Partners Group Private Equity Limited

Ladies and gentlemen, welcome to the Prince's Private Equity Holding Q2 2023 Investor Conference Call and Live Webcast. I'm Alice, the Colosco operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. Webcast viewers may submit their questions inviting by the relative field. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sarah Page, Head of Industrial Relations for Princess Private Equity. Please go ahead, Madam.

Good morning and welcome, everyone. Thank you for joining Princess' 2023 Interim Results Call. We have a few topics to cover today, and I'm joined by Fionnuala Carville, Interim Chair of Princess, Cyril Whipsley, who's Senior Partner at Partners Group, and Oliver O'Brien from the Partners Group ESG team. I'll quickly cover the headline numbers and then hand over to Cyril. So global buyout activity in private markets has remained muted in 2023 so far, and appetite for private equity investments continue to diminish against the challenging backdrop of monetary tightening, recessionary risks, and have paid in two installments. With the share price increasing by 23% up to June, share price total return was 27.8% and the discount narrowed by 12% from 42% to 30%. So we're pleased to say that this brings Princess's discount back in line with peers. Now, despite the challenging environment that I mentioned continuing into Q2, we have at the portfolio company level seen a good level of tuck-in activity, as I mentioned. Secondly, the operational performance continues to be enhanced with strategic initiatives tailored to each company. So you'll see that revenue and EBITDA growth has remained healthy, but the impact of inflation has slowed growth somewhat. However, inflation is coming down on goods and products as well as energy costs, but remains sticky for services through wage inflation. But despite this, EBITDA margin continues to be above 20%, and our valuation multiples are in line with growth sectors in public markets, as we had previously shown in the annual results presentation. And that is why we are feeling comfortable with the valuations. But then Partners Group active ownership and entrepreneurial governance approach is driving EBITDA and revenue growth. and that's why you see the direct private equity platform outperforming the sector-adjusted public markets. Partners Group Average Private Equity Direct EV EBITDA multiple is on par with public comparable companies in those specific sectors, and the EV EBITDA multiples haven't changed in the last two quarters, and debt levels came down one turn in Q2. I'll now pass on to Cyril to introduce himself.

Thank you, Sarah. Good morning, everyone. I had the pleasure of meeting some of you already in Switzerland and Germany, but I hope to meet the rest of you soon, and especially in the UK in early September to meet more shareholders. I'm a new face to Princess, but I'm an old face to Partners Group. This is actually my 22nd year. Partners Group started in the private equity direct team. was the chief financial officer of the firm, was responsible for the IPO of Partners Group, was 10 years investor relations of Partners Group Holding. And then since, over six years, changed to portfolio management, being the head of, co-head together with Roberto Gagnatti of portfolio management, being responsible for all the products at Partners Group and Band-Aid, including Princess. And now I'm happy to be the new senior face for Princess from a Partners Group point of view. If we look at the Partners Group investment platform, it's important to say that we dedicate substantial senior resource to Princess because Princess is very important to us. Princess is actually the only vehicle in the Partners Group's suite of products that gives anyone access to the Partners Group private equity platform. We believe it is the best structure for the democratization of private equity And we want to ensure that Princess continues to provide this access and the shareholder value as it has done since 2006, when it became listed in Frankfurt Stock Exchange first, and then later in 2007 in London. In addition, Princess leverages a world-class investment platform with over 250 private equity professionals alone, and Partners Group provides the portfolio companies with over 150 industry experts who act as directors in these companies, driving entrepreneurial governance and value creation through what we call asset transformation and platform building. Now, looking at the top 10 largest portfolio companies, of course, the key reason for performance is always underlying growth. As a reminder, we focus on sectors that are supported by transformative trends and that are growing at an above average rate of growth rates over the next five to 10 years. Think about themes like energy efficiency, supply chain management, digitalization. We look for companies that stick to resilient demands and a good amount of pricing power. And as majority shareholders, we then become owners and grow these businesses through value creation strategies, such as platform build-out and asset transformation. In 2022, we grew the EBITDA of our direct private equity portfolio companies by like 16%, which is in line with the historic average of 15%, and clearly is above what broader public markets have been delivering. We also managed to protect our margins of the portfolio companies at about 20% on average. So we have an incredible growth profile and stable margins, which is remarkable in a time of high inflation, rising raw material and wage costs. So for the top 10 companies you see on that slide, I can confirm that they continue to perform either in line with expectations or even above expectations. Partners Group Valuation Method Polity is based on a fair market values updated monthly, and you will see the monthly NEV reports in between these results call and should counter investor concerns around valuation lags in private equity. Let me quickly say one to two sentences on each of the portfolio companies. BCI Pharma is an outsourced pharmaceutical service provider, has reached record growth, and its recent acquisition has integrated and performed very well. Organic growth also remains strong as a result of tailwinds in commercial injectables and the realization of key operational value creation initiatives at these manufacturing facilities. SRS is a US-based distributor of roofing products, so the roof on the house, such as singles, clay, and cement tile or metal roofing of the houses. As of March 2023, the company has seen increasing year-to-date sales and remains well-positioned to take share. Further, the company has implemented measures to improve operational efficiency heading into their busy season. Omega, the conveyor belting solutions company, increased in value because of double-digit growth in revenues all over the world, actually. and benefited from its ongoing cost initiatives to maintain a healthy EBITDA margin. KinderCare is the US-based early childhood education company, has generated value as its growth in numbers of centers, as numbers of kindergartens opened, as well as account and retention of full-time employees, has allowed for higher occupancy, efficiency, and growth in enrolled children, students. Further modernization of digital capabilities and strengthening of higher teacher engagement are being initiated to continue Kinders Care's recent success. Emeria, most of you know still at the old name Foncia, is the global leader in property management and services. It's in the process of rolling out Millennium, that's its proprietary enterprise resource soft solution, integrating several internal resources, driving operational excellence, significant cost reductions, as well as an even better understanding of customer needs. It's also accelerating its platform strategy in the UK. Techem, the energy metering company in Germany, increased in value because of higher revenues from its digital transformation journey towards a holistic energy efficiency service provider, while maintaining the attractive EBITDA margin, but also profited from a higher EBITDA multiple, reflecting higher valuations of the public peers, due to the sector's resilience exhibited during the COVID-19 and Ukraine crisis. Essentia is the new name for Macau, a leading provider of gas transportation infrastructure in Mexico, further increased in value due to the completion of its main natural gas pipeline construction, as well as some recent acquisitions. Additionally, following implementation of new management and rebranding, further progress has been made with local regulators and successful refinancing has been completed. These advancements are both reflected in revenue and EBITDA figures. Vishal is one of India's largest value retailers that offers apparel, general merchandise and fast-moving consumer goods products has seen strong growth in the first half of the year across all categories, and in particular, Apparel, as a result of investments in fabric quality and introduction of new fashion fits. The company's omni-channel rollout has also seen strong uptake. Diversity Tech is a heating, ventilation, and air conditioning parts and supplies manufacturer, has recently driven growth through the acquisition of Castle Engineering and efficiency initiatives at its plant in Beaufort, Georgia. The company is also benefiting from deflationary input costs, as well as a hot summer season leading to increased demands of air conditioning. Divica is a leading provider of specialist cloud software for the public sector, has performed very strongly due to the favorable industry tailwinds, as well as the successful cloud transformation plan executed on the Peach's ownership. With hundreds of customers migrated to cloud, A new logo wins.

Princess invested €10 million in five add-on investments and one investment so far this year up to June. In Q1, Princess announced its commitment of €30 million to invest in partners group Direct Equity 5, which added Shoreworks and CloudFlight to the portfolio, as well as increased the investment in foundation risk partners and Breitling. Just very quickly to give you a feel for these new investments, Rovenza provides specialty crop nutrition, biocontrol and crop protection products and it completed an acquisition of CosmoCell and that's a developer, manufacturer and distributor of specialty biostimulant solutions in North America. So this acquisition is highly synergistic and should generate cross-selling opportunities to support ambitions and establish Rovenza as a leading independent biosolutions company globally. CloudFlight is a leading full-service provider for digital engineering and digital transformation, which is mainly focused on the DAC region, so Germany, Austria, Switzerland. And the company is helping customers to design, build, and operate mission-critical and scalable platforms and applications. And it differentiates itself through its delivery model and speed of execution. Confluent Health is a US-based healthcare company focused on physical and occupational therapy, and it completed an acquisition of Motion PT Group, and that's a physical therapy practice group in the US. And with this acquisition, it should help with its existing geographic footprint. And Motion has a unique business model, and so it should help diversify revenue streams, and also provides a strong fit with confluence growth strategy. Galderma, a leading global dermatology company, develops, manufactures, and distributes a range of medical consumer skin health solutions. And some of the brands are Epiduo, Differin, Dysbot, Cetaphil, and Benzac. And this add-on represents an attractive investment opportunity in a leading company which has a proven track record. And going forward, Partners Group will continue to support Golderma's growth through its continuous product innovation, geographic expansion, and channel optimization, leveraging portfolio synergies. Excel Group is actually the largest producer of e-bikes and bicycle parts globally. It's based in the Netherlands. And this investment is representing an opportunity to gain exposure in this high-growth e-bike segment. Foundation Risk Partners is a specialist insurance broker in the U.S., and it generates revenues from recurring annual renewal of policies. And it's a business with highly predictable cash flows because this is a non-discretionary expense. And it also deals with risks such as cyber and social media exposure, the increase in litigation, and an evolving regulatory environment. And Partners Group will work with management to expand the company across the US. And finally, SureWorks is a manufacturer of supplier and safety protection products in the US. And it is a leading brand there, which has grown exponentially over the years with successful acquisition. The plan is to enhance the supply chain, the customer experience and continue with its successful acquisitions. In the last call, we spotlighted Omega as a case study and today we would like to elucidate the value creation plans for Breitling. We have a short video to play, but before we do that, I'll just give a quick recap. And Breitling was founded in 1884 and is a leading Swiss watchmaker with a unique heritage in the industry as the inventor of the modern wrist chronograph and distinctive positioning as a casual, inclusive, and sustainable luxury brand. Breitling's product offering is centered around its three core themes of air, land, and sea, and its collections offer a distinctive modern retro design style, which appeals to an increasingly broad consumer base globally. In 2021, Partners Group bought a majority stake in Breitling and Alfred Gantner, co-founder and executive member of the Board of Directors Partners Group, became chairman of the Breitling Board. We have provided a QR code for you so you can watch the video we have for you on your phone or we'll now play it for you via the webcast. Please play the video.

The historical products of Breitling are phenomenal. What the three generations of Breitling family did is exceptional. We have a bag catalog which is incredibly rich. What we have been doing over the last five years is trying to reposition the brand. We are today a much more relevant brand.

Watchmaking. Watch designing, selling watches is about storytelling. And that is where George and his team are just leading this industry. They are not only telling it in content in a new way, they're also telling it in new forms. They really have entered and are transforming how watches are being sold to the new generation. Breitling has a legacy going back to 1884. It has been a pioneer in many, many different ways on the technology side as well as on the design side. Breitling's positioning, Breitling's creativity, Breitling's way to get it to the consumer and the market is absolutely unique.

The Breitling transaction originated from a thematic interest in neo-luxury. It's a topic where we've been doing work around structural changes in luxury consumption, changes in the type of consumer that purchases a luxury product. It's younger consumers, it's more casual consumers. This is a segment that Brightling just caters to very, very well. We're very excited to work with this team and this brand for the years to come and drive a very tangible value creation agenda around pillars that are tried and tested and proven and that only need to be rolled out further.

Watches are one of the very few luxury items that actually are predominantly bought by men. We see that our new female line is really catching traction with women. We see our sales, our new designs being picked up with great excitement. The female side obviously is very significant in terms of our five-year growth plan.

What we have to do now is to work on what we call esteem. So we will communicate much more about history. We will launch museums, books. We will develop more in-house movements to increase average price.

The strength of the Breitling brand and the tremendous inbound interest is evidenced by the existing partnerships that we already have. Clearly, there is tremendous interest to partner with Breitling. Five years down the road, Breitling will be much more present, even than it is today, as a worldwide new luxury goods brand.

So now looking forward, the investment pipeline has potential acquisitions in exciting subsectors, such as healthy living, self-care, personalized education, and tech-driven financial services. And for new opportunities, Partners Group carries out comprehensive asset testing against adverse economic scenarios and doesn't compromise on price. The investment manager also continues to place emphasis on assets pricing power, product differentiation, and cash flow generation. to ensure margin stability amid lower GDP growth, higher interest rates and elevated wages. Cyril will now talk you through the exits and pipeline.

PRINCESS received distributions amounting to 14 million during the first six months of this year, of which 9 million euros stem from direct investments. The largest contributor from PRINCESS direct investment portfolio was APEX International, one of Asia's leading freight forwarders, especially in the trans-Pacific and intra-Asia trading routes. Other notable distributions from the direct investment portfolio totaling €1.7 million were received from Multiplan, a US-based provider of cost management solutions for healthcare payers, and Absena, a leading global contract development and manufacturing organization. The reining balance of €5 million was predominantly received from the mature legacy fund portfolio, which continued to benefit from distributions. If you look now at the age of the portfolio companies in the portfolio, and comparing that with a five to six years target holding period, you'll realize that actually many of the companies are old enough to be exited. Now, the bad news is that uncertainties surrounding macro conditions and stress in the banking system have made investments harder to finance, which has slowed down the exit pipeline. And there is still a mismatch between buyer and seller expectations. But the good news is Partners Group will not be a false seller. And so we continue to hold on to these assets and the investments continue to create value, which in turn just increases the exit value potential when the conditions become right for a sale. So to give you a feel for the pipeline, keeping in mind there's a five to six year average holding period, about 27% of the portfolio is in that sweet spot. So these are the 2014, 15, 16, 17 vintage investments, which are maturing in the next possible exit windows. And then you have another 22%, which are the 19, 18 investments, which mature in the next two to three years. So you can see there's a robust pipeline that is waiting for the right conditions to realize value. How much value are we talking about? And valuations in private equity is a big topic. So now because I wrote my PhD thesis on private equity valuations, I cannot resist to make a statement about our evaluation approach. But I'm very happy to report that our evaluation approach, a partner's group which you apply for across our platform, including Princess as a product, is really state-of-the-art. and very disciplined, systematic, mark-to-mark, based on monthly financial figures of the underlying portfolio companies. And looking at the largest realizations from the last five years of direct lead investments in the Princess portfolio, the average uplift in the final year of ownership was about 50%. So I'm not saying that the NVE should be now not 15 but 22. That's not what I'm saying. But my message is that the market applying a discount of 30% to our disciplined NVE so that the share price is now trading at 10, this is clearly too conservative from a valuation point of view. Yes, I will hand over now to Fionnuala Carvel, our Interim Chair of the Board of Princes, presenting you an update on the Board development since the AGM.

FIONNUALA CARVEL Good morning, everyone. As just confirmed, I am Fionnuala Carvel, a Non-Executive Director of Princes since 2018, and I was appointed to the role of Interim Chair as a result of the recent AGM. I'm here today to update you on the recruitment process to strengthen the Board after the departures of Richard Batty, Felix Holdner and Steve LePage. As you will see on the slide, immediately after the AGM, an independent external search consultant was appointed to manage the recruitment process. During this process, our focus has been on recruiting a new chair, whilst running a parallel process to identify individuals' vacancies on the board. Once in situ, the new chair will lead on further recruitment. Post-AGM, we have actively increased shareholder engagement to further understand shareholders' views on a range of issues, and these meetings have helped inform and shape the recruitment process. After conducting long-list interviews during July and August, we have been somewhat hampered by diaries over the holiday season and will be conducting short-list interviews towards the end of September with the aim of making an appointment in early October. Immediately thereafter, the board's skills matrix will be revisited to ensure we attain the necessary blends of skills and experience to provide effective leadership in the boardroom, and recruitment for the other vacancies on the board will progress. As a priority, the new chair will commence extensive shareholder engagement as soon as reasonably practical and many of you will have the opportunity to meet with them, either in person or remotely. We will keep you updated with regard to the process in bringing the board back to full complement at the next investor call.

Thank you, Fenola. And now I'll pass it on to Oliver O'Brien from Partners Group ESG team to give you an update on the latest developments. Oli.

Hi, good morning, everyone. It's a pleasure to be here and give a brief update on where we stand in terms of ESG. Maybe, though, to start off, we just do a short recap on how we drive ESG at Partners Group as a whole. And that for us, in terms of when it comes to ESG, obviously starts with the G, a proper, clear, and dedicated governance structure. That means that at all levels across Partners Group, across board, executive, and management level, We ensure that sufficient governance is adhered to so that our vision of building more better and sustainable businesses across their investment life cycle are adhered to. And all the way down into the different business units and our investment life cycle, we can realize sustainability at scale. We go on to the next slide. I want to take a couple of minutes to just dive into one of the key topics we've had going for 2023, which at the end of the day was data. As much as our ESG journeys and initiatives are incredibly important, what has become increasingly important in the market, especially with the increase of regulation in Europe, was that the ESG ambition at the end of the day is driven by data. This meant that across 2021, 22, and 23, which is for us the key phase right now, is that we collected data across our different portfolio companies and were able to obtain a reference year, a measurement year, and a performance year to be able to accurately understand our portfolio from a data perspective and drive the sustainability performance and considerations for future years. An important note here is obviously that given the different maturities of our investments across our portfolio, the reference and the measurement year are a key time to look at the portfolio and assess where our different measurement and ambition opportunities lie. And when we look at the future usability of data, it's important to build not only on the data itself, but the controls, the assurance, and the governance around it as well. The day of successful ESG data collection, which is already investments in the Princess mandate, it would be Pharmathon and Amiga. If I dive down into Pharmathon for a minute, one of the key things that we drove with Pharmathon in the 2023 period was the Stakeholder Benefits Program. ensuring that we increase engagement for the leading development of drug delivery technologies at the firm. Our ESG journey with them focuses on identifying the most material topics of each business, which is where we have the example of where ESG data collection comes as a key point for Pharmathon's journey with Partners Group. Similar to Pharmathon, we also have Amiga, which is the leading global manufacturer for the conveyor and transmission belting, where we ensure, especially from an environmental perspective, and especially when we look at the carbon baselining, their emission factors are something that is incredibly material to their business. Hence, ensuring a carbon reduction roadmap and checking in on that on an annual basis to ensure that they are meeting their targets, but also Partners Group is meeting their sustainability strategy targets from an owner perspective are incredibly important. This is just one of the examples where Partners Group data collection and data strategy for the long term has been a pivotal point.

And we will write you back or call you back later today. This route is especially useful for those shareholders who have their own views and they don't attend, for example, group meetings or conferences because they consider their questions to be proprietary information.

Great. Thank you, Cyril. So maybe if I just go to the written questions that we've received during the webcast. The first one is from Frank Bielefeld, who is asking, could you explain somewhat more your remark, public market pressure downplaying growth potential in portfolio valuations? Thank you.

I'm happy to take this one. Of course, if you buy a company for 100 million and you sell it for 200 million, you hope to do that because revenues have doubled, EBITDA has doubled. But of course, it's not only EBITDA, it's also EV to EBITDA, so the multiple, which is important. And we do mark to market our investments. And if the public market, for example, has a downturn development, negative development of minus 5%, even if the EBITDA growth is plus 15%, then the net growth is not plus 15% anymore, but only plus 10%. So that's why, in case, whatever the public market is doing, that, of course, has an impact on the growth rate, also for our private market portfolios, because we do mark-to-market.

Great, thank you. Perhaps one more for you, Cyril, from Mark Thomas says, The tone of your introductory comments on debt financing appears more cautious than many peers who generally seem to comment that pricing is a bit tighter. Availability, a bit less. But for reasonable deals, there is no dramatic change. Could you give some more color on this? And do you have information on financing costs today compared with the recent and long-term past?

If you look at debt financing... Expecting a significant increase in inflation, PG decided to increase hedge ratios for the large majority of our private equity portfolio companies to around 90%, which allowed us to limit the impact of rising rates on our companies. And as for refinancings, we have been proactively refinancing or extending maturities to our companies for over 18 months. with a majority of our companies dead now maturing in 2025 or later. Even in an environment with more scarce debt availability, the quality of our companies and depth of our lenders' network allowed us to complete two refinancings, over $1 billion in the past few months, for two of Prince's portfolio companies, Kindergarten Civica, by the way, one of the top 10 holdings of part of Prince's, which gives us comfort around limited refinance risks in the portfolio.

Great, thank you. Then we have a question about the net debt to EV and is 35% a bit high? So what I can say on that is that really the average equity cushion for portfolio companies is about 60%. The floating rate of loans is six to eight years and the holding period is five years. So we expect after two to three years to pay down this debt. And also don't forget that these are very high growth companies. So they can handle this level of debt which you may consider to be high. We then have a question for Ollie on ESG. Do you have an example where ESG data collection for portfolio companies helped you to identify and proactively address potential issues or opportunities?

Absolutely. So one of the benefits of the approach we've had on ESG data is collecting not only more data in terms of covering frameworks, regulations, and shareholder interests, but also understanding those data points better. See, it's similar to how financial data collection evolved over an incredibly long time. We're at the start of that journey. So understanding our portfolios is incredibly important. An example of that is back to Amiga. Our data collection with them, especially when it came to carbon reporting, allowed them to achieve the Echovatus Platinum Award, which only the top 1% of all Echovatus contributors actually are able to attain. So our collection with Amiga and understanding their data and their availability and their improvement of such has allowed us to drive, particularly on the improvement side and on opportunity side for Amiga going forward.

Great, thank you, Olly. Question for you, Cyril. What are the key parts of your role day-to-day regarding Princess?

In a sense, I'm the successor of Felix Haldner. So on the one hand side, of course, I will work together with Sarah Page on the investor relations side. But I will also, so hopefully I meet all of you sooner or later. And on the other hand, I will be the link into the board of Princess. So I will advise the board members and update the board members on portfolio and market developments. But of course, I'm very close contact with product management, product accounting, portfolio management, and be the link between Princess and Partners Group in several layers.

Great. Thank you, Cyril. We now have a question for the board. Please, could you explain how the manager and board are comfortable with continuing to make commitments alongside the correct capital allocation decision relative to using disposal proceeds to return back capital via buybacks? Linked to this, Pantheon recently announced a very significant buyback program, which has been welcomed by the market. Is this something that Princess is also looking at?

Thank you, Sarah. Yes, we are obviously aware of the Pantheon significant buyback program and the response from the market on that. What I will confirm is that on a regular basis, every quarter the board does consider buybacks. And obviously at the point of bringing on board a new chair and bringing the board up to strength, This is something that the new board will be considering. And what I can say is that will be a focus of the board going forward, as it has been in the past.

Great. Thank you very much. We've also had a question around the debt environment and how it's impacting new deals. There were several questions on this. So I'm just going to group those together. If I just start off, and Cyril, if you have anything to add. The environment at the moment is that there is still a gap between buyer and seller expectations. Neither of them want to take the first step. And while the market hasn't yet normalized, we are hoping to see a gradual adjustment in prices. And so that will affect investment pipelines and therefore also exit activity on the other side.

I'm not sure whether I understood the question. Can you say that again, Sara?

There were several questions about the debt environment and how it's impacting investments and exit pipelines.

Yeah, I think that's what I tried to cover with the earlier questions. Of course, to have an attractive exit market, you need the debt to be readily available for the buyer to actually get the package together. That's why we see now the net debt to equity ratios at the moment is more like 35% debt. I mean, in a bull market, this can be 50% debt. And so that's already... showing that the debt market is not so attractive at the moment. But our team experienced what I tried to say with quality and non-quality, that there is a bifurcation in the market, that the banks actually want to provide financing only to the best companies, stable companies, companies with stable EBITDA margin growth, even in crisis. That's why I mentioned also one company which had an increase in valuation this year because the public markets also went up because people realized that their EBITDA margins were very stable and still growing in a COVID-19 end-Ukrainian crisis environment. So that's why we do believe that the good companies, they will always be financing opportunities that may be not 45% debt, but 35% debt or so growth. That's my view on the debt impact on the exit environment.

Great. Thank you, Cyril. We also had a question about what percentage of your portfolio companies have hedged rates and for how long. What I can say on that is that we did start refinancing around the first half of 2021 by renewing finance packages. And it's been... This is secured financing at least up till mid-2024. And at the portfolio company level, it's about 80%, 90% that is hedged against increases. And don't forget that also we are looking to pay down or the companies are looking to pay down that debt during the holding period. And as mentioned also before, the equity cushion is 60% on average in these companies. So yes, majority of interest rates are floating, but the interest payment isn't huge. Also, if I can add that the new transactions, it's where the debt funding is an issue, but it's not an issue for the existing companies. We then have a question about the dividend. Perhaps one for you, Funula. Why fix it at 5% of NAV rather than, say, at many points above base rate?

Thank you, Sarah. The fixing of the dividend at NAV is obviously constantly under consideration. And when we look at that on a half-yearly basis, we do consider ask the board whether that is at the right level and whether there should be another point to fix it by. So for the moment, that's where we are with the 5% of Open Nav. But clearly, as you'll see in the interim report and in our statements, it's the intention to have that as the objective. And that's not to say that that's where it's set for the future.

Great. Thank you. that the debt costs are not an issue for our portfolio companies. We have refinanced, we have secured refinancing and also if you look at the top 10, they are all good performance, they are on track or even outperforming expectations. Another one on the dividend, a follow-up. Is 5% of opening NAV appropriate in the muted exit environment and is there a chance that it could be cancelled again?

Thank you, Tara. I think my earlier response answers perhaps the first part of that question and we are clearly very aware of the cancellation of the dividend causing issues for shareholders and we have thoroughly reviewed the reason for that. What I can say is that we are comfortable with our liquidity position and we have regular reports from the investment manager that allows us to scrutinize that and stress test that. And certainly for the moment, we are absolutely comfortable with the level that we have been paying and we'll continue to keep very close oversight of that.

Thanks, Spinola. I believe this is last question here is, do you consider investing more in the PE mid-market or even lower mid-market where debt financing availability seems better at present?

Yeah, that depends on the definition of mid-market. I think in private equity, you have growth capital, small cap buyout, mid cap buyout, large cap buyout, mega cap buyout. I think we actually, in fact, consider us to be more of a mid-cap player, but more on the upper end of mid-cap or at the lower end of large cap. I don't think that we will actually change our investment strategy going forward because we really like market-leading companies, which are the leaders in their field. Maybe they come only with 15% growth of EBITDA instead of 20% or 25% for smaller companies, but they come with significantly less risk. And we really like that approach, especially this environment. We like to invest in companies which are the leaders in their industry, being number one, number two, number three, and not number 10 in the field. So that's why we have a little bias to more larger. But whether this is now defined as the larger end of mid-cap, but I think we will not go down from a size point of view going forward.

Great. Thank you. And then there's just a question about why we did hedge. As you know, we did discontinue this on the 31st of March. And the reason why we did have a hedging strategy is because, one, most of our shareholder base is European. It's over 50%. And there had been a preference historically to have this strategy. However, now that it has been discontinued, this, I guess, more unpredictable element of cash forecasting has been removed. So it plays into the commitment of the 5% dividend where we are now very focused and always have been to pay this dividend. But this, I guess, unpredictable element due to currency movement has been removed, which should provide investors with added security. I think that's all the questions. Operator, over to you.