested a real estate credit investment in the UK, generating a 1.2X multiple invested capital, MOIC, and 17% IRR. So as you can see, even though we do not have a huge realization flow given where we are in our fund cycles, yet we are able to generate strong performance on exited transactions. Moving on now to slide 10. We think it's an important one to give you an idea of the granularity and the resilience of our AUM and our exposure across asset classes. Needless to say that we had many questions on the back of the past few weeks, the past few months and the macro situation. So we wanted to pause here and walk you through this granularity. As you can see from this slide, the top 15 sectors across our assets and the management are accounting for 42% of AUM. And we are talking about a very granular and well-diversified exposure. As you can see, you don't have any single sector accounting for more than 6% of the total. And when it comes to real estate, which accounts for around a third of our AUM, well, as you can see on the right part of the slide, two things. First, Sophie's exposure is very granular with more than 4,500 assets owned through a very small scale granular approach. Second, across the board, we also have very high-quality tenants. We listed here our top tenants at group level, and that's very important because we always want to do business with high-quality partners, whatever the asset class. And with that, you know, we are able to generate consistent and sustainable performances. I also want to remind you that we are investing our own capital within our fund and that is prompting for an extra layer of caution when we are deploying capital across our funds. Moving on now to slide number 11 to give you more proof points on the discipline and selectivity I was referring to. So basically in private debt, we tried to emphasize a very important KPI which is the leverage of the companies we are financing across our direct lending funds. We're standing today at 4.4 times leverage, which is, you know, the ratio of debt to EBDA, which is down basically compared to the previous vintage, which was closer to 4.7 times. So there again, you know, strong discipline in asset selection, despite maybe a more complacent market, we at TKO manage to actually reinforce the downside protection on this financing. Second thing is that we are exposed at 82% to first-in-debt instruments, the highest quality senior section of the capital structure. Third element is that we have computed stable valuation across our funds compared to the end of December 2021. So strong resilience and caution when we are deploying in private debt. In real assets, a couple of stats as well to illustrate the selectivity. First, starting with rent collection rates in the first half of 2022, obviously, you know, which stands above 95%. It has been consistently maintained above 90% even during the COVID crisis. The occupancy rate is still very high at more than 80% in H1 2022. And finally, the asset appreciation across our funds stands at mid-single digits over the first six months of the year. So here again, resilient valuation, and rent collection. In private equity, we wanted to provide you a couple of stats when it comes to portfolio companies across our energy transition or growth equity strategies. Over the last 12 months, they grew their revenue by more than 50% and multiplied their EBITDA by more than 1.4 times, 1.4 times. On top of that, we have seen appreciation by mid-single digits year-to-date in these strategies. Finally, a comment on our special opportunities funds. We have a similar mindset and discipline as evidenced typically by the level of secured investments and the high selectivity rates, which is in line with the group's average. So here again, what you need to remember from this slide is that with discipline when it comes to deploying capital, we are selecting high-quality assets, positions on strong megatrends, and that translates into robust valuation across funds and performance generations for clients. Moving on to slide 12. I was just talking about clients and all that I just described is strongly supportive of our fundraising initiatives. If we are able to increase our fundraising pace and to keep a very strong level of client demand, it is because we're generating performance and it is because we have the capacity to remain selective even as the platform expands. And so in H1 2022, we raised 3.2 billion for our funds, and that is a 36% increase compared to last year. Maybe a word about the comps here. You know, in H1 2021, I mean last year, our capital market strategies raised around 400 million euros, whereas in the first half of 2022, they experienced outflows of 256 million euros. So at the end of the day, net new money coming from our private market strategy specifically amounted to 3.5 billion euros in H1-22 compared to 2 billion in H1 last year, which is a significant 77% step up year on year. That has been driven by private debt, obviously, with our flagship fund, TDL5. I'm happy to announce tonight that we have finalized the fundraising for that strategy for a total of 3.3 billion euros of commitment, which is an impressive 57% uplift compared to the previous vintage. This demonstrates the quality of our teams and the recognition of our expertise in private debt. Let me also add that TDL5 received very strong support from high quality institutional investors globally with more than 35% of commitments received from LPs based outside Europe. In addition, CDL5 has attracted capital from LPs which were already present in the previous vintage and which increased the commitments by close to 60% in these strategies, which is a huge success. Also, real assets. They're contributing significantly with 1.4 billion raised on the one hand from SOFIDI and on the other hand, through our European Value Add platform, which attracted close to 600 million euros of commitments within an evergreen mandate and the first successes of TRIO 2, our second vintage of TKO real estate opportunity. Finally, fundraising for private equity was driven by the first closing of our green asset strategy for close to 100 million euros and co-investment for our energy transition and growth equity strategies. All in all, it's a very strong fundraising momentum that we've experienced across the board. So now a quick word on our client base on slide 13 to illustrate a couple of things. First, the diversity in terms of geography. And second, the diversity in terms of client type and how our client base is evolving. On the left part of these slides, we wanted to show you that international investors today account for 38% of our client base. That's around 13.4 billion euros, and that's a 32% increase compared to H1 2021, a year ago. So we've been expanding the platform. We opened Israel in Tel Aviv earlier in 2022. We opened Frankfurt last year, and we've already recorded fundraising successes in those regions. So we'll keep expanding our platform in the future. An important stat as well for H1 2022 is that 55% of third-party client commitments came from international investors. So this is clearly validating our development model abroad and the scaling of the platform. On the right part of the slide, another angle to look at the client base is how private clients are growing within our AUM. They account for 21% of our AUM at the end of June and for more than 25% of the net new money of the first half, in particular thanks to our dedicated real estate and unit-linked private debt solutions. I'm now on slide 14. An important feature of 2022, and which is at the heart of our growth strategy, is the expansion of our impact platforms. We talked about that during our capital market day in London, and our deputy CEO, Cécile Cabanis, delivered strong messages around that. We've been pioneers in the private equity space, launching the first European energy transition strategy back in 2018. And by the way, it is not on this slide, but I remind you that we are already invested in energy transition since 2011, with several investments from the balance sheet, like, for example, EREN. And since then, we have studied how we could expand our impact platform across asset classes, and that's through both our climate impact center, but also all the sustainability themes strategies. And you can see here, we've been massively expanding the range of strategies that are dedicated to climate, biodiversity, and sustainability. For example, typically the TKO Real Estate Opportunity Fund, two, you know, three or two, This strategy is transitioning to an impact strategy, so we have the capacity to also convert existing strategy to impact-dedicated strategy on top of our flagship impact fund. We also announced new innovative strategies like the Regenerative Agriculture Fund, launched in partnership with AXA and Unilever, or the Decarbonization Fund with Total Energy in North America. Finally, on slide 15, a word on the recognition of our sustainability strategy. First, with a very strong rating for TKO Capital assigned by Sustanalytics of 12.0, which positions the company in the top 1% of its peer group. And also, we've been recognized as responsible lender of the year by private debt investors. We are not implementing an impact strategy or launching impact-dedicated funds just to get awards and ratings. But we understand that they can be useful to help investors better understanding and validating the relevance of our initiatives and all the efforts that we are putting here. Moving on now to our investment portfolio, I'm now on slide 17. First, starting with the way the portfolio has been evolving over the first six months of the year. Our balance sheet investment portfolio reached 3.5 billion euros at the end of June 2022. This compares to 2.7 billion at the end of December. So over the first six months of the year, we have been investing in priority in our own strategies, investing around 900 million euros in and alongside our funds. Around a third of that amount is linked to the acquisition of an LP interest from a leading Asian financial institution in a direct lending fund managed by a leading US alternative manager alongside our credit secondary strategy. Let me add that we are currently in the process of bringing in some co-investors on this position, and it illustrates perfectly how we can use our balance sheet to save value-creating opportunities create a home for a good investment before onboarding third parties, LPs, and these strategies. Typically here, through this specific transaction, we've been doubling the assets under management for our private debt secondary strategy. Back to the slide, we have been performing around €300 million of realizations, including returns of capital. We have had positive changes in fair value for around €140 million. and positive forex impact for an extra 56 million euros linked to the euro-dollar exchange, and Henri will get back to that in the financial review. So, at the end of June, as I said, 3.5 billion euros of investment portfolios, and 80% of that amount is invested within our own strategies, and 20% in the ecosystem and direct investment. Maybe focusing now on slide 18 on the specific composition of our portfolio on slide 21. As I said, 80%, so 2.8 billion euros of the portfolio, is invested within our own strategies. That includes mainly the investment within our funds, which are in fact pretty well balanced between our private market strategies. Roughly a third in private debt, around 25% in real estate, another 25% in private equity. On top of the capital we invest into our own funds, we're also sometimes co-investing alongside them, and we've been also sponsoring three SPACs, one of them which has successfully completed its first business combination last month. So a very strong portfolio, a diversified exposure, and Henry, we walk you through the revenues that this portfolio has been generating in H1 and which are very robust. With that in mind, I will now leave the floor to Henry for the financial review of the first half. Henry, the floor is yours.

Well, thank you, Matthew. Good evening, everyone, and thanks for attending our call tonight. Let me start maybe by a quick word on our fee-paying AUM. I'm actually page 20, which is, as you know, a key metric to actually consider when it comes to revenue generation for our asset management business. Fee-paying AUM have increased by 25% year-over-year, reaching €30.5 billion at end of June 2022. This solid growth has actually been driven by very robust inflows recorded over the first half, combined with a sustained pace of deployment across our strategy, notably on private debt strategies for which, as you know, management fees are actually charged on invested capital. It is actually worth noting that our fee-paying base has been growing faster than the overall asset management AUM since 2019, generating a CAGR of 21% per annum over the period. At the end of June, 86% of our asset management AUM are actually fee-generating, and if you focus more specifically on our closed-end strategies, 91% of AUM have duration of about three years, providing us actually a strong visibility on revenue generation since actually our solutions are sticky with client committees along us over the long term. Let's have a look now maybe at our asset management revenues on slide 21. So management fees and other revenues have increased by 15% year-on-year, reaching 139 million euros and representing 97% of our asset management revenue. Maybe let me start by reminding you that in H1-21, management fees benefited actually from the positive contribution of late management fees for our energy transition strategies, as well as arrangement fees for co-investments in our real assets business. In addition, the level of management fees generated over H1 this year reflects the outflows recorded for capital market strategies mentioned by Matthew previously, for which actually fees are charged on any. So we grew management fees by 15% in spite, I would say, of this high comparable basis. Maybe a word on performance-related revenues. They actually contributed €5 million to asset management revenues, driven mainly by the strong performance of both long-dated private equity and private debt funds, which are gradually actually maturing, and as well several usage funds, which contributed during the semester. Performance-related revenues still have a limited contribution to our asset management revenues given the relative use of our funds as well as the cautious approach we have to recognize carried interest into our financial statements. Turning to page 22, for which we are showing you the evolution of our management fee rate since 2017. Well, once again, I guess this chart is quite self-explanatory. The average management fee rate for the last 12 months, ending end of June, was maintained at a high level, standing at 103%. This actually reflects the positive evolution of the group business mix towards private equity, real assets, which are charging management fees above the current group average, but also the favorable mix in private debt with more direct lending, specifically this year. I would mention that maybe, you know, such evolution has also been driven by the fundraising momentum for SOFIDI, with a growing contribution from subscription fees that are generated in line with SOFIDI's fundraising. As a reminder, the management fee rate for the fiscal year 21 benefited from the positive contribution of late management fees linked to the closing of our private equity energy transition strategy, which took place, if you remember well, in Q1 last year. We are quite satisfied by the way our management fee rate is progressing, and not only are we increasing the fee-paying nature of our AUM, but we are also compounding that with our capacity to maintain the average fee margin at high level, which is actually translating positively into our revenue generation. Moving into next slide, let's have a look at our fee-related earnings. For the first half this year, we generated an FRA of 40.7 million euros, representing a margin of 29.2%. The evolution of FRI mainly reflects the management fee growth that I just described a minute ago, which was actually partially offset in H1 by an increase in our operating costs. Let me here mention that staff costs are representing a bit more than two-thirds of our cost base, and this increase in operating costs is actually driven mainly by two effects. First one being a catch-up in terms of platform investments in H2 2020, One, following the hiring freeze and the postponement of several projects during the COVID pandemic. Second, during the first half of this year, we've been reinforcing our impact platform and strengthening our overall asset management infrastructure to actually support notably the launch of growth initiatives ahead of the cycle changes. Maybe one important point to mention here, as you can see on the chart on the right-hand side, is that the second half of 2021 already factored in the catch-up in platform investment. OPEX were actually up 7% in H1 this year compared to H2 last year. As a long-term asset manager and investor, we do not manage our business on a healthcare basis. Our platform scalability will definitely continue to be a powerful driver for our growth going forward. And this is why we are still very confident on our capacity to actually deliver FRA margin in the mid-40s era by 2026. Yet as well, I think you need to keep in mind that we tend to hire ahead, you know, to support our long-term growth ambition, while remaining very selective in any hiring decisions. We now operate with a strengthened platform, which actually allows us to navigate the current context with confidence and safe, attractive investment opportunities. Maybe turning to our performance-related earnings potential on page 24, let me remind you that actually performance fees and carried interest are representing in our business model a key earning generation engine for TKO Capital in the coming years. As you can see here, AUM, eligible to carried interest, keeps growing at a high pace. reaching actually 15.8 billion euros at the end of June 2022, and showing a 26% year-on-year increase, and therefore growing faster than our asset management AUM, which means that we are actually raising capital in priority into strategies eligible to carry interest, which is set to become a strong revenue and profit engine once again. One important point to mention on the total AUM eligible to carry interest 12.2 billion were actually invested and 7.1 billion generated IR above their order rate and that figure is actually up 82% versus a year ago. As I mentioned earlier, I would remind you that our revenue generation in asset management is today more geared towards management fees, given that our large funds are still young. We are expecting to start generating more material performance-related reviews when our first flagship fund will actually mature. Also keep in mind that we've been pretty cautious. We've been adopting a pretty cautious approach when it comes to recognizing performance fees. We only book them when we are certain that we can actually going to realize them. As such, we are not exposed to any global risk or negative performance fees into our panel. And finally, I would like to mention, but I think I already highlighted this before, that we have a very much shareholder-friendly approach in terms of allocation of carry and performance fees. 100% of performance fees and 53% of carry interest are actually allocated to the listed company for the shareholder. Maybe moving now into our portfolio performance on page 25. As you can see here, our investment portfolio delivered robust performance over the first half, generating actually 275 million euros of revenues, representing a 9% growth. year over year, this growth has actually been achieved despite the significant change in our portfolio and with the disposal of some of our listed investments, which generated more than 100 million euros of revenue last year. So as you can see here on the slide in dark green, TKO Capital asset management strategies, including TKO Funds, co-investments alongside our strategies and SPAC sponsoring actually contributed 132 million euros to H122 portfolio revenues, representing actually 48% of the total, and which is actually a 77% growth compared to last year. This revenue stream will actually continue to grow as the Group's balance sheet invests in our own asset management strategy. In addition to that, as you can see on the slide, you know, ecosystem and direct investment generated 144 million euros of revenues, reflecting in particular the positive fair value change for our co-investment in Univision, which is actually the largest Spanish-language media company in the United States, following the merger with Televisa that took place, the Mexican TV giant, We actually made this co-investment alongside the Forge Light, which is an investment company focused on the media and consumer technology sector, which was founded by Wade Davis, which was most recently the CFO of Viacom. Finally, H122 portfolio revenues included 56 million euros of positive forex effects due to the appreciation of the US dollar against euro, which I will comment in a second. We are now page 26, and as you can see here, the unrealized revenues amounted to 196 million euros over the first half this year, representing the bulk of our portfolio revenue generation. These amounts actually reflect three main elements to be considered. First one, the positive map to market in our own strategies, given the strong performance of four funds, notably described by Matthew previously. Second, the positive fair value changes of our ecosystem investments, including our co-investment, just mentioned a minute ago in Univision. And third point to be mentioned, the positive forex impact linked to the appreciation of dollar against euro. As for realized revenue, they remained stable over the semester with the contribution of TKO funds which was up 20% year over year and they were mainly driven by the continued increase of dividends, coupons and distributions. We highlighted as well on the top of the chart actually the level of return generated by our own portfolio, which is calculated by dividing annualized revenue by the average portfolio fair value between end 21 and end of June 22. And as such, at the end of June 22, portfolio gross return amounted to 80%, which was actually a level stable compared to H1 last year. So maybe let's wrap up by looking at our profit and loss for the first half of this year, page 27. The main takeaways are actually the following. So overall, a stable level of asset management EBIT, despite high level of comparison for H121, and despite the catch-up and acceleration in platform investment to support our long-term growth. Then a resilient investment portfolio, generating an 18% of gross return. To be mentioned, group operating expenses increasing in H1, in particular due to a number of one-off expenses linked to the acceleration of the group brand building efforts globally. Financial interest reaching a profit of 9 million euros mainly due to positive changes in swap fair value which were partially offset by higher financial interest linked to the US private placement which we completed this year in February 2022. Non-recurring items, which had a positive impact of 20 million euros, including notably some positive euro-dollar additional forex effects. And finally, a net results group share, which has reached 277 million euros compared to 176 million euros last year, representing actually a 58% increase year over year. Well, before handing over to Mathieu, maybe moving to page 28 and to be mentioned the key figures of our robust balance sheet. Our model is supported by a strong financial means with 3.1 billion euros of equity and short-term financial resources of 1.2 billion euros, of which around 450 million euros of cash. The evolution of the level of cash compared to end 21 reflects actually the investments carried out over the period, as well as the payment for dividend of one euro per share. We also benefit from an orange zone RCS, which has increased over the period to 800 billion euro in March 22, and we have as well an extended maturity to July 27. As you may have seen as well, an important point to be mentioned is that we have been assigned an investment-grade credit rating by S&P BBB- with a stable outlook, confirming once again the strength of our business model and our financial structure. In addition, PIP's rating has reaffirmed our investment-grade rating earlier this year. Finally, as you know, sustainability is at the heart of our DNA, whether in terms of investment, as previously mentioned by Matthew, but also at the level of group financing and as such. Following the issuance of our inaugural sustainable bond in March 2021 and the pricing of our inaugural sustainable USPP earlier this year, ESG-linked debts account now for 65% of our total debt compared to actually a level of zero at the end of December 2022. Maybe, Mathieu, back to you for concluding remarks.

Thank you. Thanks, Henri. I think that we had the opportunity with many of you to discuss over the past few weeks, if not months, our positioning and the way TKO and the whole partners were looking at the whole situation. Needless to say, we've entered a new cycle and happy to address some of that during the Q&A. But we couldn't be better positioned to effectively tackle and face this new cycle that for many of us and certainly many of our market participants has been unseen in terms of this raising interest rates and the inflation that we are operating with now. So before jumping into the Q&A session, let me address on slide 30 a couple of points in terms of outlook with our perception of the market currently. and how we're going to navigate the current cycle. First, as I said in my introduction, we think that investor allocation remains well-oriented. The structural tailwinds supporting the long-term growth of our industry are still very much there, such as demographic growth and investor need for excess return to serve their long-term liabilities. LPs have not yet reached their allocation targets. We are definitely benefiting from these secular long-term trends, And the capacity that private markets have to generate overperformance and sustainable returns is absolutely critical when it comes to drive future play and demand. Second, and we've been repeating that over time, is that we have built at TKO Capital a resilient setup in order to navigate rough economic conditions. For a moment now, we've been talking about this excess in leverage in the system. We've been talking about our discipline approach in response to that. We've been talking about how we wanted to stay away from unreasonable valuation or just follower strength and how we are willing to operate with a strong and liquid balance sheet. I think that Henry reinforced this point and I would like all of you to keep that in mind. We think that this setup in the current context is critical. In addition to that, I would add that we're positioned on a variety of asset classes that offer compelling risk returns for LPs, and especially in the current rising rates environments. Direct lending with falling rates instruments, real assets with rents or concessions, index on inflation, strong megatrends in private equity, U.S. mid-market infrastructure, et cetera. And all that, again, let me insist on that, with very limited leverage across the board. So we are entering H2 2022 with the reinforced platform. We invested in the platform as Henry said, I mean, we've developed our staff, we launched some growth initiative and adjacencies that require additional staffing and support. And that's important in our view to do that as the cycle turns. I mean, the markets, our industry, are going to enter an area of turbulence. I just alluded to that. And so to capture this location and to save these opportunities, we felt that it was the right moment to accelerate platform investments. For those of you following us for some time now, I think you will give us credit that we've never been as good as navigating adverse cycles and moments. I can think of 2009, of 2012, Obviously, 16 more recently, you know, with the COVID that we all got dragged into. So, you know, I think that this environment will be much more discriminating, you know, for investors, for asset managers. That's what, you know, LPs and investors will be rewarding. And once again, you know, we believe that skin in the game, alignment of interest will discriminate the performance. So to wrap up slide 31st, of course, we are confirming our 2026 target. There is no doubt about that. Let me remind you that we are targeting over 250 million euros of FRA by 2026 and an FRA margin in the mid-40s region. We are also targeting mid-teens return on equity driven by both our asset management and our compounding balance sheet. And this first half is another evidence to the benefits of this dual model. Finally, obviously, the capacity to keep scaling our strategies and more than double our AUM. I think You know, we're very well positioned, you know, to deliver that. Let me thank, you know, all our team and all our colleagues, partners who've been, you know, weathering this fairly adverse past few months. And with that, you know, we're opening the floor to questions. So, operator, please open the floor. Thank you.

Thank you. If you would like to ask a question, please press R1 on your telephone keypad. Please ensure your line is unmuted locally as you will be advised when to ask your question. So once again, that's star one, if you would like to ask a question. The first question comes from the line of Nicholas Pierman from Citi. Please go ahead.

Yes, good evening, and thank you for taking my questions.

Speak for me, please, or rather three themes. Just firstly, on debt and credit, can I just ask if there have been any changes to what we're effectively what you're assuming in terms of CLO and lending default rates going forward, and if there have been any changes there. And as part of that as well, could you just remind us, please, what your, on the direct lending side, what the portfolio company average interest hedge duration is, please? So that would be the first bucket. On fundraising, I hear what you're saying about no change to investor preferences and long-term allocations, but we have seen some institution investors slow their allocations. So could you just talk about trying to marry those two? And similarly, should we be thinking also about fundraising being more front-loaded this year given the close of TDL5? And then finally, just on the cost side, look, I totally agree with you and I understand this could be the right moment to invest.

But I guess the obvious question is, are there still significant more investments to come this year? Thank you.

Thanks, Nicholas.

Maybe I'll start, and please, Henry, Louis, please jump in. So on the credit default rate assumptions, I mean, maybe two points on your question. I mean, if we're looking at the leveraged loan market, and the way we're addressing that either through, you know, our unlevered leverage on funds or through the CLO. Effectively, we've been, you know, stressing our own underlying assumptions.

I mean, you know, I mean... Constant default rate, sorry.

And clearly, we are stressing our own base case. And remember that we tend to be a principal investors in our own strategy. We just closed... our second CLO in the US last week in a fairly adverse market. We are in the market now with our CLO number seven. And so we're stressing these assumptions. Once again, not to squeeze the extra return on the equity. We tend to be at the main equity holder and our targeted return is what I just reiterated, some meeting returns. So we want to have a very conservative underwriting approach. I mean, we're not buying the market. You know how the CLO market is structured. It's easy, you know, to just to be a gobbling up whatever comes out of the investment banks. We're extremely selective. We have a in-house, you know, a credit committee that where we share, where we share all these, where we share. So all views, both in London and New York, but we've been stressing that effectively internally more to a 4-5%, which is our underwriting case. It's the cleanest view of the world. That's for the leveraged loan market. Obviously, the market has been a little bit congested lately, which is actually a very good timing to ramp up and take advantage of significantly discounted loans in the market. On the direct lending, obviously it's very different. I think we highlighted in the slideshow the fact that the current portfolio that we are managing today in direct lending is actually on the return at a lower average net debt to a BDA ratio of 4.4 than we had in the previous year, which was more like 4.7. So that's an evidence, that's a KPI because obviously our portfolios are extremely granular and any credit is specifically But it's a good illustration of the approach we are taking on the direct lending. We've been having many discussions with our direct lending team starting a few months ago when the public market started to trade down. And clearly, we couldn't be in a position, unlike some of our competitors, to effectively publicly rated public markets we're trading at. So that's where our special ops funds have been effectively stepping in and increasing the investment pace. But as the inventory cleans up, we see a more healthy environment for effectively a direct lender to generate attractive returns on this new vintage. And that's why, as I mentioned, we're very happy to announce the final close of this strategy at 3.3 billion euros. you know, tonight, that effectively dry powder that we have to start investing in what is, you know, a new cycle. And the last question about the fundraising, I mean, you mentioned effectively we are closing, you know, today, I mean, actually, or announcing, you know, the close of the strategy of direct lending, but we keep raising some dedicated funds FMAs, you know, some dedicated funds for some investors. So we're constantly in the market, you know, discussing with investors for this strategy. And what we've been, you know, saying lately is that people are readjusting their risk target returns. So if I'm sketching a bit, you know, the people who are navigating the tech venture world, you know, hoping to make 10x in a year today are effectively asking us to deliver 10% for the next 10 years. And that's where TKO is highly positioned with the platform to be the gateway into yield products, regardless of the cycle. We're not here to time the market. We're here to invest across cycles. And I will leave you with our special opportunity strategy, which obviously is key and core to the TKO platform and DNA. We're right now in the market with the strategy, with the fund number three, And needless to say that there is a very significant appetite and interest for investors to be able to take advantage of this cycle.

Maybe one last point, maybe as far as your question on cost is concerned, and maybe more specifically on humility learning. As I mentioned previously, we have invested into the platform, notably on the second half of 2021. And as far as the full year expectation of concern, you know, I think the target that we had set, which is an FRE over 100 million euros for the year, is still valid, and we are confident with this target.

Thank you. That's really helpful. Sorry, the line cut out on my end. So did you – sorry, guide to the portfolio company average – interest rate head, sorry, interest or loan hedge duration.

Apologies missed.

We'll come back to you.

No, I was about to say on the loan side, obviously, you know, we're an asset taker, so we're not in the discussion with the borrowers. On the direct lending side, you know, on the mid market, I don't know if Henry, you have this number handy, otherwise we'll get back to you.

We'll come back to you in a second with the duration of the instruments within our latest vintage. Lovely.

Thank you. The next question comes from the line of Tom Mills from Jefferies. Please go ahead.

Good evening, guys. I just had a couple of questions, please. Also touching on the kind of fundraising outlook, could you just give us an idea of maybe what's in the pipeline in terms of new product launches in the second half of the year. Just to get an idea of that. Can you give us an idea how much of TDL5 is already included in the 30th of June AUM and how much to follow? And then finally, just on, you know, fund performance issues, or portfolio performance within the direct lending strategy. I think Arias was saying earlier that their European direct lending performance was up 2.6% in terms of gross return in the quarter and up 11% over the last 12 months. I mean, are those kind of figures that you'd recognise as being relatively similar for your own

uh strategies um or better or worse um can you give us some idea how you're tracking versus that versus that thanks very much so much maybe maybe i'll start and please and we know jump in thanks tom for the question first of all the direct ending you know you're picking up on the areas um i would stress that maybe unlike you know some of uh these competitors were not positioned exactly in the same part of the market. As you've seen, you know, these competitors have been stepping in to effectively clean up part of the public market inventories as the past few weeks or months, you know, were effectively struggling when, you know, our investment landscape remains European, you know, European mid-market. So maybe the segment of the market is slightly different and we can, you know, come back to that. So if you give the numbers, you're giving the compounding of the underlying coupon, you know, quarter on quarter. And if effectively, if you annualize that, you have to retreat from leverage. You know, that's probably what I would flag. I don't need these returns or reporting on a levered or unlevered basis. And as you know, at TKO, we have very limited embedded leverage in the various funds. So any performance we're reporting is net of this leverage. On the fundraising and the pipeline, and I will let maybe Henry, you have the answer of how much TDL 5 makes up at the end of June 30th, I will let you comment in a minute. But on the fundraising and the pipeline, Tom, if you go through the various strategies, on the private credit taken as a whole, obviously the flagship TDL fund is closing here, but I said there are many many side vehicles that we are constantly discussing. I mean, Special Ops is the second big leg of H2. And you know what we call Special Ops TKO is by no means distressed. It's very much bespoke, you know, direct, downside protected, contractually high return, you know, type of financing that we can do both on the public and the private market. That's one coming. We were talking about leveraged loans. Obviously, our CELO platform keeps issuing, and that's one thing where we've allocated more resources, something that we can scale significantly. A general comment I would make is, as you've been witnessing over the past, let's say, five years since we went public, we're constantly looking for adjacencies, which are hopefully the next big megatrend in new projects, new proposals for investors, then the key is to scale up. And what we've just demonstrated, if you come back to TGL, for example, which, as you may remember, our first vintage goes back to 2008, so 14 years, is exactly that. It's to come up with this adjacency that we can then scale up and be a full-steam contributor to the overall P&L of the group. So if you get into real assets, real estate, and infrastructure, as we mentioned, we're coming now with the second vintage of our TKO Real Estate Opportunity Fund. That's one you're going to see for the second half as well. We close on the fund number two of the infrastructure fund in the US. And on the private equity, which is the most recent quote-unquote strategy of the overall platform, but that is running probably the fastest now, Not only, you know, we're still, you know, I think, you know, paving the way and showing, you know, keeping the lead in this megatrend such as the energy transition. We discussed that. Regenerative, you know, agro is another one that we announced a couple of weeks ago. And all those strategies, you know, would be critical not only in the next, you know,

Well, Tom, maybe to come back to your question, effectively, on TDL5.

And coming back to the overall TKO platform being additional contributors to the overall profitability of the firm. Sorry, Henry, you wanted to answer the June 30th on TDL?

Yeah, yeah, correct. As far as Tom's question is concerned. So we have an additional 50, a little bit more than 150 million euros that are not booked in our AUM at the end of June and that will be booked actually in July. Maybe to come back as well on the previous question as far as the duration of the hedge of our portfolio company. So our portfolio company within our direct lending portfolio are actually hedged at an average duration of three years.

Could I just ask a quick follow-up on the CLA fundraise that you've got going on? And obviously you guys have been active, regularly active fundraising in that market. I guess there's been, you know, there's obviously a lot of press reports that the leveraged loan market is completely frozen up at the moment. You know, as you're raising these new funds, is there a kind of product to put into them straight away of high quality or will you need to see that market kind of switch back on a bit before you get some more deal flow coming through? Thanks very much.

Sorry, Tom, you cut off on the second part of your question. I hope you can hear me all right. The comment I wanted to make on the Cielo, which is a very scalable strategy for us, is the fact that over the years we've managed to with our equity investor approach, the fact that we are very much debt-friendly managers, and despite the fairly adverse environments over the past you know few weeks what we've managed to do both in the US you know on the recent pricing of our serial number two and what we're trying to do in Europe right now is to leverage you know this relationship this institutional relationships you know when it comes let's say you know AAA has been you know one of the challenging parts you know the cap stack recently we've managed you know to effectively leverage the whole platform institutional relationships so that We're no longer, you know, a price taker and an asset gatherer, but we're very much in partnership in the management we're doing both for debt investors and for the equity investors. So that's one thing that, you know, despite the relatively, you know, more modest FRE contribution or management fee contribution, I should say, you know, to the CLO platform on an operating margin basis, you've got a very nice runway here because of the operating leverage of the product and where we're trying to effectively dedicate the whole CTO platform to maximize pricing and fundraising despite adverse conditions.

Okay, that's helpful. Thanks, Mathieu and Henri as well.

Thank you.

The next question comes from the line of Nicolas Payan from Capelaire-Chapre. Please go ahead.

Yes, good afternoon. Thanks for taking my question. I have two questions, actually. The first one will be on the FRE margin and costs more in general. I can't help but notice that actually it's the fourth semester in which the FRE margin is decreasing. I completely hear you regarding the front-loading of investment. And I want you to know how much of front-loading you have made actually in this semester and how much was catch-up investments. in order to get maybe a new run rate regarding your cost based in the asset management business. And the second question would be on your performance in your investment portfolio, which for me was actually much more than resilient, was actually very good. And how much of this was due to Televisa Univision, maybe to give us a more precise view and granular view on the performance? Thank you.

Thanks. Well, not sure to fully be in line on your comments on the decrease, the fourth quarter of decrease in the FRI margin because I think we've had increase on second semester last year. Once again here, effectively we had a catch up during the first semester as far as operating expenses are concerned, as far as full year FRI expectation are concerned. Once again, I should repeat that we had a guidance for the year 2022 in terms of SRE, which was to achieve a number above €100 million, and this guidance is still actually alive, and we are confident that we can achieve that guidance for the full year 2022. Now your question on the revenue is how much was the impact of Univision, correct?

Yes, correct.

So the impact of Univision within the portfolio revenue is actually 72 million euros within our portfolio revenue for during the first semester. Very useful, thank you.

The next question comes from the line of Joran van Aken from the group Petercam. Please go ahead.

Yes, good evening, everyone. I had two questions, but the first one is already answered. The second one, also just coming back to the FRE margin, that it's a bit lower because of investments, I understand. But should we then expect a nice improvement of the FRE margin into H2, let's say to the level of 2021, or is that too fast? Thank you.

It's really the...

you know, the path to the target that we reiterated of mid-40s by 2026, you know, is not linear, obviously, because it depends on the increase in fundraising and effectively the conversion into revenues. You know, a private equity fund pays on committed capital when direct lending fund, you know, pays, for example, invested capital. So you've got this kind of stairs effect toward this mid-40s target that we're reiterating and effectively by not only front-loading all these expenses we spent you know a fair bit of time on that and I reiterate what I the comment I made earlier on not only we're going to be you know much more selective on new investment on new platform investment on new hiring but also you know a much more disciplined cost management which obviously will be a drop through onto the margin maybe I really want to add

No, no, no further comment on that. I think we mentioned in terms of FR emerging for the year 22 expectation already on that.

Okay, thanks.

I'll just, if I may, you know, illustrate, because, you know, you've got, what are your expenses? You know, they're mainly effectively, you know, people, but then, you know, it's effectively the structure and the infrastructure. When we decided, you know, to go ahead, and this year was about, you know, Israel and opening, you know, an office in Tel Aviv, our two colleagues, Rudi and Asaf, who joined us, that was the blank page. It's a blank page, it's an office, it's two people we've been knowing for some time, and fast forward six months, that's probably one of the most promising launch we had in some years. So you've got some, in terms of fundraising, I'm talking in terms of fundraising in a new geography where we had a selected number of relationships. So that's why I'm saying all that is not linear. But it's really about maximizing the platform and all that creates a drop-through on the operating margin, which remains, as I said, one of the key KPIs we are monitoring and giving you guidance on.

And let me remind you as well on top of that, that H121 actually benefited from more than 4 million euros of catch-up fees on our energy transition fund, and an additional €2 million of fees on our real estate investment platform as well last year. One-off effect.

Thanks, very clear.

The next question comes from the line of Christoph from Barenburg. Please go ahead.

Yes, good evening, and thanks a lot for taking my questions. Yeah, three from my side, if I may. First, a follow-up on the fundraising. Apologies as I missed some of the previous answers. When I look back at the seasonality of your fundraising over recent years, it was typically skewed towards the second half. Given the strong performance in H1, is it reasonable to assume that the seasonality this year will look different to previous years? And then on the corporate cost, the group corporate cost, so they've gone up by about 10 million compared to last year, H1. I think you mentioned there were a number of one-offs related to brand building. So maybe if you could just provide a bit more color on what were these initiatives, and is it fair to assume that we will go back to the level of previous year as of H2? And then lastly, regarding the carrot you mentioned during the presentation, Obviously, there will be a step up in the carriage generation once the first flagship funds mature. So maybe if you could remind us which year we can expect that to happen. Thank you.

Thanks, Christophe. I may start on your first question and let Henri comment on the carriage or the PRA. But the fundraising, as you know, and we discussed, you and us at Lent, This is always dependent on the strategy, the vintage, but also the expansion of the platform and the investors we're talking to. So I was giving this example about Israel.

That was an area where we had... It was about Germany.

We discussed that and so on and so forth. And all those investments that we made, because needless to say that when you open an office, you have to pay your rent, you have to pay the salaries, and yet you don't have enough a single investor or a euro of management fee or revenues, and then the operating leverage, you know, kicks in. So we've got our core domestic markets defined as, you know, wider Europe. We have, you know, our wider discussions in Asia. You know, we celebrated a few months ago our fifth anniversary in Seoul, Korea, which has been a tremendous contributor, you know, to many of our private debt strategies as you know we're expanding in north america we've been having a number of dialogue in some part of the globe where we're not present yet and so all these additional uh dialogue are paying off so that you're not saturating your lp base you know when i keep reading some of our competitors mainly on the private equity talking about the congestions of the fundraising environment that if effectively one given investors is being shown Every day, every week, the same strategy by many managers they've been allocating to in the past. But if you're opening new relationship, if you're effectively convincing this new relationship of the TKO model, which is very singular, you know, and very particular, you know, in this king of the game approach, then that's both extremely well done. for a continued fundraising. So the seasonality will certainly remain. Obviously, the past few weeks, you had a little bit of a pause moment because people were panicking. Sometimes I'm a bit surprised to see people that surprised. There's nothing that we could not have predicted in this rising interest rates environment. But we feel very comfortable not only to confirm these targets and an outlook, but as you know as well, to do whatever it takes to outpace and outperform these targets.

Maybe one additional comment as well on that. I hear your comment on fundraising H1 versus H2. I think it also depends as well on when we are closing the fundraising of the strategies and when we are launching a new strategy. For instance, this year we actually completed during H1 the final close of including July of TL5, and we are launching some new flagship strategies. Mathieu mentioned TSO3 or TSO2 during H2, so it also depends on that. I'm not sure that we can always replicate, if it could be, seasonability from H1 to H2. Christophe, as far as your question is concerned on corporate costs, effectively you do have included in the figures for H1 approximately 4 to 5 million euros of one-off costs on communication and travel for this first semester and an additional communication effort that was carried out by the group, which are actually one of the effects. Maybe to come back as well on your last question on carried interest. Well, definitely no surprise on that. It will be linked to realization and notably as far as private debt, and real estate is concerned. So we have, as you can see, the figures for the first semester with 0.6 billion euros of realizations. Once we will be progressively exiting, notably on TDL3, on our real estate mutual fund as well, we've started some exiting plans in the current context. So as this exists, we'll materialize in 2023 and 2024. We will have carried interest generation coming into the system.

That's very clear. Maybe if I could just ask one more question with regard to the US dollar strength, because you mentioned the impact on your balance sheet portfolio. I was just wondering, given that you also have asset management activities in the US, was there a meaningful impact from the US dollars on your management fees and the costs in asset management?

Well, it's not that significant as far as operating costs. It has effectively an impact on our costs, but not that significant to be mentioned.

Okay, Adam. Thank you.

And if I can just add, Christophe, one other milestone of the year was to start diversifying our funding sources. You may recall we issued our first long-dated U.S. private placements. So we're also now diversifying not only our investor base, but our dollar funding through that route.

Next question comes from the line of Mandeep Jagpal from RBC Capital Markets. Please go ahead.

Good evening. Thank you for the presentation and taking my questions. Two for me, please. The first is on TDL5. I think you said the fund size was around 60% larger than the previous vintage. And I was interested in whether there was any change in the strategy for this fund versus historically. For example, will the average ticket size remain the same? Or will Tickerhound now need to focus on more companies at the larger end of the mid-market category? And then the second question is on deployment. You said that you remain selective but I'd be interested to know how you've changed your thinking this year around which sectors are attractive or unattractive given the current landscape in particular given the ongoing energy crisis in Europe and then as a follow on to that I know you have granular exposure but do you have any concerns for any of the current portfolio companies and are there any actions that you can take to help them through any difficulties that they might have?

Thanks, Mandeep.

I will start on the direct lending. The answer is no, we're not going to be changing the strategy by moving up to a larger company. I think I alluded to that earlier on. I mean, we're coming out of a very, very complacent public market environment. I will not come back to that. And when I see private lenders competing shoulder to shoulder you know with public markets which had been extremely complex and my question has always been where do they have to compromise to be competitive you know since you know the price the structure of the covenants was already extremely extremely loose while you know on the contrary you know the mid market which is core to our development which is where you know you're effectively financing you know the real economy is where you can make a difference not only by providing you know funding to some companies who would not access otherwise on the public market on the broadly syndicated, you know, loan market, but also to investors, to our investors, we've got fiduciary duties and we are most of the time, the largest LP, as you know, effectively a risk adjusted return that generates a very nice, you know, arbitrage. So there is no intention, you know, to move, uh, uh, over the spectrum, you know, here, I mean, very tactically or, um, right now because effectively there is a broken public market, if you allow me the expression. Obviously, we will take advantage of that through our special opportunity strategy, but we don't want to lose track of what makes the TKO difference in providing this type of financing. So you should see us extremely constant here, while being even more selective, as I said, in deploying this additional dry powder. On the industry, I mean, we've tried to be, in this slide we were showing you earlier, we tried to be extremely granular to show effectively the very low dependence to any given sector or industry. I mean, some of them are obviously in omega trends that we keep on investing a lot into, particularly on the extremely, even extremely adverse to all the tech or, you know, even more so, you know, venture play that has been, you know, very crowded places and that has been probably the most impacted by the recent downturn, you know, in the market. So, you know, we keep on trying to identifying some mature company or some profitable company we need to scale, you know, again, with this filter of the trends we want to be exposed to But you should not see us just to, you know, to run around like a headless chicken just to take advantage because there is one part of the market that is broken at any given point in time. You know, we try to stick... Risk management is the fact that ourselves, you know, are first and foremost, you know, principle through our balance sheet, through the partners and the team, you know, capital. And that has, you know, proven that's why, you know, hopefully... this set of results is illustrating this approach. And as far as concern in the portfolio, we keep on having our portfolio review and evaluation, not only the investment team, but with the external auditors. And I would say it's business as usual in monitoring the operating metrics of these companies. What may have changed are effectively more the exit valuation or exit assumption that sometimes controlled buyout firms have been making in their underwriting, but we're not that much into these markets. Obviously, our private debt, our compounding strategies, so our real assets strategies through rents, concessions, coupons, and our private equity strategies are very much expansion capital where we provide growth capital to entrepreneurs to scale and maximize the solution they have to provide. And this on the country could be a great way for us to take advantage and consolidate. That's what we've been demonstrating through our aerospace strategy, through TKO Ace Capital, extremely active in being, you know, very much what we are trying to do.

Great. Thank you.

Next question comes from the line of Carlo Tomaselli from Societe Generale. Please go ahead.

Yes, good evening. Thanks for the presentation. And I have three questions, please. The first one is on the asset class mix in terms of value-add AUM evolution. It was 22% at the end of 2021. Could you give some visibility on the current level? The second question is on the ESG-compliant AUM. In the first half, in terms of Article 8 and Article 9 breakdown, can we have also the evolution compared to 2021? Final question is on the real estate, real asset margin, which posted the spike at 116 basis points. I hear you when you say that it was supported by fundraising momentum at Sofidi. I was wondering if there is any additional impact supporting it and if the level is sustainable going forward. Thank you.

Well, thanks for your question. So maybe I will start by your second question while on ESG. And as you know, we were at 1.5 billion euros last year classified under the this classification we had targeted you know 5 billion euro at end of June we are actually at 2.1 billion euro as far as this KPI is related so moving from 1.5 to 2.1 Well, then to come back on your third question on management fees, this is definitely, you know, the 103 basis points that we are achieving for this first semester is definitely, you know, a level that we can sustain. We know, we remind you that during the capital market day that took place in March, we said that our hypothesis for our plan 2025-2026 was to remain at such levels. So we had not anticipated in our guidance of FRA at 250 million euros, we had not anticipated any increase in this level of management fee. But everything we see, notably as far as fundraising is concerned, and coming back to your question in terms of mixed, and notably as far as all the, your first question, but all the flagship strategies that we are actually, that will fundraise in the coming quarter. Would that be on the real estate as far as our new value add fund is concerned? Would that be on our special ops fund? And all the other projects we are having, definitely we see a level of management fees which is at least in line with the level we have achieved over the last quarter, semester, and years. To come back precisely maybe to your first question as far as the percentage of AUM in value add, we currently stand at 25% at end of June 22.

Sorry, you said 25? Yes, correct. Yes. 25 from 22. OK.

Yes.

Thank you.

Next question comes from the line of Nicolas Veselier from BNP Paribas. Please go ahead.

Hi, good evening, gentlemen. Thank you for taking my question. I'll have three quick questions on my side. Sorry for the first one to make you repeat. Actually, one of the questions of my colleague previously was one of mine, and the line has cut a bit, so I didn't hear your answer. On the real estate, management fee margin the the step up we have seen to 116 i was wondering if it's mainly due to the strong fundraising of sophie as well or um if it's uh i can be something that can be maintained and then on the on the two other questions i had um should we expect the run rate of h1 uh cost at the operating cost at the management fee the management company level to be more or less what we are going to see in H222. I appreciate that you have front-loaded the cost and now you are going maybe to slow down on cost growth on that side, but it would be would be helpful to know if that's more or less the run rate for the rest of the year. And certainly, I was curious to know as well on the fundraising for the reminder of the year. What are the next big events after the closing of TDL5? Thank you very much.

Okay, thanks. Well, coming back maybe to your first question, as the level of management fees is concerned for real estate. So several issues, it has moved up effectively at 116 basis points for the last 12 months measurement. Several points to be mentioned. First, effectively, you do have the impact of the strong fundraising momentum at SOFIDI, but I think actually this is a structural point. The way the level of management fees and subscription fees are actually set up at SOFIDI, we've been benefiting strongly from that, and notably since 2018 and the acquisition. Remember that AUM from SOFIDI have moved from less than $5 billion to over $7 billion, so very strong fundamental good dynamics. Maybe an additional point to be mentioned as well is as far as our new generation of value-add fund we are launching, we are effectively modifying the level of management fees, which was actually previously charge on invested capital and that would be charged now on capital committed. So it is actually an additional change we are implementing actually in our new strategy. Your question on OPEX run rate and so on, I think we've already answered that question, but if I may come back maybe on a few figures. Actually, you know, FRI for the year 20 was standing at 70 million euros, 35%. 21, the FRA was sitting at 94 million with a 36% margin. So we have increased for the year 21 our FRA margin. As far as 2020... 2022 is concerned, we are expecting over €100 million of FRI and we will have actually an improvement or a stable, at least, FRI margin for the year 2022. And you can effectively have a look at the semester, which actually does not make sense, and you can see the evolution. Let me remind you a few figures, but FRI was actually 15 million euros in 2019, 30% margin, then 70 in 20 with 35, 94 with 36 in 21, so clearly the trajectory is set. We will be once again over 100 million FRE for the year 22, which was our previous guidance, and our guidance is clear and confirmed for 2026, which is over €250 million and mid-40s margin, so that's where we are clearly going. Then to come back on your question on fundraising, maybe I can reiterate what we said earlier, but I mean the fundraising pipeline for H2 will be quite different from H2 last year or even from H1 this year. You know, we've just finalized fifth vintage of our direct lending fund, so we have now several flagship strategies that will actually raise with their successor fund. I can notice, you know, our real estate mutual, real estate fund, TREO number two, or our special ops fund number three. On top of that, you know, we have strategies that will be finalized their fundraising. I can notice that TPDS in the U.S., Impact Landing, and AeroFund, which is still open, actually, until the end of the year. And then, as we mentioned, third part, we will have adjacencies in line with our decarbonization strategy, which will launch in 2022, TKO Green Assets, North American decarbonization, and Regenerative Agriculture Fund.

Thank you very much. If I may just ask an additional quick one. On the income component of your investment company revenues, so the interest and dividend income you receive every semester. I was curious to know if you could tell us what kind of yield you are achieving on average on your portfolio. Is it closer to 5% or what kind of guidance you can provide to us? Thank you very much.

Well, overall, the revenues overall in the portfolio stands actually at 18% for the first semester.

OK, thank you very much.

Maybe do we have one last question before we end this call, please?

Excuse me. From OdoBHF, you are now unmuted. Please go ahead.

Hi, gentlemen. Thank you for the Q&A. Just one question on the liquidity of the stock. We've continued to new shares, and you have extended your share buyback program.

Well, I think we've been cut. Are you still on the line or?