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Edited Transcript of TKOO.PA earnings conference call or presentation 19-Mar-20 8:00am GMT

Full Year 2019 Tikehau Capital SCA Earnings Call

PARIS Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Tikehau Capital SCA earnings conference call or presentation Thursday, March 19, 2020 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Antoine Flamarion

Tikehau Capital - Co-Founder & President

* Henri Marcoux

Tikehau Capital - Deputy CEO & CEO of Tikehau Investment Management

* Mathieu Chabran

Tikehau Capital - CEO, President, Co-Founder & Partner

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Conference Call Participants

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* Arnaud Maurice Andre Giblat

Exane BNP Paribas, Research Division - MD & Research Analyst

* Nicolas Payen

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Pierre Bosset

HSBC, Research Division - Head of French Equity Research

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Presentation

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Antoine Flamarion, Tikehau Capital - Co-Founder & President [1]

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Thank you very much. Good morning to all of you. Welcome to the presentation of the annual results for Tikehau Capital. Thank you for your presence on this fairly special day. We'll try to be precise and cut straight to the chase and answer all the questions, there are many questions you may have about the economy, financial markets and, of course, Tikehau.

I'll start with Slide 5. 2019 was a year of major growth for all key performance indicators for Tikehau, a record year in terms of fundraising with EUR 4.6 billion raised for all of our business lines. Profitability grew significantly, especially in asset management, major asset rotation because we had major disposals; a dividend that we will put through the AGM of EUR 0.50 per share; a capital increase of EUR 715 million; as well as a bond issue for EUR 500 million, which helps us significantly shore up our balance sheet because we now have EUR 3.1 billion in equity, EUR 1.3 billion in cash at the end of the year and EUR 500 million credit line. So for the Tikehau Capital Company, we have EUR 1.8 billion in dry powder and average debt of 5.6 years that was lengthened. And in asset management, we've got EUR 5.2 billion of what we call dry powder, i.e., cash and cash equivalents. So we proved that for all of our business lines, we had growth and some resilience. And we have an infrastructure now which is very robust, with over 600 people to date, presence in 11 countries and a balance sheet that is fairly well sized for all types of weather.

Now I will move on to Slide 7. Indicators, key indicators. First of all, assets under management within the scope of the group at EUR 25.8 billion versus a target of EUR 24.5 billion. That was raised to EUR 25 billion. So we ended the year well above our guidance. Fee-paying AUM grew by 23%. This means that we will receive more in management fees next year. NOPAM, which is net operating profit from asset management, up 48% at EUR 58.5 million. And last but not least, net profit of EUR 178 million, up EUR 269 million.

Next slide now, a slide that we've used a lot since the IPO. During the IPO, we gave you a few KPIs and comparing them to where we are now. First, AUM, Tikehau's business is to be an asset -- alternative asset manager. So we had EUR 10 billion worth of AUM at the time of the IPO, and we're already at EUR 25.8 billion, so a 2.6x increase. Management fees are up, and what's important is that our AUM helps us collect management fees. We had average management fees of 71 basis points. We were able to raise that to 92 basis points. Usually, people talk about margin erosions in traditional asset management. Well, so far, margins are not eroding at all, and in our case, they're even increasing. Income from asset management has been increased 16.7 fold. At the time of the IPO at Tikehau, we had a large part of the infrastructure that cost money but fairly low profitability in asset management because in 2017, the profitability of asset management was 1% of the group. And then so it's roughly 1/3 of the group with EUR 58.5 million in NOPAM.

Our clients are now more international compared to at the time of the IPO. 21% of assets at the time of the IPO came from outside France. Now it's EUR 7.5 billion out of EUR 25 billion. Now we've beefed up our infrastructure significantly, and we acquired Sofidy so that we could increase the number of employees at -- to 532. The number of 600 that I gave you a minute ago is to date and within the scope of the group. And more offices in terms of development. We think it's important to have a global platform, both to collect capital globally because there are places that work better than others and saving structures that are more attractive than others. So having -- we need to have a global presence to collect savings. We need to be able to invest globally, too. And we can see that during crises, it's important to understand and have good understanding of what's going on in Asia. Our offices in Seoul, Tokyo and Singapore in Asia have been faced with the coronavirus for 2 months. And so at the level of the group, we could be a lot more responsive, both in health terms, public health terms and also in economic and financial terms.

Now moving on to Slide 9. In Tikehau's entrepreneurial endeavor, we always considered that we needed to have a robust infrastructure in terms of human capital, equity, systems, and it's now achieved. As I said many times, we have EUR 3.1 billion in equity, EUR 1.3 billion in available equity and EUR 500 million in undrawn credit lines. EUR 5.2 billion worth of dry powder within asset management. So in financial terms, we've built up major robustness since 2004 because, if you remember and if you've been following us for so long, and thank you for that, we created Tikehau as a company as such, and it's only in 2007 that asset management was created. We were always very focused on infrastructure diversification in our model. That's why now we are present in 4 asset classes. And as you'll see, we will announce the creation of a fifth business unit. We've always been diversified in terms of asset classes with lots of granularity in our assets. And the utmost selectivity, as you'll see, we've increased the number of transactions that we've looked at by asset class and that were actually done.

There have always been questions, focusing on this slide, questions about our hybrid model with both equity and asset management, whereas other asset managers are pure asset managers. It's clear. We've always been very strong about that. The financial and human infrastructure is key over time. So now we're able to face various types of opportunities or complexity because we have a fairly extensive balance sheet, and above all, it's relatively cash-based.

Moving on to Slide 10 now. You've got the breakdown of AUM by asset class. As we said, we have 4 business units, business lines. Private debt with EUR 8.6 billion AUM, up 4%. Growth was slower this year because we didn't have any flagship or specific fundraising, but still we collected capital. What is important is this funding business is highly diversified, corporate lending, senior loans, LBO senior loans, direct lending. So within private debt, we've got several business lines with exposure to various geographies. And in the portfolios, we've got a lot of granularity because, for instance, if you take our TDL IV fund, which is our direct -- flagship direct lending fund, we've got roughly 40 issuers. So a lot of granularity within this business line and within the business units. Real estate has grown a lot, especially with the acquisition of Sofidy. If you remember, we bought Sofidy for EUR 5 billion. Now we have EUR 9.2 billion worth of real estate in fairly long-term vehicles that are very robust. And here, a specific comment for all of our AUM. Apart from capital markets strategic, which are usage with daily liquidity, all of our liabilities have 10-year maturities or more. So we've been given capital for very long term with -- so there's a lot of stability in our assets under management and therefore in our income, and so we can make the right investment decisions. So in real estate, we have 2 REITs, 1 in Singapore, which owns assets in Germany; and Selectirente, a listed land-owning company. We had EUR 217 million in Selectirente, in which we brought great institutionals in France, and we are constantly managing that. So in real estate, private debt and private equity, it's important to remember that we manage long-term capital.

Private equity. We've accelerated things with the recruitment of a new manager last year. What's important in PE is that we are only making minority investments with families or investors. We're not at all equity investors in majority LBOs, which are heavily leveraged by definition. Our job in PE is to provide assets to help companies grow, and we've done that in a mainstream way for our traditional fund but also with a specific focus on the energy transition. If you'll remember, we launched a fund devoted to the energy transition with Total.

Last but not least, capital market strategies, EUR 3.8 billion with a smaller part -- smaller, lesser-known part of Tikehau, which is faring well during the crisis because we have daily valuation, so we can fairly well track the positioning and performance of the portfolios. And if you regularly read our monthly memos or regular podcasts, these funds were managed with 30% to 50% of cash before the recent events. What you can take away from that is that we've got great granularity in our business, in our funds in the various business units and a relatively defensive positioning and this for a long time already now.

Moving on to Slide 11. As we usually say, we are entrepreneurs in the financial sector, in financial services. We think that this industry has been changing a lot, both on the asset side, on the liability side, on the distribution side, more digital, new businesses being created. So what Tikehau has been trying to do in the last 15 years is to be part of the change and the transformation of the financial industry, so we are launching new initiatives. That's what we did with our energy transition fund 2 years ago before it became really very fashionable, and everybody spent talking a lot about impact and green investment. We have a biotech initiative in Singapore, now active for 2 years, that we've been developing fairly satisfactorily. We'll come back to that. And as part of our development, we've considered that it was timely to create a business unit called Tactical Strategies, bringing together 2 things, both our legacy investment part and discounted debt assets. If you remember, at the end of 2007, before the 2008 crisis, we create a special situation fund to buy discounted debt. There's a big dislocation on this market. So there are a lot of business opportunities. And on the distribution side, we've decided to innovate by creating, with help from Intesa, the bank, we created a product set with the high net worth retail clientele of Intesa. So we let them invest in all of our funds via a feeder organized by Intesa. So we raised EUR 400 million with 3,300 clients in just over 1.5 months. So we've decided to bring it all together, these 2 businesses, led by Maxime Laurent-Bellue, who's been with Tikehau for 13 years. He's a specialist of all these discounted investment items, both on the asset and the liability side. We think that there's a lot of possibilities that are accelerated because of recent events. So we are now announcing the creation of this business unit, which has been in place, in fact, for a few years, because the TSO 2 fund, Tikehau Special Opportunities 2, has already been raising funds.

Now moving on to Slide 12. As you know, our job is based on people. So we've tried to set up a very knowledgeable infrastructure in every business, not just investors and managers. You need to be good on -- in legal terms, in compliance terms, in systems terms. So we've always put in place a fairly extensive infrastructure but also diversified in terms of nationalities with people who have fairly significant experience in various classes of businesses. We've continued that because that's part of our model, having a very strong alignment of interest, skin in the game because management still owns 45% of Tikehau Capital, which is a big differentiator with the other asset managers. So we are highly invested. All of the employees and partners in the company are highly invested in Tikehau Capital.

Governance is very strong because in spite of the fact that the company is controlled by management and employees, we have a Supervisory Board, which is 50% independent. And to bolster that governance and alignment of interest, 53% of carried interest and 100% of performance fees are paid to the listed company. We have further strengthened, throughout 2019, this coverage. We've created an International Advisory Board, and in turbulent times like today, it meets regularly via conference calls. For instance, we have a lot of people in Asia so that they can comment. And 2 months ago, they commented on the coronavirus events there, and now they're shedding different lights 2 months on. We've got people in the U.S., so that we can understand the way the situation is happening, on top of the team led by Mathieu Chabran in the U.S., we can understand what's going on in U.S. markets. So we've tried to cover the global territory with various fields of expertise, and so we will further strengthen what we call our human capital, which is key to Tikehau Capital.

I will now move on to Slide 13. Very clearly, Tikehau was a bit of a pioneer on these issues and ESG matters. We are a long-term investor, and we know that in order to generate long-term performance, it's very clear that you cannot turn a blind eye on all these ESG issues. And so excluding certain sectors or geographies, engaging the companies that we finance and in which we invest to be sure that they monitor their ESG performance in agreement with international principles and what we also think. ESG criteria have been investment criteria for years now in all our business lines. We've had a lot of our funds rated. We were pioneers in the rating of the first CLO in Europe, which was created by Tikehau. So we still try to be very close to all the changes in the ESG world, and we are really trying to remain pioneers. That was one of the major aspects in the development of Tikehau. We are entrepreneurs with a long-term vision. You can't have any long-term development without an effective and proactive ESG policy. So beyond that, we've created initiatives so that we can have a positive impact. That's the case with the energy transition fund that was created with Total. We announced that we would create an impact debt fund in 2020, and we'll carry on launching initiatives to further strengthen the position that we've acquired in terms of ESG.

Now Slide 14. I said that in my introduction, and I came back to that time and time again. But having a significant balance sheet that's well managed with a lot of equity is clearly a differentiator vis-à-vis our peers. Having a lot of equity, as we've always said, helps us invest in our own funds and still have alignment of interest, and so manage risk a bit more effectively and efficiently, and we can launch new initiatives. When we said a few months ago that we would have a discounted debt fund because there would be dislocation on the markets, and so we could exploit that, we didn't think about coronavirus, but we did that. We have our equity fund, the energy transition fund. So having a lot of equity helps us invest in our funds, launch new initiatives and, if applicable, seize opportunities for external growth. That was impossible so far because of the high valuations of the items in financial services and the financial industry, but new chapter is being written now. So we are looking a bit more actively at opportunities.

To dwell on this slide for a minute because there are a lot of questions, especially with some of our investors, legacy investors, with new investors, also with financial analysts. We now think that having a balance sheet is a strong differentiator, and time will tell and show that this was the way to go. We think that regulators will force a lot of asset management companies to have equity. So we have quite a lead on that front. And so we'll still have a very robust balance sheet because you need equity, but you need to invest it with parsimony and effectiveness. And at the end of 2019, as I said, we have EUR 1.3 billion in cash and EUR 500 million in credit lines, so EUR 1.8 billion in cash, which is important for a company our size and in the sector in which we operate.

Maybe I'll move on to Slide 15. Quite certainly, we can't stop because of the impact of coronavirus. Tikehau's vision is the following. There was a public health crisis that started in Asia that turned into an economic crisis and which is now a financial crisis. The health -- public health crisis is improving in Asia, especially because they took very drastic measures that were highly criticized by the West. They were the first to decide on a fairly severe lockdown. Now coronavirus is in Europe, a bit in the U.S., a bit in Latin America. Of course, we're not scientists or experts in that field, and we can only see that for the moment, unfortunately, a few people have a clear view of things apart from seeing that there are very clear problems in terms of ventilators available in hospitals. But we're not in the business of health -- public health. So we are still very conservative. We think that research both on vaccines and therapies will make a lot of progress, especially when it comes to treatment, which is key because vaccines will take longer. So there is this public health crisis, which has led to an economic crisis. Why an economic crisis? Because it's the first time in history that you have companies worldwide that no longer have any revenues. In previous economic and financial crisis, as an industry was impacted, revenues dropped by 20%, income by 50%. Now it's totally different. Some companies have no turnover at all anymore. So governments have made a number of commitments that will lead to sizable fiscal deficits, and we'll see how everything will be put in place, and it's very early to learn lessons of that. But the consequences that we can identify now, there are lots of reactions by governments and central banks and people comment on that a lot. Well, talk is easy, but the situation is very complex. We think that a lot of measures are being adopted, especially by the ECB, yesterday, they are fairly impressive. The ECB was severely criticized last week. Whereas announcements for banks were interesting, quite certainly, what was announced yesterday in Europe is unequaled.

The economic crisis led to a financial crisis with a lot of panic movements. And so our Tikehau view is that the financial world was extremely leveraged. In 2008, banks were heavily leveraged, so they had to be cured in various ways. We think there's a lot of leverage in the system, especially with a lot of big asset managers, you can see that significantly in the U.S. because they have high leverages. So a lot of leverage with people and companies in the world of asset management. So there needs to be deleveraging, which is happening at unrivaled speed. To give you an order of magnitude, you find large corporate debt with high discounts, large corporates. I'm talking about very big global corporates. So there seems to be a panic in some compartments of financial markets. Things are happening that are fairly abnormal because everybody thinks that interest rates will remain very low and negative. To give you an order of magnitude, the French 10-year rate went from minus 0.4 to plus 0.4. So we need to be very humble and prepared for all possible scenarios. We need a lot of cash. That will be a differentiator, clearly.

We shouldn't rush to invest. We need to have a good view of the situation and understand well what -- the stakes that we've invested in and that we finance and they will pan out. Some will do better than others. So for us, there's a public health economic and financial crisis. The public health crisis needs to be resolved. Unfortunately, we don't know whether it's going to take 1 month or 3. We can hope for it to last as little as possible. Then we'll need to address the economic fallout, and then the financial sphere needs to remain robust. A lot of risks in the system, we think that we are prepared. Of course, you can never be perfectly prepared. But since we had a fairly pessimistic view of things, and we said that time and again, we said that the premiums on asset prices were crazy. So the fact that we remained fairly conservative should be beneficial in the mid- to long term.

Moving on to Slide 16. We confirm the guidance that we indicated, the EUR 35 billion in AGM -- in AUM, EUR 100 million in operating profit. 65% to 75% of investment portfolio comprise of investment within Tikehau Capital and 10% to 15% of run rate return on capital invested by the group in its own funds.

I'll give the floor to Mathieu to move on to Slide 17.

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [2]

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Thank you, Antoine, and good morning, everyone. Thank you for being here in spite of circumstances. Having heard this introduction, let's move on to look at the various business areas at 31 December for our business.

On Page 18, you can see that we're very much active in 2019. We delivered significant growth. As Antoine pointed out, in 2018, we had TDL IV successful launch, which was completed at the beginning of the year and, of course, contributed to the growth of AUM. You had, in 2019, our flagship funds, in direct lending, contributed to our growth, and this enabled us to redress the balance of our business mix, which was, of course, the objective that we announced, especially as regards private equity and real estate, and that's the whole point of being diversified and selective. You can see on this slide a few examples of the initiatives. We mentioned in September, for instance, in private equity, we had the launch of our TGES fund or in real estate, we had an increase in capital in REIT.

In -- on Page 19, you have the details of this fundraising. 2019 was a record year in terms of new money, EUR 4.6 billion money in new money. The asset management was the main growth driver there with EUR 4.1 billion in net -- inflow of new money. There was also some closed funds where we returned capital. The distributions were due to our private debt strategies to the tune of EUR 1.4 billion. That's the orange part on the chart. We also had positive market effects, EUR 600 million in 2019. And assets under management were about EUR 26 billion at the end of 2019. All in all, this was a very sound year for fundraising for Tikehau Capital.

On next page, on Page 20. On Page 20, you can see a detail of our assets under management, the growth of AUM. This was -- there was a 17% growth in 2019, an increase of EUR 3.8 billion over the year. You can see that we almost doubled in size since the inception because of organic growth and selective external growth, especially in 2019, on real estate and private equity. AUM business is up 16% to EUR 3.2 billion. And the AUM on our investment scope are up EUR 0.5 billion, including the increase in capital of EUR 715 million that we announced after the quarterly announcement.

On Page 21 now, focus on asset management. If you look more closely at the performance, the scope of that AUM was very dynamic because there was EUR 4.1 billion in new money, mostly driven by third-party investors. You will see on the right-hand side of the pie chart that 63% of the new money was collected in our private equity and real estate businesses, as announced at the beginning of the year, rebalancing on real estate and private equity. So we are very much in line with the strategy that we announced during the IPO. For those of you who have been with us since March 2017, we are developing both businesses. We've rebalanced our historic activity of private debt and direct lending, which has positive effects on the product mix but also on the financial performance. Antoine mentioned the growth in management fees, which is somewhat counterintuitive in the asset management business, and Henri Marcoux will give you more details in the financial reviews.

Let's move on to our clients. I like this slide. This is Slide 22, which we've been showing for some time, the breakdown of our customers in terms of who they are but where they are because we have been international -- for the past 3 years, internationalizing as part of our strategy. You have -- about 1/3 of the assets under management are from international investments, so twice as many as last -- as 4 years ago. And in the same time, the basis -- the base of AUM was multiplied fourfold.

If you look at 2019, if you look at the right-hand side, you have to restate the numbers because there were acquisitions, well, there was Sofidy. And there was [Credit.fr], and these are products for -- exclusively for French customers. But if you restate this for that, you have -- 60% of our fundraising was performed abroad, just like in 2018. So this trend was confirmed and in growth in absolute numbers. And then -- so we have a diversified customer base. If you look at the pie chart on the left-hand side, the bottom left, you have an institutional base but many more -- more and more private investors that we have been acquiring through Sofidy, so private customers or liquid funds, and new innovative initiatives that -- such as the one we launched in Italy in Q3 and Q4 last year in partnership with the -- with Fideuram, which is a private bank.

And let's look at this more closely on Slide 23. So this is the type of initiative which we proposed to pursue at Tikehau, especially in this market environment, as described by Antoine. This was a fund that we launched with Fideuram, which is Italy's first private bank, Intesa Sanpaolo. And it shows -- it's an example of our ability to innovate and forge partnerships with -- looking for private investors that are looking -- seeking access to these private solutions. So in terms of performance, we have -- of course, financial markets over the past few weeks have been volatile. So it has been, for us, to find the right partners, the right formats in terms of distribution, structuring and, of course, the launch itself. This was a new tactical strategy driven by Maxime, who's been with us for 13 years. We were able to reach 3,000 private investors and EUR 400 million in assets that were raised in 3 months. And so these private investors can have access to private debt, private equity, real estate and co-investment, which is very innovative in this context.

So capital fundraising, of course, important, but it's also important to know how to invest it because that will define tomorrow's results. So if we look at 2019, we were very much active in 2019. EUR 3.6 billion were deployed in our closed-ended funds, especially in private debt and real estate. And that is a 36% growth year-on-year compared to EUR 2.7 billion invested in 2018. That business in terms of deployment was not done to the detriment of selectivity. We remain very selective, indeed, very disciplined and very cautious on the risks we take when deploying the funds trusted upon us by -- entrusted upon us by our customers. We -- you can see that on private debt, on real estate and private equity, we are very cautious, and there was no deterioration on the 2019 vintage compared to the previous years. And Antoine mentioned this skin in the game thing. We are a major investor in our own funds, and that reinforces this cautious and selective approach.

Let's look at the various business areas, starting with private debt, which is our historical business. Look at Slide 26. For the third year running, we were the second most active player on the European mid-market environment right after the American giant called Ares Capital, and that has confirmed our position for the past 10 years. All our teams have been driven by Ms. Mayer-Levi. In Europe, we have this strong position. I would like to spend time on the question as to whether there's too much -- was there too much money invested in private debt strategy. Is there a risk of a bubble? Well, events have shown that there will -- there will not be enough resource to remedy the situation. In terms of financing and refinancing, Antoine mentioned companies that have no business at all, have had no income at all for the past few weeks. So in fact, private debt will be very much at the heart of our activity in the quarters and indeed years to come. We are launching the fifth vintage in our direct lending fund, and we are satisfied that this represent this expertise being close to the companies themselves, that will make a big difference in terms of providing new solutions in this very tense situation.

On Page 27, you have the highlights of the 4 vintages of private debt funds. The last one, TDL IV, Tikehau Direct Lending IV, was EUR 1.2 billion. So you have a major vintage also in 2020 that is planned for this year. And this is -- joins what I said about having international customers. If you look at the last CLO that was launched a few months ago, you can see there's great diversity and a great international base of investors that are trusting us on this.

On Slide 28, I said that we're very highly selective, and we will remain selective for all our investment processes. You can see that on private debt, this upside-down pyramid that we show every year. In 2019, there were 400 deals that were considered by our teams. 39 firm offers were then proposed to the companies. And in the end, 30 operations were completed. So the conversion rate is only 7.5%, but this has always been the case historically. We've had about 8% over the past 5 years. You should also mention that we remain -- we continue our investments throughout the countries where we have a presence, here in Spain, for instance, but also Belgium, Italy. So we have local presence in many territories in many jurisdictions, and that makes a big difference again because we can be -- make a differentiating offer to our investors.

On Page -- on Slide 29, this is something rather new in our reporting system. This is something that shareholders have been asking for. Louis Igonet, our Investor Relations Officer, has met a number of analysts and investors. Some of you are listening today. So we have to report on the historic performances of our funds. So this is our private debt strategy. We can see the performance, the internal rates of returns of the various funds. As Antoine was saying, these have high granularity, both in terms of upstream selectivity, but also the breakdown of the portfolios themselves. These are very -- there's very little leverage there. You can see that the weighted average net leverage at closing, the third line from the bottom, the leverage ratio paradoxically has come down since direct lending #1 because that was a precrisis fund in 2008-2009. And since then, we have a constant ratio of 4.1 to 4.2x of net leverage, which compares favorably with the rest of the market. Now debt -- the size of the fund increases, but the average entry ticket remains the same, and that shows a diversification. So the performance here you're concerned about is achieved through assets that were exited, so we're looking at actual performance. And so it shows the performance of our investment teams who get all the credit for that. So these are gross rates of premanagement fees. And so that gives you an indication of performance of the various strategies of the private debt funds proposed to return anything between 7.5% and 10% of IRR, depending on the strategies.

On Slide 30. To compare ourselves with the European benchmark and the American benchmark, which is a much more mature market on private debt, this slide is interesting. We can see Tikehau's positioning with the blue squares, both in terms of leverage but also in terms of covenants and default rates, but also the shareholders' support that is a contribution -- equity contribution. We want to remain on the left-hand slide -- side of the chart. The gray boxes are the average ratios of the industry. You can see that -- but there's lots of benchmarking that is being done by consultants on this private debt market. And on the black or black squares or dark gray, this is what you find on American markets, we're not there. We can mention some initiatives in secondary private debt. This is being driven from New York, and I think we'll have new opportunities because of this new situation in the market where investors might decide to let go of some of their assets and choose others. So you have -- we don't want to take undue risks on documentation because we don't want to go with covenants but to have a secure lender. And the debt-to-equity ratio must remain reasonable, and of course, in the present environment, that means we should be in a position to support the borrowers.

I'll give the floor to Antoine, who will tell us about real estate.

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Antoine Flamarion, Tikehau Capital - Co-Founder & President [3]

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Thank you, Mathieu.

We move on to Slide 32. You can see that real estate here's our historical activity at Tikehau, and we have the Tikehau platform. You may remember that the first investment in 2004, we don't want to be a archaeologists, but we sold -- we bought and sold this in 18 months, sold it to the Duke of Westminster. Sofidy, we're looking at EUR 2.5 billion. With the growth of new money last year, we have now EUR 9.2 billion adding the 5 of last year.

So on Slide 32, you can see that we are present everywhere, from core to opportunistic. So we can look at more or less risky ventures. Of course, it depends on the territories. You can see that for the first time, we invested in England for the first time. So we've been investing in Britain last year. For 15 years, we were outside the real estate market in Britain. And with the dislocation of Brexit, we've been looking at investment there. So this real estate platform is highly robust and can perform in various countries. We have, at the head, the former CEO of AXA, Immobilier, and the Real Estate Officer of Goldman Sachs Europe. We have the Sofidy team that has been reinforced with the CEO of Tikehau Asset Management that drives their real estate business. So we have an integrated team that can work in various segments.

If you look at fund raising, and this takes me to Slide 33. This year, we launched TREO, which is our first real estate -- listed real estate fund. We had a satisfactory inflow of EUR 500 million. This is significant because, of course, when you launch a first-time fund, it takes some time normally. Here, we were able to have EUR 560 million, and we have another investor that is co-investing to the tune of EUR 90 million. And when we talked about entries earlier on, we have a very highly operational platform with an ability to invest.

On Slide 34, we have a few examples of real estate investments. You can see that just like we had -- well, the same slide is for the private debt. We have the upside-down pyramid. We looked at almost 180 screen deals, and we only closed 9 out of the 179. That's 8 more than in 2018. In 2018, there was only a single investment in real estate. So we're highly selective. You can still be -- we can afford to be highly selective because we have a large platform, so we source many opportunities, but we choose them very selectively. Indeed, just like we choose our real estate opportunities, we have very little leverage, almost no leverage at all in the company's real estate funds. If you look at the largest funds, more than EUR 12 billion, that's less than 10% leverage. So -- whereas in the real estate markets, most of the players, both for REITs or private real estate companies or investment funds, they buy leveraged -- highly leveraged real estate funds, real estate deals, whereas we have very little leverage, which means that in times of economic crises, we can face these situations without concern.

On Slide 34, you can see that we have discipline in term of investment, but we also have to seize opportunities as they arise. Until the end of 2019, we disposed of the real estate portfolio that we had acquired in 2014. Elis, that was a 1.9 multiple, which is pretty good compared to private equity where there's less risk. We disposed, for instance, of a property that we had in Charenton. And we started selling sites that we had acquired from EDF. And to give you an order of magnitude, we are anywhere between a multiple of 1.5 and 1.7 on our EDF properties. So we have to invest selectively. We have to buy these assets with little leverage, and you have to be able to dispose of your assets to take capital gains throughout the cycle.

I would like to emphasize Elis once again, not just because of the high multiple there, but the reason I choose this example is that during the 2008 crisis, we decided to acquire a significant part of Elis' debt. This is, of course -- now the debt of companies were being discounted. And we spent quite a bit of time on Elis' debt. We bought several hundred million euros of discounted Elis' debt. So we have good knowledge of Elis. When Elis decided to sell its properties with a 15-year lease and just like it's -- with the debt being discounted, our teams worked together. We came up with a firm offer, and we were able, with the Tikehau platform, to be much more responsive. And we returned the asset to Blackstone, which is the largest alternative investment company in the world.

Let's look to 36. We have a few KPIs on Sofidy, EUR 6.2 billion in assets under management, up 20%. I mean it was a record year in terms of new money, EUR 1.1 billion collected, twice as many as last year. So there was an acceleration of the Sofidy platform in the Tikehau universe. We were able to raise funds at the end of the year to the tune of EUR 217 million. And we have the strategy of significant equity that we can use at the right time. The Tikehau platform is in a position to raise -- well, to have several capital raising of several companies and several bond issues the same year, which shows that we are very versatile and very relevant. And very few companies are capable of doing several capital markets operations simultaneously. And in our structure, we're in a position to do just that throughout the year. And so we doubled the size of the listed REIT or real estate company. It's relatively modest, so EUR 373 million. We were able to raise EUR 217 million without a discount on the share price, and that is rather successful. So we were able to collect money on the real estate company, on the real estate fund.

And you can see on the next slide the historic performance of -- the track record of the Sofidy funds. You can see that there's a good appetite on this asset class because many investors, both private or institutional, will be looking at real private assets with less volatility compared to what you have on the market. And if you look at the historic performances of the flagship of Sofidy, Immorente, we -- through the 2008 crisis, we still have a 9.5% rate of return, so -- internal rate of return. So we will be publishing our performances quarter-on-quarter to show that we can raise money, we can be selective, and we can deliver performance over time to our investors because, of course, in this business, it's all very well to raise funds. But the main thing is to be able to invest them soundly over time, to be selective and patient. If you look at the level of dry powder we have in the group, it shows that we are very selective and very patient. We don't rush into things.

In terms of ESG, at Sofidy, we have the same best practices as we had in Tikehau. And so now Sofidy is fully compliant in terms of ESG.

I'll now give the floor to Mathieu on Slide 39 to tell you about private equity.

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [4]

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Well, private equity at Tikehau, we talked about it during the strategic development that we started 18 or 24 months ago. This is not about majority investments or buyouts with very high multiples as you are used to seeing with the announcement of deals 10 or 15 days ago, operations at 17, 18, 20x EBITDA. We buy minority stakes and growth equity invested with families and management teams in order to develop companies with capital invested into the company and not bought from another PE fund, a corporate company that would only invest. So we choose our verticals. So with growth equity, with sectoral themes like the energy transition, with the T2 fund or since the acquisition of ACE Management, ACE, we are now also invested in aeronautics, defense and cybersecurity. We invest in sectors where we've got strong beliefs, and we can see the main structural trends that emerge.

So private equity funds have only been marketed since 2018. We now have EUR 2 billion in AUM, as you can see on the right-hand side of the Slide 39, which is very encouraging for first vintage funds or the first -- first-time funds, as they are called, in the industry.

Now Page 40. This growth equity, this minority approach and the historical know-how that we acquired from the acquisition of Salvepar, if you've been following us for 10 years, that has a lot of advantages, as we can see, in terms of risk return because now we've outsourced our track record of 2.4x gross MOIC in multiple but with -- we invested on valuations of corporate value over EBITDA of less than 7x. So that shines favorably compared to majority investments and the underlying leverage of the companies in which we invest. The debt is less than 2x, which thereto compares very favorably compared to the majority LBO market.

Page 41, you can see a spotlight on our T2 fund. As we said, fundraising is still ongoing with quite a bit of success so far. So there's a strong ESG belief, as Antoine was saying in the introduction, and the aim is to contribute to the development of a low-carbon economy. For us, ESG is not about greenwashing. It's not a buzzword. There are real funding needs for profitable companies that are growing and contribute to the energy transition. That's the purpose of T2. It was one of the very first PE funds devoted to the energy transition, as we said in the introduction. And most importantly, it's an investment, a private equity fund. It's not an infrastructure fund. We think that this type of approach should not be at the detriment of IRR or performance. So we invest to create value for our investor clients in a theme that we think is buoyant and also with this strong societal goal. We were truly innovative. We found partners, strong industrial partners to translate that strong belief into investment opportunities.

Page 42, you can see the utmost selectivity in terms of investment, even higher than for private debt that I was talking about. The conversion rate is 4%. And the pipeline include -- included over 700 opportunities that were reviewed, and it's on -- it's only growing because of our geographical footprint.

I'll hand over to Antoine to conclude with capital market strategies.

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Antoine Flamarion, Tikehau Capital - Co-Founder & President [5]

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Thank you so much, Mathieu.

Capital market strategy is what we used to call liquid strategies. Liquid strategies doesn't really work well in English. So we think that capital market strategies is a bit more illustrative of what we are doing in the listed part. So these are corporate bonds, financial bonds, and we have a fund that's also slightly present on equity markets. What's important to remember is that when we created Tikehau investment management in 2007, we started with credit funds. So we were present on high-yield and financial subordinated debt markets that were undergoing major dislocation as we are now beginning to see on some markets now. So we've built up very strong research teams. We conduct our own research ourselves. We have strong -- fairly strong beliefs with a major track record that was created during the 2008 crisis. So we were already faced with the crisis. And unlike our other businesses, it's highly scalable, as they say, because you can have a fund that starts at EUR 35 million. That's what happened. Collected EUR 500 million last year. Since the beginning of the year, it still had net positive inflows. So it's a fund that's invested in corporate debt and corporate equity. So if we continue, we could have a fund with EUR 5 billion or EUR 10 billion AUM.

To give you an idea of the performance to date. It's the only part where we're suffering a bit. It's a fund that was at minus 10% year-to-date to compare with equity indices that lost 35% to 45%. So we are highly defensive. It was managed like the rest of the Tikehau company with a lot of selectiveness. So we think that we have a growth driver, a lot of -- a lot under the pedal for the next few years with these strategies.

Along the ethos of the group, well, we have these funds with ESG ratings from LuxFLAG. Most Tikehau private and public funds are now rated by various fully independent agencies that choose to rate our funds or not, by the way.

Now Page 45, to give you an idea of the performance of the InCA fund. InCA means Tikehau Income Cross Assets. We were at EUR 392 million in 2019. We ended the year at EUR 1 billion. And last week, we were above EUR 1.1 billion. So we are still getting inflows. It's a very wide universe of stocks because we're looking at roughly 200 companies with in-depth analysis. The performance of the funds in previous years had remained humble because the market was rather very good, very buoyant. Now we can see that in a more bearish market, it really stands out. And that's all that I can say about InCA, our other credit funds that were managed between 30% and 50% cash, and now we think that we are well positioned. And as I said already, if there are significant growth drivers in those -- because it's the opposite of what's going on with ETFs. With ETFs, you replicate the index here. We stock big. We decide to invest for the long term and divest when we think that there is going to be a major structural shift, both on the equity market and on the credit market.

I will now give the floor to Henri for the financials.

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Henri Marcoux, Tikehau Capital - Deputy CEO & CEO of Tikehau Investment Management [6]

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Thank you, Antoine. Good morning, one and all.

Let's look at Slide 47. Before we get into the details of the P&L, to remind you that in December 2018, after the go-ahead from the relevant authorities, we finalized the acquisition of the 2 management companies, Sofidy and ACE Management. And so now these companies are fully integrated and consolidated.

So they had an impact on the 2019 P&L. That's why we compare 2019 with published results 2018 and pro forma 2018 to replicate all of our operations if these 2 companies had been fully consolidated in 2018.

Let's start with the income statements for FY '19 with the first part in blue. The first engine in our model with asset management activities generated NOPAM of EUR 58.5 million, up strongly by 48% on like-for-like or an increase -- multiplication of 2.9x compared to the published figures of 2018. That shows once again our ability to generate profitable growth.

Regarding our investment activities in gray at the center of the slide, generated operating income of EUR 199 million due to the cumulative effect of an increase in recurring revenues and the fair value adjustments for a number of listed assets, I'll get back to it in a minute. Financial interest was minus EUR 33 million, down by EUR 9 million compared to 2018, mostly because of the fair value adjustment of our hedge -- of our rate hedges on our syndicated bank loan. Tax was a charge of EUR 39 million, mostly related to deferred taxes for EUR 30 million. And so net profit at EUR 178 million for FY '19.

On Page 49, you've got the split of our AUM at EUR 25.8 billion, 17% growth for FY '19 in order to measure the performance of our business lines. They've been brought together into 2 scopes. On the left-hand side, you've got EUR 23.6 billion for asset management. So AUM managed within funds by our management companies, assets entrusted by third parties or investors, but also partly by Tikehau's balance sheet. And so these AUM generate fees, like management fees or carried interest, split over the 4 business lines that Antoine and Mathieu talked to you about.

I'll focus on the orange part, which is the alignment of interest between Tikehau and its investor clients with close to EUR 2 billion invested by the balance sheet in our managers' funds. And then in gray on the right, you've got the direct investment AUM for EUR 2.2 billion, bringing together assets managed by -- from the balance sheet outside of Tikehau funds as well as the group's cash.

On Page 50, you've got an analysis of our fee-paying AUM so that you can get a grasp of our ability to generate revenues. So we need to analyze the nature of our AUM. That's why we're now showing our AUM in 3 segments: what generates fees, what will be with the deployment of funds and what will not pay fees.

So in dark blue, fee-paying AUM is now EUR 19.9 billion. Very strong growth, 23% over the FY. The reason for that is mostly because of solid inflows in real estate, especially for Sofidy as well as for the private equity business line, but also with the sustained development of our funds which favored that increase. You can see once again that 2018 acquisitions strongly bolstered the profile of the fee-paying assets, 2.2x compared to the end of 2017 from EUR 9.2 billion to EUR 19.9 billion. We also benefited for EUR 2.6 billion of assets under management generating -- that will generate fees. This aggregate is mostly explained by the fact that our private debt business line and partly by real estate for TREO. We receive management fees based on the capital invested and not based on the capital committed by investors. So that's the future revenue equivalent in excess of EUR 20 billion, which is not yet reflected into our P&L.

Still on the fee paying. On Page 51, you can see that it now accounts for over 84% of our AUM, plus 4 percentage points compared to the end of 2018. And if you look at the nature of the fee-paying AUM within the 20 -- the EUR 19.9 billion, you can see what we discussed earlier, liquid strategies, capital market strategies now for EUR 3.8 billion, open funds. But also at the bottom, you've got the funds managed by Sofidy, EUR 5.6 billion. And they have a holding average -- holding time higher than 12 years. And for the closed funds scope, there is over 98% of assets generating revenues over 3 years -- for more than 3 years so that we can have visibility over our revenues over time.

So the nature of revenues. Revenues for FY '19, EUR 175 million, up very strongly, plus 39% growth compared to FY '18 like-for-like. Compared to the stated results that we had in 2018, that's an increase of 2.3x. So that should be compared to the growth of our AUM that is fee-paying as we explained previously. So over 95%, that's the blue part of our revenues, are made up of management fees. That's the first engine in our business model. And the contribution to revenues of performance fees and carried interests and overperformance fees were EUR 8.5 million for FY '19, and you can see at the bottom right that the split of our revenues by business line has diversified a lot. At the IPO, we said we had diversified the AUM. But one of the consequences is also diversification in revenues because now real estate accounts for 47% of revenues, private equity over 14%.

Page 53. One of our key indicators is to measure the revenues that I've just explained and compare them to the average of our fee-generating AUM for FY '19. The management fees were, on average, 69 basis points compared to AUM. Because of the strategic initiatives that have been launched since the IPO, explained by Antoine and Mathieu, but also because of the effect of external growth, our management fees grew very strongly for FY '19, standing at 92 basis points on average for FY '19.

We also state that we give the breakdown of all of the revenues by strategy, so they can have the various positive mix effects because of the stronger share of real estate as well as private equity. Performance fee and carried interest-related revenues account for 5 basis points on average because of carried interest, mostly because of the disposal of the Elis portfolio that Antoine was talking about a minute ago, but also performance fees for our business units and capital markets on all the bond funds for FY '19.

I'll dwell for a minute on the issue of carried interest and the alignment of interest related to carried interest on Slide 54. The listed company receives 53% of the carried interest on closed-ended funds. The eligible quanta to these revenues have increased strongly plus 27%, now reaching EUR 8.6 billion within the business lines of private debt, real estate and also private equity. Carried interest is triggered at maturity as soon as a hurdle rate, a target rate has been exceeded. Our ability to generate this carried interest will depend on the ability that we have to invest wisely, the money that we're entrusted with and as we've done in the year since the creation of Tikehau. As a reminder, the capital markets funds are still eligible to performance fees, which are annual and which stay 100% within the listed scope.

I'll draw your attention to the right-hand side of the slide, where you can see that the quanta of invested assets that are already above the hurdle rate, the target IRR, have increased by over 17% compared to 31 December 2018.

Now regarding profitability in our asset management scope. We've talked about revenues, but now net income is EUR 58.5 million, plus 48% like-for-like. This is the result of the deployment of the strategy that we announced at the IPO. This is the outcome of the combination of organic growth, but also acquisitions that were strongly value-enhancing for the group, almost 3x the operating income that we published for 2018. Because of revenue growth, we still invested in the platform, which is a key asset to carry on with our development. So growth in cost was driven by staff costs and also because of the international development. So compared to revenues, we have an operating margin rate for 2019 of 33.5%.

Now let's look at revenues related to our investment activities on Page 57. Investment revenue stood at EUR 278 million for FY '19 to be compared to an amount of minus EUR 32 million for FY '18. The first component in our investment income is the orange bit, which is -- has a cash impact, the dividends, coupons on our investments, standing at EUR 89 million versus EUR 73 million in 2018, so an increase of over 21% to be compared to the increase in the size of our portfolio invested from our balance sheet.

The second part of the revenues is the changes in fair value on the assets. The positive impact was EUR 189 million because of the appreciation in the equity and the value of a number of assets in the portfolio.

If you look at the components in all that, you can see that on top of what is related to our listed stakes. I simply wanted to draw your attention to 3 things: first, the impact of the disposal related to the creation of our private equity, secondary private equity fund generating a gain of over EUR 10 million; the impact of disposals that were made during the year be it HDL, Spie or JustCo in Asia; and last interesting item, the impact of Tikehau funds in the makeup of that result, they generated over EUR 90 million.

But precisely regarding the impact of the component of Tikehau funds on Page 58, you can see that this contribution to income more than doubled compared to 2018. The impact of our consolidated P&L was EUR 44 million for FY '19. That result was over EUR 90 million, fully in line with our strategy to deploy our funds, all over which, we've got better visibility and in-depth knowledge of our investments. These EUR 90 million compared to the amount invested from the balance sheet and the funds shows a yearly return of close to 8%, up 150 basis points in FY '19 compared to FY '18.

Now let's look at the balance sheet review, Page 60. Our balance sheet structure is still relatively robust and it's still a differentiator against a deeply changing backdrop. Our equity was EUR 3.1 billion of shareholders' equity, strongly up, plus EUR 865 million because of the capital increase that was finalized in June. Our cash position was strengthened at over EUR 1.3 billion because of the capital increase, of course, but also the deployment of our balance sheet, but also all the divestments that were made during FY '19.

The group's got dynamic management of its balance sheet in terms of asset recycling and the level of care that we have on the level and the structure of our debt.

Let me dwell for a minute on the structure of our debt on Page 61 to remind you that our net financial debt is at EUR 1 billion with a gearing level that's improved level, significantly at 32%. That debt is made up of a syndicated loan which has been drawn for EUR 200 million, a bond issue of 2017 for EUR 300 million and another bond issue in 2019 for EUR 500 million. As Antoine said, we still have a bank facility that's available and undrawn for EUR 500 million.

Last but not least, Fitch gave Tikehau its first rating at BBB- investment grade, which confirms the solidity of our balance sheet. And because of all these operations in 2019, the average maturity of our debt went from 4.1 years at the end of 2018 to 5.6 years at the end of 2019.

On Page 62, I'll focus on one of the main aspects of our balance sheet, on investment portfolio. This investment portfolio grew by 11% at EUR 2.3 billion in 2019 versus EUR 2.1 billion at 31 December '18. So we're still deploying our balance sheet according to our allocation strategy. Via our balance sheet, we've invested EUR 700 million. We invested EUR 700 million in 2019 very cautiously, sensibly, with EUR 200 million invested in our own funds.

Regarding the balance sheet, investments in the group grew by over 57% and now accounting for EUR 1.4 billion in our balance sheet. And so this year, at the end of 2019, it's 61% of total portfolio. So we are fully in line with the trajectory that was announced to raise the balance sheet exposure to Tikehau funds to between 65% and 75% by 2022. If you add to that the uncalled amounts in our own funds, the total commitments by the group in our funds is EUR 2 billion.

And let me remind you that the granularity of our portfolio is high. You can see that on Page 63. All of the portfolio now accounts for over 205 underlying stocks and one Tikehau fund is one underlying security. And still within each fund, you've got greater granularity. You can see on Page 63 that the share invested in our funds has grown at EUR 1.425 billion. For the funds that are invested with Tikehau, we've got strong diversification. You can see the split between the various asset classes, private equity, real estate, private debt and capital markets strategies. And the direct investments share in light blue at the top of the slide is relatively balanced between listed and private assets.

Now moving on to the strategy and the outlook on Page 65.

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Antoine Flamarion, Tikehau Capital - Co-Founder & President [7]

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Thank you, Henri. Well, we'll now try to give you some outlook and the view of the Tikehau company, its various partners and employees before we take your questions.

First, a focus on COVID-19. Of course, we hope that all the people listening to us, their loved ones and their families are healthy, and that they are now isolated as was requested by the government. Since the public health crisis started in Asia, Bruno de Pampelonne, based in Singapore, the head of the management company, has put in place a committee which is operational 24/7 given the various geographical footprints fairly early on because we applied the Singaporean master to all of our offices. So very early on, we put in place what was already existent. But it's now fully operational with teleworking. We've got IT and digital teams that are very efficient, and they've worked flat out. So now we are fully operational to work remotely, whatever the activity. So in terms of Tikehau operations, we were able to cover all fronts. We had due diligence by a big U.S. consultant for a New York-based pension fund that wants to invest in our alternative strategies. It was done entirely remotely and it worked fairly well on there. There's more that we can do, of course, but we are fully operational.

Of course, the issue is to have close monitoring of all of our investments in all of our asset classes, with reviews that were conducted, business unit by business unit, company-by-company to understand the issues for each company. And so we'll try and support all of the corporates, both financially but also trying to provide them with advice and support.

Since we provide growth equity in our private equity activities, even when -- even though we are at a minority share, we have a specific seat on the board. And so we provide all of our advice to help these companies to make them stronger when the crisis ends. So of course all that is organized at the corporate level, but also at the business level.

Moving on to Page 66. You can clearly see that we need to monitor a situation which is changing fairly quickly and fairly surprisingly, as I said. When you no longer generate any sales, it's quite specific crisis. The issue is to know how long the public health crisis is going to last. And as we said, we're not experts. We can't comment, but we can see some fairly positive news coming from Asia but fairly different. The company -- the countries that were fairly drastic in their approach. China and Singapore are doing rather well in public health terms. The countries that took a bit longer to respond, there are still cases like Indonesia or the Philippines. Japan is rather in the Chinese, Singapore and South Korea field. So we're still monitoring the crisis. Well, it may just disappear immediately. It will leave a lot of scars, but it will change a lot of habits with individuals in terms of consumer spending and the way people work.

It's too early to draw consequences, but we think that a lot of cards are going to be reshuffled. And as investors in a shifting environment with human capital, financial capital and strong stable shareholders, we think we are very well positioned to come out of the crisis stronger.

We're a fairly young company. 4 years after our inception, we went through the 2008 crisis, which was only financial. But we were really in the reactor core. So we are fairly knowledgeable about crises, so we're fully operational. In human IT terms, we make sure that we can help all the companies that we've invested in. We're looking at a lot of opportunities because market dislocation is such. On all markets, most operators are now looking at equity markets. You can see things that were not even observed in 2008 on credit markets with debt discounted at levels that are mind-boggling. So we think that we can see some investment opportunities for our funds, for our future funds also. We've got a whole series of funds that are raising funds or that are going to raise. For instance, we had approval from AMF for a dated fund. These are bond funds. We had TK 2024, and now we will launch TK 2027, and we want to be fully in on the current situation that is constantly changing. So that's why we don't want to rush, though.

Page 67, very clearly. Here, you've got a reminder of 5 major items that we think are key for success. First of all, we've got a strong team so that we can source opportunities in all asset classes in most geographies. And as I said earlier, the situations are very different depending on the country. We've got very strong alignment of interest with our investors and our funds because each time Tikehau Capital invest EUR 100 million in a fund, that means that management and employees invest 45% -- EUR 45 million. So risk control at Tikehau is both the risk department, but also exercised by all employees. We built Tikehau to be very inquisitive. We are inquisitive entrepreneurs in our DNA, so we want to be very responsive. If we keep our capital, if we're still very selective, we could leverage the currently observed dislocation on all markets. There are going to be new opportunities, as Mathieu said at length. The private debt market will become even more attractive than it was in terms of yields and companies that are going to need funding.

Moving on to the last Slide 69. There are a number of mottos at Tikehau. There's one that we are very fond of: create, not compete. We were created with EUR 4 million 15 years ago. Now we are a company involved in investment and alternative asset management with a lot of beliefs. We don't want to brag, we still -- we just want to remain ambitious. That's why we have a platform in several countries, in several asset classes. We suffered a bit from the last 3 or 4 years because we were extremely cautious. And so time and again, we said that we could not understand valuations. That's why now we've got a lot of cash on the balance sheet, EUR 1.3 billion, plus the EUR 500 million credit lines, so EUR 1.9 billion. If you remember, the valuation of banks, insurance companies, asset managers, especially alternative ones, EUR 1.9 billion is now a lot of money. We've got EUR 5.2 billion in dry powder in asset management. We'll still raise funds. We raised EUR 577 million in the first 3 months of the year. So now there's no net outflows. There may be, but investors are still trusting us because our strategy is fairly conservative with a global platform. It's now paying off. And we're fairly upbeat about the future events.

So now Henri, Mathieu and myself are going to take all your questions. If you agree.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from Arnaud Giblat from Exane.

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [2]

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I'm from Exane and I have a couple of questions. Number one, may I ask you regarding the valuation of your assets. I imagine that you follow the international private equity venture capital guidelines. And so there should be no surprises, no major discounts in view of the widening spreads in the credit spreads that you find in the private equity and the private equity scene. So I imagine there shouldn't be a mark-to-market correction. So if there's any trigger, it would be from default events. Can you tell us whether there are any assets that are close to the covenant now?

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [3]

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Antoine?

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Antoine Flamarion, Tikehau Capital - Co-Founder & President [4]

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Maybe a technical answer. The 2 levels. There are 2 issues, the valuation of all our funds, and that are, of course, in line with the IPEV Guidelines. And so both our debt funds or private equity funds and our real estate funds. And for our balance sheet, we follow IFRS standards, and we apply -- well, all levels, levels 1, 2 and 3, level 1 is listed. And 2 and 3, we are looking at multiples in line with [ITIL] and IFRS standards.

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [5]

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Yes. Thank you, Arnaud. This is a very legitimate question because the price of assets may vary considerably. On listed assets, it's pretty straightforward. On unlisted assets, there are international standards. What we can see, what we can -- what we have is that some of the assets may be affected in the short and medium term. But what we believe is that we have high granularity in terms of asset classes, in terms of funds. Within our funds, we have relatively few leverages in our investments at our funds. I mean, private equity invest -- private debt and real estate. And in the listed part, we are withstanding much better than the competition. So there will be some effect depending on the length of the crisis. It's a bit early days to have a clear view. But one thing is for sure, we are good -- we have good risk managers because we have a few examples. But you may remember exits in real estate, which would be quite impossible today, certainly not at these values. We have some listed assets. We -- the Latécoère, we bought it at EUR 2 and we sold it at EUR 39 per share. We sold half of Eurazeo at EUR 64, now they're worth EUR 32. So we are good risk managers -- risk assessors. And the cash that we have everywhere shows that we are very cautious. There will be effects. It's bit early days for the unlisted part and the private part. On real estate, if you have commercial real estate leased to Deutsche Telekom, it's rather different than what we have. According to our friends from Singapore, it won't be the same as a commercial property in France or elsewhere. So it's still a bit early days, but we do believe we have a good -- we're well protected because of the granularity by asset classes, by geographies, by size of investment and by tenants.

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Arnaud Maurice Andre Giblat, Exane BNP Paribas, Research Division - MD & Research Analyst [6]

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I have a follow-up question on your run rate. You maintained your guidance for 2022. But what do you think -- I mean, on fund raising, what will be the effects in 2020?

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [7]

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Well, again, it's a bit early days. We are comfortable with the guidance. Last year, we had EUR 4.6 billion. But that was a record year. We have a -- well, our brand is less well-known. Of that of the 12 players, that 12 listed alternative management, 6 in the United States, 4 in Europe and 2 in Canada, we are the youngest, we're only 15 years of age. So our name is not as well-known on the market. But if we look at what happened in 2009 -- 2008, 2009, 2010, we accelerated in 2007, we had EUR 100 million in equity and EUR 200 million in AUM. We are a completely unknown French company. Now our name is better known and better recognized. And we believe that because we were very cautious, we'll make all the difference vis-à-vis our customers, whether looking at private listed or unlisted assets. And I think without blowing our own trumpet, if we take advantage of market dislocation, we can perform well. We have -- we are very active as well. We're not closed and we can show all our investors and shareholders that we are very much present and responsive. There were some initiatives of unlisted debt we started to fund 3 months ago. Investors can see that we are proactive rather than reactive. And we'll see what 2020 brings. But we have already EUR 517 million from the first months of the year. This is a pretty good indicator, I believe.

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Operator [8]

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(Operator Instructions) The next question from Nicolas Payen from Kepler Cheuvreux.

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Nicolas Payen, Kepler Cheuvreux, Research Division - Equity Research Analyst [9]

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Nicolas Payen. I have a couple of questions. Number one, apart from your liquid funds, all your funds are closed-ended. In other words, you cannot expect any outflows on Tikehau Asset Management? And the second question on your outlook, you say that there will be opportunities resulting from the health, economic and financial crisis. Can you give us more details? Do you expect more external growth at Tikehau? Or do you -- I mean, you referred to credit dislocation, do you expect an increase in private debt funds compared to private equity funds that is a dynamic rebalancing of your funds?

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Antoine Flamarion, Tikehau Capital - Co-Founder & President [10]

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Yes. Well, I'll take the question on closed-ended funds, and Mathieu will talk about M&As and such like. On AUMs, EUR 26 billion that we manage apart from capital market services, all our funds are closed-ended funds, that is investments have made a commitment for 8, 10 years or more. And so there can be no outflows there, no -- and the extreme case is if you have a listed real estate company in Selectirente. We have 2 big insurance companies who are part of the capital, even if decided to pull out, we still manage the listed companies. So there's great stability in revenue.

The only situations where you have outflows is in the liquid funds. And that has been withstanding the shock. And in fact, we expect new capital to come in. So most assets that we have, they are in closed-ended funds where investors have long-term commitments. Mathieu?

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [11]

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Yes. And this is an opportunity to comment on the M&A outlook. You have been monitoring us for the past few years. And nonorganic growth has been -- external growth has been very selective, and we've been very careful in terms of valuations. It had to be accretive for our capital. For the past few years, alternative investors, and especially private companies that were not listed, have enjoyed high valuations because of the acquisition of traditional players who wanted to be present on the alternative scene and paid a big premium for that. Or as we said in September, because you had companies, well, you had some American companies that have decided to take minority stakes in management companies. And so that brought in new equity to these management companies and ended up with high valuations. So you had people who take minority stakes. We decided to stay away from this madness on valuations on the private market. On the listed market where there's great dispersion in valuations, if you look at asset-light models that had some tailwinds with very high valuations. And then on the secondary market, you had companies with a balance sheet where people were concerned about whether the balance sheet was sound enough and their valuations took a hit.

Now if you look at the listed players in North America or Europe, you had some pricing shocks right now. Mechanically, we expect some readjustment on the valuation of private companies, unlisted company. Because we have liquid capital, we are fairly liquid, so we can look selectively at various targets. If the -- for us, the criterion will be either geographic or the type of industry. We will be looking at companies in industries where we are not present. So that might bring in expertise, additional expertise on the platform. But we're also looking at jurisdictions. There are countries that are more difficult to enter organically, creating platforms as we did successfully, I believe, say, in Italy and Spain or indeed the Benelux in Europe. So we are very mindful of possibilities.

We are, of course, constantly being solicited by merchant banks to see what opportunities might be taking. There's a general repricing that should enable us to consider acquisitions in the months and quarters to come.

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Operator [12]

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(Operator Instructions) Next question, [Christophe Reese from Farbrooks]

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Unidentified Analyst, [13]

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Yes, 4 questions from my side, please. So firstly, in the private debts, could you give us a rough idea of what's the current situation at the moment with regard to the leverage loan and the CLO strategy? And do you expect government support to help your portfolio companies? Secondly, with regard to investment opportunities, apart from the just discussed M&A angle, some more on the fund side, so on which asset class do you see the best opportunities arising there? And what would be your -- sorry, key criteria that you would take into account at the moment? And thirdly, is there a possibility that you might deviate temporarily from your strategy to focus on investment through the funds instead of the balance sheet? Or would you say this is not really on the table right now? And then lastly, how much of the available cash that you mentioned is already committed to funds?

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [14]

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Thanks, Christophe, for these 3 points. I will start with your last question. So what you -- I mean, you know that we told the market at the Capital Market Strategy Day on May 15 last year that we will increase to 75% balance sheet resources into our funds. So that we would reduce the number of direct investment and obviously, reduce the volatility that Arnaud was referring to. So you should expect effectively as we launch new initiatives to see bigger commitment into our own funds, leveraging higher commitments from third-party investors. We evidenced that, for example, our private debt strategy during our presentation. And so any investment into the fund has to stand on its own merits and targeting the return on capital employed that Antoine mentioned of 10% to 15%. But in parallel to that, effectively promote higher third-party AUM coming from third-party investors, generating management fees and carried. I think we reported the last direct lending fund was at EUR 2.1 billion, the balance sheet invested EUR 214 million into the strategy. So there is no rule of thumb of this 10%. It's being decided by the Capital Allocation Committee for every single strategy being launched.

Typically, we can tell you that in the context of the private debt secondary business, for example, that we briefly discussed, there will be a significant investment by the balance sheet of at least EUR 200 million. It's going to be a dollar-based solution that we are managing out of New York. And likewise, in the special situation business, part of the tactical strategy unit that Antoine mentioned, given the very timely nature of this strategy, there will be at least EUR 100 million to EUR 150 million invested in this strategy. So we saw significant commitment, but they're all into a fund. They are not into a direct company. So that should flatten with the volatility. That get us access to a much more granular portfolio with a view to return effectively the 10% to 15% return on capital employed. But that's for your last question.

Now question #2 as to the M&A and which businesses we could be focusing on. I mean, clearly, we said that we wanted to grow into private equity. We demonstrated that we could go from nothing to EUR 2 billion in a relatively short period of time, thanks to the leadership of Emmanuel Laillier, who now joined us and he is managing this business. If we were to see more opportunities like we saw in ACE Management, we could selectively effectively move on to private equity. And that is, once again, not controlled buyout. With all the legacy that those GPs will have to manage off a very high valuation multiples that have been paid over the previous year, but something that will be along the line of what we are trying to develop in our growth equity strategy.

Obviously, we discussed that over the past few months. And infrastructure is something that people keep asking us to develop into. And clearly infrastructure is a very interesting market. That's a market that will be, in our view, repriced. And unfortunately, when you look at what's happening right now, the toll road, be it in France, in Italy, in many countries, I mean these are assets who're going to be suffering. Airports, are assets who're going to be suffering, given all the lockdown. So once again, there's going to be significant repricing this year. And if we were to identify some good fit, and for us, the criteria of a fit for an acquisition, obviously it has to be financial and dilutive. That's the point I wanted to make to Nicolas earlier on, it has to be dilutive for Tikehau Capital. But more importantly, it's about the cultural fit.

And this cultural fit, I mean, key assets are the people. And we need to find this real cultural match that we are seeing more and more with some entrepreneurs looking to move into the second step where the balance sheet can be a key differentiating factor for them because they would get this anchor commitment. So those are areas where you could see us effectively moving to now. Having said that, we're not -- we're fairly agnostic. Antoine like to say, and he wrapped up his presentation on create, not compete. There might be some brand-new strategy that actually are not even today in a cell on an Excel spreadsheet of new strategies that we're going to be creating in this market. So that's where you should expect us to move forward. But once again, remaining extremely selective.

Now if you could just repeat your first question because I did not get it correctly, I think, Christophe.

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Unidentified Analyst, [15]

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Just maybe a quick follow-up regarding the investment opportunities. I was thinking, apart from M&A, so maybe more on the fund side. So what would, let's say, an ideal investment opportunity in this dislocation look like? And what are the real key criteria for those, let's say, opportunistically timed investments that you would take into consideration? And then the very first question was on the private debt side, outside of direct lending, so more on the leverage loan and the CLO activities. Yes, what the current situation is there at the moment?

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [16]

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Okay. So I cannot react on the leveraged loans because there are some indices, and it's a broadly -- or it's supposed to be a broadly traded market. There's been a drop of 8 to 10 points on the leveraged loans market, if you refer to the European indices. In the U.S., it's slightly different because the market is more segmented but it's the same pattern. And that has clearly impacted also some of the current warehouses of CLOs. I don't want to be too technical here and you know this market fairly well. In order to launch a CLO, you first ramp up, you buy some leveraged loan that are very often warehoused by your bank. The bank is asking you to put a bit of capital, they provide you with the rest of capital, and then when the market is ready and the portfolio is ready, you issue a CLO.

So we at Tikehau, we issued our last CLO in July last year. We have not -- we don't have any open warehouse right now. So we're not at risk of any market situation as a consequence to that. And quite the contrary, as I was saying, I believe that will create some opportunity to effectively buy and ramp the next CLO in some much more appealing conditions. Now this has been the main source of the liquidity for the leverage finance market. The leverage finance market is financing the large buyout, the control buyout I was referring to. If this market was to remain under stress, if not shutdown for some times, obviously, that would have a major impact for the buyout industry, both from the investment and on the realization and the exit of this operation. But looking back to 2008 and 2010, Antoine was mentioning that earlier on and Tikehau was a company of a totally different scale. This is where we had our most significant growth in terms of stepping up as a credit and stressed credit and sale is at the core of our DNA. So today, we've got the entire platform, our leveraged loan team, our CLO team, our special situation and tactical strategy team together with private debt, looking at all the opportunity in primary and secondary to be best positioned to address that. So that will be my comment on the leveraged loan market.

Now to be more precise on your previous question about the balance sheet commitments. I mean, we are roughly at EUR 600 million committed by the balance sheet into our strategies.

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Unidentified Analyst, [17]

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But sorry to come back on this, but of this EUR 600 million so are in addition to the EUR 1.4 billion already invested by the balance sheet. But that being said, those commitments will be drawn over 12 to 18 months. So it's not commitments that are -- that may appear right now.

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Henri Marcoux, Tikehau Capital - Deputy CEO & CEO of Tikehau Investment Management [18]

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Maybe I can do -- to come back just, Christophe, one comment on the CLO one. So Tikehau Capital Europe, which is our collateral manager, we manage actually EUR 2 billion of AUM across currently 5 existing closed end CLO, which actually match assets and liability in a 12-year term financing structure with limited mark-to-market pricing triggers. I should remind that the CLO are not forced seller of assets. The CLO structure has been proven to work through market turmoil, naturally deleveraging and self-correcting with limited historical tranche default, despite high underlying assets, defaults through the financial crisis. And if you take actually Tikehau CLO portfolio, they do benefit from a high degree of diversification across issuers, sectors and geographies.

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [19]

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That, Christophe, is -- that's obviously, most of the large funds at Tikehau are still in their investment phase. We're not in the realization phase. So we are less dependent on market condition to exit, realize some of our investment in order to not only generate a capital gain or potentially carried interest, but quite the contrary being able to tackle these market opportunities.

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Operator [20]

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The next question comes from Pierre Bosset from HSBC.

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Pierre Bosset, HSBC, Research Division - Head of French Equity Research [21]

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I have a couple of questions. A follow-up question on exits. Is it right to believe that your fees, management fees, are not impacted by the lower valuations in your funds? Could you consider that you have no -- the fact that valuations have come down, it's not going to have an effect on management fees? And number two is maybe a naive question, but you said that you have EUR 5.2 billion in dry powder, but some of it is already allocated. So is it to say that the EUR 1.3 billion that you have in the balance sheet at the end 2019 is also dry or drying powder that you could use left or right?

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [22]

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Thank you for these 2 questions. So way management fees work, if you're an asset manager and if you manage EUR 100 million, if your management fees are 1%. For us, it's 0.92%. So it's up, let's say, 1% to make it simpler. It means that you will be collecting EUR 1 million in management fees the following year. If you have liquid funds, if EUR 100 million are liquid funds and EUR 50 million go away, well, you've only managed EUR 50 million, 1% of that. And if there's a negative mark-to-market of 50%, the EUR 50 million becomes EUR 25 million. And so your management fees will be EUR 250,000. So here, we have a small part of liquid funds on which there are no exits. In fact, there's inflows, not outflows. And there has been a slightly negative year-to-date impact. But for all the assets that we manage, we have management fees either on the investment of the investor's commitment or on that. There could be less management fees over time, but we're talking about small amounts. But we don't give specific guidances. At this stage, we're not concerned about lower management fees.

As to performance fees, since our funds are relatively young, there's little by way of performance fees. But that could have an impact as I speak under the supervision of Henri. But that EUR 6 million in performance fees, it could be less this year. But if you look at the total management fees of EUR 179 million, we're not looking at much of a decline there.

On dry powder, we have about EUR 5.2 billion in cash either in funds or in investors' commitments in our funds. And we have EUR 1.3 billion plus EUR 500 million on the balance sheet. So part of the EUR 1.8 billion on the balance sheet will be called on the funds that are part of dry powder, but that still leaves room for maneuver. So our balance sheet capacity plus asset management is quite significant.

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Operator [23]

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Thank you. There are no further questions on the phone.

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Henri Marcoux, Tikehau Capital - Deputy CEO & CEO of Tikehau Investment Management [24]

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Well, we have questions that were sent through the webcast. I'll read the question, by Geoffroy Michalet from ODDO, who wanted to know whether the dry powder to date was at a level close to the dry powder at 31 December. And also the ability to preserve. If we have a V-shaped recovery scenario, are we able to preserve the IRRs or the various funds and future inflows? Over to you for the answers.

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [25]

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I'll take the question on dry powder. The EUR 5.2 billion was at 31/12, now it's EUR 5.4 billion to date.

On IRRs, for the V-shaped recovery, depends, of course, on each investment and each strategy. It depends on the length of the V-shape and the support that will be necessary company by company. On primary funds and at this stage, although it's -- well, both for private debt and private equity, our teams have daily contacts with companies in order to gauge the immediate impact. But as Antoine said, it's too early to tell, but they were very proactive to offer solutions, flexibility and useful ones.

But what you can see on private debt, it's happened over the last few days because of market pricing on the public primary market, there's going to be a new standard regarding finance conditions, as I said in my presentation.

But a few months ago, it was a big question. Is there too much dry powder raised on private debt funds and is there a risk of a bubble? But in the last few weeks, we've been seeing, we've been reading a lot of private players approached either by companies or consortia of banking pools that have put acquisitions or buyouts on hold on which there were advanced negotiations and are now turning to private debt players to provide solutions. The last time that happened was in 2012. At Tikehau, we took positions on great operations that we've since exited from. Companies of over EUR 100 million and more in EBITDA were turning to a still nascent market of private debt. That was 8 years ago.

Now the market is a lot more established and structured. So we could expect increased business with more attractive conditions and terms for investors.

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Henri Marcoux, Tikehau Capital - Deputy CEO & CEO of Tikehau Investment Management [26]

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I have another 2 questions asked. Mr. [Alex von Casas] from [Casas Associates]. Questions talking about Tikehau's characteristic caution in terms of investment for the last 2 years. And now it's about the trade-off between extreme caution that was very wise in the past and opportunistic and technical opportunism to seize short-term operations. How is the trade-off made? And then regarding the residual ownership in Eurazeo, what about potential cooperation? And given the current market decline, what's our feeling on that?

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [27]

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Thank you for the 2 questions. Historically, as we've said, we've always been very cautious and we fared through the 2008 crisis the same way. We had relatively little dry powder in 2008, but we still had some, so we could seize opportunities. Here, we've got a more global platform with professionals carrying out basic research on companies and assets. As I said earlier, we're looking at a lot of things. It's possible that we're going to invest, and we've got money for that because I said TSO, TKO Special Opportunities is a fund that is there to seize opportunities coming from credit market, dislocation opportunities. We bought debt of a company that's well-known at EUR 0.50, a very large international corporation. So a lot of opportunities. The crisis is complex, and it's public health, economic and financial crisis. So we're looking at a lot of things. We'll do things, and we've always proved that we were quite responsive.

Regarding your second question, as we said, we rarely commented publicly on Eurazeo. We had almost 10%. Since then, we've decided to sell half of that at EUR 64. It's now worth EUR 39.4. Well, we hope that the company will continue to be managed adequately in very rough times. And of course, we are very careful about management and what management is going to do because of the crisis. So we are extremely careful about the decisions they are making regarding the management of their equity stakes, but also very careful about their share price.

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Henri Marcoux, Tikehau Capital - Deputy CEO & CEO of Tikehau Investment Management [28]

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Well, I suggest that we can wrap up. I have a question from Geoffroy Michalet of ODDO, I'll call him back separately. There are other companies publishing right now, so we can wrap up this conference call.

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Mathieu Chabran, Tikehau Capital - CEO, President, Co-Founder & Partner [29]

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Well, in that case, thank you very much to everyone for their questions, for their patience, for their interest in Tikehau Capital. We hope that everyone's going to stay healthy and safe because that's the #1 priority, and we need to be able to respond and navigate through the crisis. So we are available to everyone. Of course, if you want to discuss about investment opportunities, what we're seeing, what we've observed. But anyway, you can be sure that all hands are on deck and that we are taking action. Thank you so much, everybody. Good luck. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]