Good morning, this is the conference operator. Welcome, and thank you for joining the Antin half-year 2024 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Ludmilla Binet, Head of Shareholder Relations of Antin. Please go ahead, Madam.
Good morning, everyone, and thank you very much for joining the call today. I am Ludmilla Binet, Head of Shareholder Relations, and it is with great pleasure that I welcome you to our half-year 2024 conference call. Earlier this morning, we issued a press release announcing our results for the first six months of the year. A copy of this release and of the slide presentation are available on the shareholder section of our website. For today's presentation, I am joined by Alain Rauscher, Chairman and Chief Executive Officer, and Patrice Schuetz, Partner and Chief Financial Officer. They will present the highlights of the period, provide an update on the business activity, and review the financial results of the first half of the year. The presentation will be followed by a Q&A session, and I will now hand over to Alain.
Thank you, Ludmilla, and good morning, everybody. It is my pleasure to welcome you on this call. Let me start by summarizing the key highlights of the first half of the year. First, we are seeing good momentum in our investment activity, which is supported by an improving macroeconomic environment. Inflation is coming down in most countries, and we are seeing a very tangible path towards lower interest rates, as further have been confirmed in the United States last week by the Chairman of the Fed. Deal activity is picking up, and that is reflected in our numbers. The amount of money we have invested in the first half of 2024 doubled compared to the first half of last year. We are also pleased that exit activity resumed. We signed the exit of Grandi Stazioni Retail, which was the last asset of Fund II.
This fund is expected to generate a top quartile performance with a final growth multiple of 2.6x . This is a great outcome for our fund investors. We continue to be on track to raise Fund V at its EUR 10 billion target and potentially above. This would be a great success given the market conditions, and it makes Flagship I, the, our Flagship fund, one of the fastest growing infrastructure strategy in the world. As a result of this, our PNL continues to show strong growth across key metrics. Patrice will later, in the presentation, detail those numbers. With respect to capital return, we maintain our dividend payout ratio at about 100%. This is well supported by our strong cash generation. As a last point, we continue to see a very positive dynamic in the infrastructure market.
Megatrends, such as the energy transition and digitalization of infrastructure, require significant capital investment. These are powerful trends that we believe will continue to support the growth of our business over the coming years. Looking at our investment activity, you will note that capital deployment doubled in the first half of 2024, reaching EUR 1.6 billion compared to EUR 0.8 billion last year. We see good momentum and engagement across our investment team that is reflected in our numbers. Looking more closely at our capital deployment, we announced three investments in the first half, three in Flagship and one in NextGen. First, the investment in Portakabin, a modular building leader headquartered in the U.K. and expanding into Continental Europe.
For those who are familiar with this concept, it's close to what Algeco does, but with a very important activity in education. The second investment is the launch of Proxima, the first privately owned operator of high-speed passenger trains, or TGVs, in France on line servicing Paris to Bordeaux and Brittany. Most recently, NextGen Fund I invested in GTL Leasing, a lessor of hydrogen transportation and storage equipment in North America. We are excited about these investments, and we believe they demonstrate well our differentiated positioning as a value add and growth-oriented infrastructure investor. As for Mid Cap I, we had announced in January an investment in a radiology group called Excellence Imagerie. This investment didn't come to a closing because certain conditions precedent were not met.
Taking stock on where we stand in the deployment of each of our fund strategies, we are seeing a slight lengthening of the investment period for the current set of vintages. You see in the middle column that we invested Fund II and Fund IV on average in around three years. We are currently trending closer to 3.5-4 years and potentially longer for Mid Cap Fund I and NextGen Fund I. We've experienced a period during which the activity was less dynamic, and we decided to remain disciplined, especially when there were diverging price expectations between buyers and sellers. We think that this will ultimately serve us well, and it's fully consistent with our performance-first mindset.
With respect to Mid Cap Fund I, we are about 50% committed and need two to three additional investments to reach our 75% threshold, which in a normal environment, would take about a year. We are hopeful we will actually finish investing this fund, given our pipeline, closer to in a shorter period to that. In principle, we expect fund deployment period to return to 3-4 years in a normal market environment. On fundraising, Flagship Fund V had EUR 9.4 billion of commitment secured at the end of the semester, which represents 94% of the fund's target size and an upsizing of 45% compared to Fund IV. We are on track to reaching our target for Fund V by the end of the year and hopefully exceeding it.
We are pleased that our funds continue to perform well, and for most of our funds, gross multiples increased in the first half of the year. Fund I, Fund I announced the exit of Grandi Stazioni Retail in Italy, which was the last portfolio. So it's Fund II. Yeah, Fund II, sorry, which was its last portfolio company after the quarter ended. The fund's final gross money multiple is expected, actually, not expected, is 2.6x , which is a very solid performance. So we are very pleased about this exit. First, because Fund II is a top quartile performer as per Preqin. Second, we achieved a performance that is very consistent with Fund I.
Third, our exit activity is resuming with a performance in line with target and realizing, again, a significant value uplift relative to the valuation we had in our books. We delivered those value uplifts at exit quite consistently in the past, and of course, they lend a lot of credibility to our valuations quarter after quarter. One more, our more recent vintages are also making good progress, and that's across Flagship, Mid Cap, and NextGen on the right-hand side. I would just like to flag something, which is that we are when we compare performance on assets which are completely realized, they are not directly comparable in numbers to NAVs, net asset values, which are proposed here for investment, which are in the portfolio.
It's not because you see 1.9x Flagship III in June 2024 that we will not make more when we sell assets. In fact, we expect to make much, much more because only 37% of these funds have been realized. More is to come. The performance of our funds is well supported by robust growth and profitability across our portfolio companies. Growth rates continue to be strong, with an average revenue growth of + 12% year on year and an average EBITDA growth of 19% year on year. Approximately 75% of our portfolio companies have improved their margins year on year, and we are also seeing positive trends with respect to profitability. These key metrics show that value creation initiatives continue to deliver results, both through organic and inorganic growth initiatives.
We've been particularly active in executing our buy-and-build platform strategy, with 86 add-on acquisitions made in the first half of 2024. Moreover, our financing team remains active in capital structure management. 73% of our portfolio company's debt is hedged, often at favorable rates that were secured prior to interest rate increases. We do not have any major refinancing needs this year, and very well staggered debt maturities between 2025 up to 2030 and beyond. No financing wall expected due to our very active capital management. The next slide compared the upsizing and growth of Flagship Fund V versus the upsizing and growth of the largest infrastructure funds in the world. We have, of course, decided to anonymize this process.
We're not there to give brownie points or bad points to any of our peers. At the end of the second quarter, our Flagship Fund was 45% larger than its predecessor fund, at 95% raised. Fundraising obviously continued and will take us to around +54% at the fund's target size of EUR 10 billion. This position, as you can see, positions Antin Flagship IV among the fastest growing infrastructure funds in the world. We talk here about, you know, very large trends that, you know, and I'm sure some of you will be able to put names on that, and if you need, probably Patrice can share with you some data, public data.
While it is a good accomplishment, we were obviously hoping to do more when we launched fundraising in a different market context. Nevertheless, we need to take stock of where we stand. This is a very respectable, actually, a very solid growth, and we are obviously focused to continue to scale up as much as we move forward. Now, when we talk about growth and our potential to scale over time, we need to begin by understanding the mega trends that drive our industry, the infrastructure industry. These are very long-term trends that will play out over decades. The energy transition, where we are seeing enormous investment needs. In order to achieve net zero by 2025 , the world will need to invest an average of $3.5 trillion per year. I say trillion, not billions, right? Trillion dollars per year.
That's a total of $110 trillion in capital investment. We are an experienced investor in this segment, whether it's renewable, EV charging, or for example, smart grid solutions. The digitalization of infrastructure has entered into a new chapter with the rise of artificial intelligence. It means we'll see more data center capacity and more fiber build. Again, we are very experienced in those segments and have produced excellent returns in those segments. Transport infrastructure benefits from a whole range of long-term trends, whether it is supply chains that are changing due to onshoring or manufacturing, and changes due to geopolitical risks, or whether it's an increased focus on sustainable modes of transportation, such as rail.
We are seeing significant and often drastic demographic changes across our developed economies, with a rapidly aging population that will put strain on our social infrastructures globally. With government, governments running high budget deficits and having built up significant debt burdens, private market investors will have an important role to play in supporting those trends. We are well positioned to be among a small number of infrastructure investment firms that have the expertise, experience, and scale to play a meaningful role. This means that we have significant long-term growth potential. Just wanted to highlight a few numbers in this slide to give you an idea of what is the long term, and not specifically the next vintage, but the long-term potential for our industry.
For Flagship, our largest competitors are operating EUR 25 billion funds, and these funds continue to grow, and I believe we'll see much larger funds when the next set of vintages are raised. You see that with EUR 10 billion EUR for or EUR 10 billion- plus for Flagship V, we have a huge potential to grow in this strategy. In the midcap category, we also see a capacity across Europe and North America that is greater than EUR 10 billion . And evidently, as large cap funds are growing in size very drastically, there will be room for midcap funds to themselves grow in size very rapidly. The midcap market is very large, and we believe it is going to continue to be a very attractive segment of the market.
For NextGen, we see opportunities that will well support a EUR 5 billion-plus type of fund, and we believe the opportunity set will continue to grow over time. So it's possible this will expand as we continue to develop the strategy. Clearly, this is our level of ambition over time, and not for the next vintage, but it gives a long-term direction of travel and an aspiration for our time. In addition, we will continue to expand our strategies organically within the infrastructure ecosystem, and potentially beyond if we feel there is an attractive path to do some M&A. We continue to explore options for M&A, but as I've said on prior result calls, we do so with a high bar and only when we are confident it can create meaningful value to our shareholders.
With that, I will hand over to Patrice to talk about our financial performance.
Thank you, Alain. I will start by presenting key metrics for the first half of 2024 , and I'm pleased to report that we continued to deliver growth across our key financials. Fee-paying AUMs, revenues, EBITDA, and dividends all increased relative to the first half of 2023 . You will note that growth rates are more moderate versus the prior year, and that's really linked to the advanced nature of our fundraising cycle for Flagship Fund V. Now, looking more closely at our AUM and revenue composition. Total AUM increased by 3% to EUR 31.7 billion, and fee-paying AUM increased by 4.2% to EUR 20.6 billion. That increase is driven primarily by additional commitments raised for Flagship Fund V.
Revenue increased by 6.4% to EUR 146.9 million, and as in prior periods, a majority of this revenue are management fee revenues. These revenues are long-term recurring and provide a really good visibility on our PNL going forward. The effective management fee rates stood at 1.33% and was largely stable versus the first half of 2023. Now, looking at the components of the 6.4% revenue increase, we can see that about 12 million in management fee revenues were added in relation to commitments that we raised for Fund V. An additional 1.3 million were added in relation to add-on investments that we made in our Fund IV.
That fund continues to invest capital in the existing portfolio companies to support the growth and will continue to add management fee revenues as it does that. These effects were offset by realizations in Fund II, Fund III- B, and Fund III, which are more mature. The remaining changes are relatively small and relate to NextGen catch-up fees that were recognized in the first half of 2023 , and which are falling away now, and slight changes in investment income and admin fees. Overall, that takes total revenues to EUR 146.9 million in the first half of 2024 . Now, this slide on carried interest talks about the potential for performance fee revenues from carry.
Antin has so far not recognized material revenue related to carried interest, because for funds that were raised prior to 2020 and prior to the IPO, the carried interest was allocated to the team. Now, starting with Fund III- B and funds that were raised after that, a 20% portion of the carried interest is allocated to the firm. And at the fund's target return levels, the revenue potential to Antin is approximately EUR 480 million in total, and it comes entirely on top of the management fee revenues that Antin generates today. So with respect to timing, the first fund that we anticipate to generate carried interest revenue is Fund III- B, and a first portion of that fund's carried interest could be recognized in 2025. So that's subject to performance and obviously also subject to realizations within that fund.
For Mid Cap Fund II and Fund V, it's still early. We would typically see carried interest revenue in year six or year seven of the fund's life. And so again, that's driven by value and fund performance and the pace of realizations. But overall, you can see a very substantial revenue potential that's not reflected in our PNL today. Now, moving to our operating expenses. Our total expenses increased by 13.7%. Personal expenses increased by 11.1%, which is linked to headcount growth, which was 10.8%, and wage increases. Operating expenses increased by 16.7%. Now, overall, we're focused to manage our expenses in a controlled manner as we continue to grow the business. I think one notable point on the headcount development is that we added a significant portion of new hires in North America.
So you see that the headcount in our New York office grew by 38% over the past two years, and as we continue to scale our strategies, the North America platform will deliver significant capacity for additional capital deployment and, of course, more fundraising. And as you know, the U.S. is the largest market for both deployment and fundraising, so it's important that we continue to make progress there. Now, taking all those elements and looking at our profits. With respect to our EBITDA and earnings, we achieved an EBITDA of EUR 84 million, which is 1.4% above the first half of 2023. Our EBITDA margins declined slightly to 57% as we continue to expand the team, and our underlying net income grew to EUR 61.7 million and was up 1.5%, which resulted in earnings per share of EUR 0.34 .
It's clear that the earnings growth is more moderate in the first half of 2024, which follows a very substantial step change in the prior year, and that's really linked to the fundraising cycle for Flagship Fund V, so in line with what we expected. Now, moving to our cash. We continue to hold significant cash balances, EUR 392 million, at the end of the second quarter. We have no borrowings, and we continue to generate significant cash as our business model is capital light and highly cash flow generative. Clearly, it's our intention to move towards an efficient capital structure and deploy this cash to generate value for our shareholders. Now, we see three ways, in how we can do that.
The first one is to support the expansion into new investment strategies and potentially use some of that capital to seed investment strategies, and of course, to hire talent to support that growth. In addition, we could also slightly expand the co-investment portion, which we would only do within the capital-light framework that we've adopted. Two, could be to expand through opportunistic M&A, which Alain spoke about before. And three, through continued capital return to shareholders. In a first instance, that means that we're committed to continue paying an attractive dividend, and we will maintain that approach and policy as we move forward. Now that's a good segue to talk about the dividends. Over the last three and a half years, we have gradually increased both our dividend payout ratio and our absolute dividends per share.
We distributed a total of EUR 280 million to our shareholders since the IPO in September of 2021, and we're pleased to announce today another increased interim dividend at EUR 0.34 per share. So that's 6% higher than the dividend announced in the first half of 2023. Wrapping up on the outlook before we jump into the Q&A, our outlook for 2024 remains unchanged. We expect to complete fundraising for Flagship Fund V above its EUR 10 billion target. We expect underlying EBITDA in 2024 to be at or above the EUR 175 million we have achieved last year, probably quite close to that level, and we expect to distribute a majority of our earnings as a dividend. So I think this concludes the presentation, and I would open up for Q&A.
Thank you. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Nicholas Herman with Citi. Please go ahead.
Yes, good morning. Thank you for the presentation, and for taking my questions. Hopefully, you can hear me okay?
Yes, we can.
Great. Thank you. So three questions, please. Actually, all on growth. So the first question on fundraising for Fund V. You previously indicated fundraising would be back-ended, yet you've already raised, you know, EUR 0.4 billion in the first half of this year, so just shy of the one billion to get to EUR 10 billion. I guess maybe I'm over extrapolating here, but it seems like therefore, with that back-ended nature, you should end up ahead or even a fair bit ahead of the EUR 10 billion by year end. So just if you could just talk to that, please. The second question on investment cycles, thank you for that new disclosure on investment cycles duration.
Again, coming back to Fund V, you have made, I think, five investments, and committed about 40% of the fund. Historically, you've activated the next vintage when the current vintage is 70-80% committed. So it's taken you two years to get halfway there. But I guess I would have thought that with looser, easier financing conditions, that should make it easier for you to execute on your robust pipeline. So in that context, why should it take you another two years to deploy the remaining 30-40%? That just seems a little conservative to me. And then the final question on growth optionality, I appreciate that the bar for M&A is high.
I guess it seems that now might be an attractive time to acquire, given accelerating consolidation in the industry and with tier managers able to raise capital. You flagged on slide 10 that you have growth optionality through M&A, through strategy expansion. I guess, how do you think about the relative probability of using your cash between those two growth routes, please? Thank you.
Yeah. Maybe I can take, it's Alain speaking. Maybe I can take the first question, and we'll split the others with Patrice. On the growth of Fund V, well, there are some statistics which I think, Patrice can share with you if you have some interest, which are essentially based on Preqin numbers, and which show that 2024 for the fundraising market in infrastructure continues to be very difficult. In fact, 2023 was a low number, and 2024 is basically in line with 2023. So there are some people who managed to raise some funds, but it is very difficult environment.
To give you a perspective, compared to 2022, which was the highest year, the fundraising in 2023 was down by about 40%, and we should expect this number to be more or less the same level, you know, in 2024. We have numbers for the first eight months, but clearly we should expect this to be there. So, you know, this is the reality of the market. You see big numbers of funds which are in raising, in fundraising, and you also know, if you investigate a bit, that many of them have only been raised for a small portion, usually less than 50%, and for a long time.
So being at 94%, in June, and frankly, seeing what we know, that you know, we know we will meet our target and hopefully exceed it, exceed it, is a big achievement per se. We cannot ignore market conditions, because if we do ignore market conditions, say, "Well, I don't know, I put a 60% increase in my model, et cetera. Why are you at 45% or 54%?" I mean, it makes no sense. The market is what it is. So please appreciate that.
Now, if we look at the history of our industry over a long period, I have just in front of me data for 10 years. There has been a continued, I would say, continued growth in fundraisings of infrastructure funds, essentially because the market, the underlying trends, as we discussed, are there. The money is there to be deployed, but clearly, higher interest rates and geopolitical risk have put a, I would say, a break on this evolution, and I'm very confident it will start soon. Okay. Second question is really, why does Fund V take longer to deploy? That's interesting question because, you know, we when we invest, we try to make...
We're not in a sort of a, I would say, Olympic game, you know, 100-meter final, where we try to close our fund, to invest our fund. We try to make a good investment, and you have to appreciate that interest rates have gone down very substantially over the last two years, so we have to be extremely careful about the price we're prepared to pay on those, and, for that reason, we are very prudent on the investment that we make, so it may take a bit longer, fine. There's no problem with that. The only thing, and again, I'm very insistent on that, because I know you are looking at numbers for the next quarter and quarters, which is, of course, extremely important.
But the main driver of a public market company is performance, performance of the fund invested. The rest is... The fact that we don't raise, we raise one billion less for this vintage, is, in my view, completely irrelevant, because we will raise one more in the next vintage. So you see, you have to integrate that, you know, we, as managers, are focused on making good investments. And today, we have seen some big pressure on interest rates. It is now loosening, but we certainly are extremely disciplined. Concerning M&A, M&A opportunities, yes, I mean, maybe you want to say a word about that, Patrice?
Yeah, of course. Nicolas, I'll just add one more thing on the fund cycle before we go there. You know, I think on Mid Cap, we would need two to three more investments, and essentially two to three more investments would mean, in average, you know, it could take us about a year to get to the finalization of the investment period for that fund. But then, obviously, you know, things can go faster if we see an improvement in the deal environment. And I think on Fund V, you're right, we've deployed 50% in two years.
And if we see an improvement in the environment over the next 12, 24 months, you know, the remaining portion may be invested faster, which would suggest we may be three and a half years and not four. But, you know, we're giving conservative guidance where we stand today, and so, still far away to engineer a point landing on that. On the growth, optionality and M&A, I mean, we really need to split it into two components. I think one is, what can we do on the organic side? And the second thing is, what can happen on M&A.
On the organic side, clearly, if we see an improvement in the fundraising environment, you know, we see optionality to seize that market opportunity and to do things. We need to see that improvement. On the acquisition side, I would say, you know, it always takes two to tango. We set the bar high on what we believe would be interesting for us and what we would want to do. If we can do that, that's great. We would love to move forward, but if we don't, that's also perfectly fine, and we will focus on continuing scaling the existing strategies and progressively add to the strategy set through organic expansion. We absolutely have the capacity and the vision to do that.
Very clear. Thank you.
The next question is from Arnaud Giblat with BNP Exane. Please go ahead.
Yeah, good morning. A few questions from my side as well. Could I come back to fundraising, and sorry, to the time to deploy, Fund V and mid-markets? During your prepared comments, I think you said that Fund V could be at 75% deployed within a year. Does that mean you could be back fundraising and potentially activating Fund VI by the end of 2025? I suppose, again, you just said that mid-market should be substantially deployed within a year as well. Is it conceivable for you to be in market with Fund VI and mid-market too at the same time? A sub, a sub...
And, another question on that point is, thanks for giving the total addressable markets. How should we be thinking about uplifts on Fund N+1 those two categories? And finally, staying on growth. I was wondering if you could talk a bit about new products. I mean, in the past, you have indicated, and I think during the call as well, that there's potential to do more. Are there any concrete plans to do climate funds or other new types of products? Are there any concrete plans emerging there? Thank you.
... Oh, no, let me, let me maybe start on Mid Cap, Mid Cap II and Fund V. And then, you know, I'll-- I can talk about the uplifts, and I'll let Alain talk about the strategy. On the Fund V, I would see this today more as a 2026 event, you know? But it's still early to say whether it will be mid-2026 . But if you take the four-year cycle we have in the presentation, you will essentially look at mid-2026 . Then, of course, this can be faster given where we stand today, but that's sort of what I would look at.
For Mid Cap II, you know, if we run at more than four years, which is currently sort of the base expectation, I would see a first close sometime in the second half of 2025 . But again, you know, it's driven by pace of deployment, and these are not necessarily things we control or project.
On this side, to be quite frank, we, for the sake of not getting being too concentrated in our investment, we expect to make two to three new investments to complement our Mid Cap fund, right? We may well announce a deal very shortly. In that case, the deadline could be shortened. And certainly, what we will do is once we announce a deal for Mid Cap fund, we will make sure you are made aware of that and adjust possibly your timetable. But we are very confident that, you know, the capital will be deployed in a timely manner. We are just cautious.
Then on uplifts, I would say it's too early, too early to tell. You know, we will define a fund target size, when we launch the fundraising for, for the funds, and, we, we will inform the market accordingly. But we, we haven't decided. But it's clear that, you know, these funds, particularly the ones that are, earlier in its, growth trajectory, have substantial room to scale and to grow, and the more mature ones will grow at lower rates, but they will still have significant opportunity to grow.
You have some indication of where we stood for Flagship Funds, Flagship Fund IV, and Mid Cap Fund, which basically were in operation at the same time, so it gives you an idea where we are. Our main focus, because it is the same strategy, just the size changes, is that there should be no overlap between the two funds, so to avoid any kind of conflicts of interest between LP bases. This is a point. We need to have some difference. Now, we start with a fund which is going to be a Flagship Fund, which should be in the region of EUR 10 billion plus.
I think it also gives you some highlights as to where we could expect it to be. And again, I mentioned in the earlier slide, long-term potential with large- cap funds, the world growing very substantially, today, EUR 25 billion and probably much more in the coming future. There is a potential to, I would say, grow this Mid C ap strategy very substantially. And just to address larger Mid C ap deals, because the market is basically benefiting from getting access to capital to expand and grow our businesses. And also, another way would be to make more deals, like the ones on the side that we do today.
Big potential of growth for this strategy.
Now, you had your last question on what would be a new investment strategy?
Yeah. I must say it's a bit too early to tell because we are spending enormous amount of time thinking about that. Although I remind you that, you know, our main focus is to make good investments. That's what we are paid for, good investments, and not avoid bad investments. But yes, we certainly are thinking about, you know, diversity in decision. We are clearly thinking about some organic initiatives which we alluded to, you know, in the past, and we are working. We have some working groups which are formed to further investigate, and then we'll see whether it makes sense or not.
To be very direct with you, in a tough fundraising environment, the priority is to get the job done on our main strategy before venturing into new strategies. So the first thing is to do the job in a very good manner, raise Fund V, continue then new strategies before, I would say, envisaging, you know, some other initiatives. We approved, in particular, just a strategy about nearly two years ago, and market potential today is too limited because of limited, you know, investing capacities by LP. So we just want to find the right slot, but trust us, we are focused on that.
Okay, great. I've got a few more questions, so I'll jump back in the queue. Thanks.
The next question is from Sharath Kumar, Deutsche Bank. Please go ahead.
Good morning. Thanks for taking my questions. I have two. Firstly, operating costs, of course, I understand that it is growing at a steeper pace but warranted. But in the context of your 2024 EBITDA guidance of being at least at 2023 level, I would imagine you would need some help from costs as well, and not just from revenues. So in this context, I would expect it to be broadly flat in the second half versus first half. Maybe can you talk about your expectations here? Then, on carried interest, yes, your medium-term expectations are pretty reasonable in the context of your performance track record. But just for 2025, I note that consensus expects around EUR 20 millions of fees.
I know all of it should probably come from Fund III- B, which I notice currently 26% realized. Just in terms of accounting, for you to meet the hurdle rate, roughly how much of this needs to be realized for you to recognize in your P&L? Thank you.
Thank you, Sharath. With respect to your first questions on the operating cost base, you know, the expectation is that we continue to see costs in the second half of the year increase, and there are really two reasons for that. The first one is just a technical one, which is when we hire people in the first half of the year, you know, not the full cost of those hires are reflected in the numbers, so you're gonna see the full cost of those reflected in the second half, and you're probably gonna see some additional hires that will come through in the second half as well. I would say you will never see our cost move directly in line with revenue.
In fact, what you see is that cost is increasing gradually as we continue to hire and integrate talent and make sure that everybody can fully perform and operate in their roles. While revenue will, you know, grow in lockstep with particular fundraising events, that can be very substantial in one period and less so in another. So, that's completely normal. You know, at the same time, we're doing an over proportional share of our hiring in North America, which will really unlock very substantial deployment and fundraising capacity in a market that is big and important and relevant. But those hires, they come at a higher cost. And so that's really what... why you see the cost base go up. But this, you know, this will pay off.
Then we have to move to the carried interest. I think if you look at Fund III- B, it only holds four assets. In addition, we also hold a very small portion, very tiny portion of carry in Fund III, which is linked to, you know, employees that have at some point left the firm and small amounts that we bought back. And in combination, those two would likely deliver some revenue in 2025, provided that we have exits in those funds. You know, and in Fund III- B, that would probably mean at least one realization, one exit of those four portfolio companies in Fund III- B. I think that's where we stand.
Yeah, I won't comment on the amount you've mentioned, because we're not guiding on the amount, and it's difficult to say, but in principle, I think there should be a good path to seeing carry tranches start.
Thank you for that.
The next question is from Hubert Lam, Bank of America. Please go ahead.
Hi, good morning. Thanks for taking my questions. I've got three of them. Firstly, as for Fund V, how should we think about the fee rate for this fund? One of your peers got it for closure, slightly lower fees in their flagship. Do you think it'll be necessary to give fee discounts to close out this fund? That's the first question. On the second one, again, on costs. You talked about costs for this year and how we should think about it, but how should we think about headcount growth into next year? So you've grown headcount by about 12 to 13% per annum over the last two years. Should we still expect double digit headcount growth for two 2025 ? And lastly, on wealth.
I know you previously said, yeah, that you know plans to enter the wealth market, but is this still... Would this be part of your strategy in the medium term, to maybe, create some semi-liquid funds in, within infrastructure? Thank you.
Maybe, thank you, Hubert. Maybe I can take the first question, and then if Patrice answers the last two ones. On Fund V, to finish Fund V, no, we don't expect, and we are not actually requested to provide any discount on fees, which I will remind you, would apply to all our investors, because they all benefit from the close of the most favored nation. So, and no one asked. Let's be very clear, the reason why, the main reason why people don't invest or invest less in the private markets funds and these days, is because of fewer returns of capital, because of fewer exits. So this is really the main driver.
No one is saying we are prepared to invest in your Fund V if you give us a discount. This is not the point at all. People are looking for return, and in this respect, the fact that you have a discount is irrelevant for investors. Maybe Patrice can answer the two other questions.
Sure. Hi, Hubert. I mean, on cost and headcount growth going forward, I think that we will continue to hire in 2025 as we grow the business, but we'll probably be at a lower percentage rate than what we've seen in 2024. And of course, we're always mindful that we pace the hiring relative to, you know, when we have fundraising events and when we see the growth come through.
We're really gonna have to finalize a number, and it's somewhat dynamic, but today I would expect it to be somewhat lower on a percentage basis than what you've seen this year. On the wealth segment, you know, we've been raising quite a substantial portion of capital indirectly and directly through those channels, whether it be, you know, feeder funds that we've set up in partnership with private banks and wealth managers, whether it be, you know, fund vehicles that are set up by banks and fund- of- funds that are targeting very substantial distribution into the wealth channel. And that's capital that's been indirectly and directly flowing into Fund V in big amounts.
Now, clearly, there are deliberations around what could be possible with dedicated vehicles and these types of things, and we remain open to those debates. I think, yeah, it would be premature to tell you we'll do something there. We haven't concluded, so we remain open to those thoughts.
Great. Thank you.
The next question is from Angeliki Bairaktari, Autonomous Research. Please go ahead.
Hello, it's Angeliki Bairaktari from J.P. Morgan. Thank you for taking my question. Just first question, please, on the Mid Cap II strategy. I think last year we had spoken about potentially sort of splitting this into a European and the U.S. strategy. And is that still something that you would maybe consider think, or you will continue with the same sort of format, investing in both geographies out of the same fund? Then second question with regards to the fundraising for the Flagship Fund V, and more broadly, the appetite that you see for the infrastructure as a class. I hear you on your point that, you know, fundraising has been challenging because of the lack of exits.
But more broadly, you know, I was wondering if anything has changed when it comes to LP appetite for the asset class. And perhaps if you can give us some color on how much of the EUR 9.4 billion you have already raised is coming from re-ups from existing clients, and how much is coming from new clients. And third question on exits. We haven't had any exits for the past eighteen months, and it's encouraging to see that you've now announced the exit of Grandi Stazioni Retail out of Fund V. I heard you mention that, you know, potentially you could see some carry next year out of Fund III- B. How are you preparing for those exits? Have you seen any signs within your teams that the pipeline is improving?
Have you started processes? Could there be more than one exit next year if the market conditions improve significantly?
Thank you, Angeliki. Well, first, concerning the Mid Cap II allocation and organization per se, we maintain the fact that, you know, we are focused, be it in Fund V or in or be it in our Flagship strategy or Mid Cap strategy, into focusing on Europe and North America. This is our main focus. For the rest, it's too early to give any indication as to where or how we will structure the Mid Cap funds to come. So we have to decide on the size. We have to decide also on the structure of the fund, but it certainly is too early to tell. Concerning Fund V, personally, I see no change in appetite of LPs to invest in Fund V.
Again, as I said, the main driver for, I would say, lower investments is essentially the fact that return capital to LPs has reduced, and not just in infrastructure, but in private markets at large. And this is essentially putting some pressure on LPs who want to continue to invest and who need some return capital before reinvesting significant amounts. So that's the main driver. No change of appetite for the asset class whatsoever. On the contrary, I think we are an extremely appealing asset class. On exits and-
Yeah. Yeah, no, and Angeliki, on the, you know, on the fundraising and your question on existing versus new investors, it's really a very healthy and positive balance on two. You know, we see, on the one hand, a very significant portion of existing investors that have reinvested. In average, probably at somewhat lower upsizing or lower check sizes in some cases, versus what we've seen in prior funds, and that's been linked to the liquidity constraints. So at 60% in total comes from existing LPs. But on top of that, we've also raised a very substantial portion of capital from new investors.
That's very important because many of those new investors, they come into the fund, you know, as a first-time investment at, you know, the lowest check size or a smaller check size that they will be doing with a very established relationships. It gives us an opportunity as we come back with the next fund, to substantially upsize some of those investors, you know, particularly in the sovereign wealth fund space or in certain segments of the pension fund space, where investors can really deploy very big amounts of capital. We're actually really pleased with the mix of existing versus new investors.
Yeah, so in total, just to give you some additional numbers, you know, so in total, we have 88 existing investors that have come back into Fund V, and about hundred and eight new investors, you know, on total numbers. And they're close to two hundred investors now in Fund V. Now, moving to your question on exit and GSR. You know, the first thing I'd like to reiterate or mention again on GSR is we're really pleased that we could exit this business, first at a good valuation within our target return thresholds, leading to a really great outcome for Fund II.
And yet again, a very substantial value uplift for that asset, on exit, which is something that we've done consistently and gives a lot of credibility to those valuations. As we look forward to the next year, you know, I think, we could see one exit, we could see two exits. Of course, when we look at our portfolio, we will always look at what assets have essentially implemented their value creation plan and are ripe for an exit, and where do we see significant additional potential if we continue to manage those assets for another one or two years? And certainly we see assets that, you know, that could be ready for an exit, but then we need to see whether the market environment is the right one to do this.
In the end, we want to make sure we can maximize value to our fund investors in those exits, and we believe we'll produce some good outcomes next year.
The next question is from Arnaud Giblat with BNP Exane. Please go ahead.
Yeah, great. Thanks for taking the follow-up. Just two quick ones. You say that in the presentation that EBITDA has grown by about 19% in your portfolio companies on average. I mean, obviously, you've had limited exits, and over the past year, valuations are broadly flat. So my interpretation is valuation multiples are off about 19%. And I suppose you could do the same sort of analysis the year before that. So is that interpretation right? And are you comfortable with the valuation multiples you're holding portfolio companies at i.e., if EBITDA continues to grow at that pace, should we expect from here that valuations are gonna grow at in line with EBITDA in portfolio companies?
And the second question is, thanks for the sizing of carry. I just had a... I was just wondering, I mean, in that calculation of carry, I suppose you look at the gross profit minus the cost minus management fees, and you assume a certain level of deployment. My question is, what is the management fee cost deducted to calculate carry and the level of deployments assumed? Thank you.
Thanks, Arnaud. Maybe I can take the first question. Yes, we are a value-add investor, and therefore, we pay enormous attention to growing the profitability of the portfolio companies we invest into. I don't think there is a mechanical, I would say, connection between the EBITDA growth and the value we can expect to derive, but certainly we focus on growing the EBITDA base of our companies. Just to put in perspective, we see the valuations that we produce every quarter on our portfolio companies as the base of trust with our LPs, which basically are people who allow us to do our job.
So we tend to be prudent in our valuation, and this actually translates into an uplift when we make some disposals, exits, which is a very substantial uplift compared to our valuation. So we tend to be very prudent, and of course, when we make an exit, we try to get the best in the interest of our LP. So yes, I mean, we are focused to continue to grow companies. Clearly, when we come to a point when EBITDA growth is going to be under our time is going to be reduced, this is a time for us to really think about selling.
And the reason for that is not because the companies have no growth potential, but just because we think it is preferable that some new investor with fresh capital take the ball and basically develop the company further. So yes, EBITDA growth is a driver of value creation for our investment companies, but and we are very prudent actually in the valuations we produce.
Yes, and you know, look on the carried interest numbers. I mean, basically the assumption is that those funds would produce a gross multiple of about 2x the money. Then obviously there are deductions for, you know, fees, management fees. There are deductions for expenses that the fund has, for due diligence of investments. And then we take an assumption that we typically don't invest 100% of that capital, but somewhere around, you know, between 85%-90%, usually sort of close to 88-89% historically, and that's how we come to those carried interest numbers. You know, of course, historically, these funds have delivered 2.6x money for Fund II, 2.7 for Fund I. So you know, this just takes the simplified assumption that they deliver at.
at 2x gross.
Great, thanks.
But be assured that you will try to beat that. That's what we do for a living.
We've also received questions on the webcast, and I'm gonna read them, and there's one that's actually a good continuation on the discussion we are having. Alexandre Gérard from CIC is asking: Given a higher competition in the infrastructure field, tighter financing conditions, do you believe that realizing a 2.6x growth multiple, like on Fund II, is reachable for your other vintages? And can you remind us what your target is?
Okay, first of all, our target we just discussed about it. It's essentially our target is 2x money multiple, so that's what is stated from Fund I and others. The question asked is, is there increased competition? I'm not sure I would say increased. We have, of course, we're in a very competitive market, but we've been so, you know, since inception. So returns we made for the investments which have been disposed are reflect this competitive situation. Is there more competition? I don't think so. I really don't think so. I think we have competition, but it's not like there are 10 funds fighting for every asset in the world, or at least in Europe and North America.
It doesn't work this way. Fundamentally, you as investors, we need to develop some skill sets, and we need to develop some knowledge of some markets. For instance, we are one of the few movers to invest into Fiber Markets, and many people didn't make the intellectual investment of getting their hands on it. Now, many have caught up, but clearly, when we invested in that sector, there was no one. When we invested in smart grids, it was not like we were fighting against 10 people. It's not the case at all, because people were not already, you know, focused on this kind of investment. Telecom towers, same story, et cetera.
So we try to identify some themes which are important and try to work on them as methodically and as thoughtfully as possible. And it means that, you know, there are segments of the market in which we have some particular expertise, and we can move very fast. I quote the example of which we discussed with you in I think a year ago, which was the motorway service areas business, Roadchef we sold in the UK. Clearly, we had invested, like, three or four years before making the deal in the sector, and we could move very fast and make very good returns.
At other times, of course, there are segments in which we have not made the investment, intellectual investment to get to know this very, very well. So everybody is doing the same. We try to have strong points and be prepared to move very fast and put all capital to work that is needed to make good return. That's our thesis. So increased competition, to be fair, I don't see it. Competition, yes, but not increased competition.
We've also received questions from Geoffroy Michalet from Oddo. He listed a number of questions. Some of them we've answered already, so I'll ask the questions that haven't been answered, so what happened in Flagship Fund IV? There was a markdown in the second quarter versus the first quarter. What happened? Was it one asset? Was it several assets? How can we explain that? Second question is on GSR, the uplift. Patrick, you answered that. There's a question of the dividend that portfolio companies sometimes distribute. Does it happen? Does it not? Is it regular or exceptional? How should we think about that, and final question is on the EBITDA of next year. Do you want to give some indication on where it's going?
Consensus expects a flattish EBITDA.
Okay, let me maybe start with Flagship Fund IV. I mean, look, every quarter, we go through the process of doing a portfolio review committee, which means every investment team values their investments. These valuations are heavily debated. They are validated by an independent party as well, and that then reflects the you know, the value of the assets and the multiple evolution of the funds. And so it's always a variety of things. And of course, when we feel that a particular business needs to be marked up or marked down based on its performance, we mark it up, and we mark it down, and we do that every quarter. So you're never gonna see things only go up over time. So that's kind of natural evolution of things.
As for the dividend within the portfolio companies, you know, typically, we tend to invest in companies that require very substantial capital investment to support the growth and the build-out of infrastructure. So usually, in the early years of an investment, those investments would not be distributing dividends. To the contrary, we continue to inject a lot of capital in them to support the build-out of infrastructure and the growth. And then, obviously, in the later parts of an investment or when we exit an investment, there will be distributions.
When there are distributions, that's good because we're always happy when we can return capital to fund investors. As for the last questions on EBITDA for next year, you know, I think it's too early for us to give a particular profit guidance. We will do that, of course, when we announce our year-end results. As you know, the two main aspects that will drive the P&L, you know, are not certain today for the P&L in 2025, is the amount of carried interest that will be recognized, and number two, the timing of Mid Cap activation. And so by the time we will share guidance with you, we will hopefully have more clarity on both of those two aspects.
But in principle, those are probably the two main elements to keep in mind.
Maybe on write-ups and write-downs, I can give you some, so just a brief color because I think the question you ask is very valid. It's all about, you know, I would say, our approach to investing. When you have to take a decision on net asset value quarter after quarter, I think fundamentally you are faced with two options. The first one is to say, "Okay, we are going to take the...
We are going to value this company in the context of today, without making assumption that things are going to further improve." I give example, for instance, we are faced with some of our investment with high interest rates. We could very well say interest rates are going down, and therefore, we are going to make exit assumptions with very variable, I would say, interest rates going forward or multiples going forward. So what we do, we do not do that. We do not do that, so we always tend to be very prudent in our assumptions, and not expect that things will improve.
Although we may take a view, and frankly, if you ask me today, I'm quite confident that, you know, interest rates will ease, and therefore will provide for better terms when we exit or we refinance. But we do not take that into account out of prudence, out of precaution, so, but some people do, and it may create some impression in the market that, you know, for the same assets, same market, same performance, there is some value gap. We don't do that. Are we too prudent? Maybe, because, I mean, when we realize the assets, we observe a very strong value uplift, which pleases us and our LPs. But clearly we take this very prudent approach.
And again, we have this debate internally. We have a portfolio review committee, which is formed of all the senior committee members, where we review evaluations one by one. We have a debate, and of course, we have a debate with auditors and with Crowe, who is our independent appraiser, about that. But clearly, we are very prudent.
There was a final question in the list of questions from Geoffroy, which is about the free floats. Can we expect something proactive to increase the free float?
Yeah, look, just as a reminder, so close to 85% of the shares today are held by the partners of Antin, which in a way ensures very significant alignment of interest with the public shareholders, and we've put in place lock-up structures at the time of the IPO, whereby 25% is released in September of 2024, another 25% in September of 2025, and the remainder in September of 2026. I would like to make clear that any decision to sell shares lies entirely with the partners and not with Antin. So it's important to note that the partners are committed, that any share sale would be coordinated and would happen only in an orderly manner. Having said that, the partners have met and have informed the company that they do not intend to sell shares at this point.
Now, obviously, that can change, and as I said, it's an individual decision, but they've informed us that they do not intend to sell shares at this point.
I think we've answered all of the questions.
There are no more questions registered at this time.
Thank you, Francesca. Thank you very much. Have a good day.
Thank you.
Ladies and Gentlemen, thank you for joining, the conference is now over. You may now disconnect your telephones.