Earnings Call: H1 2020

Sep 17, 2020

Ladies and gentlemen, and welcome to the presentation of the Half Year Results of Tikhau Capital in the presence of Antoine Flamagnon, the co founder of the group and Henri Marcaud, Deputy CEO. You have the floor. Thank you very much. Good morning, everyone, and welcome to this presentation of the H1 2020 results of Teco Capital. Let's start with the key figures of this half year. As we told you at the end of July, we have EUR 25,700,000,000 in assets under management, up 9.8% over the last 12 months, stable compared to the end of 2019. In spite of an unprecedented context in terms of uncertainty, we raised SEK 1,100,000,000 for our asset management business over the 6 1st months of the year, carried by the dynamic business of real assets and private equity. Fee paying assets under management are worth EUR 20,300,000,000, up 17% over the last 12 months and up 12% 2% over the half year, mostly with the current ratings on private equity and real estate and deployments in private debt and real assets. The income from AUM is up at €8,300,000 up 16% over the 1 year. The management fees, the average is still up at 94 basis points compared to 84 basis points at 8. And June 2019, Operating income for Asset Management Business, NOPAM, is up almost 40% at EUR 28,600,000, thanks to growth in our income combined with strict control of operating costs with a margin of 30 2.4% compared with 27% 1 year earlier. As to our direct investment business, this was impacted by the volatile market in the half year. Operating income is a loss of €290,300,000 because of adjustments in the fair value of some of our assets, especially those that are listed in costs related to those financial instruments that we introduced in the half year to run to manage our risk. The net income standard minus EUR 240,900,000, including financial income and taxes, The group has a differentiating asset, especially in the present context, which is a sound balance sheet. At end, during 2020, we had €2,800,000,000 in equity and €900,000,000 in cash and €500,000,000 in undrawn credit lines and we have also cash in Asset Management. In a few years a few days ago, our efforts were recognized by the ratings as one of the best asset management companies in a non financial rating. And we started the second half of the year dynamically adding EUR 1,600,000,000 in assets under management in July alone our has deteriorated across the board. With that success and other initiatives that we will be starting in H2, our objective is to reach at least EUR 27,500,000,000 in assets under management at the end of the year. Keeping our CMS business on equal, sorry. We move on to Slide 7. You can see here the development of our main numbers over the last 12 months, assets and management are up 9.8% to EUR 25,700,000,000 mostly with our AUM, our Asset Management business. As we told you, the scope of Asset Management was below €9,000,000,000 when we started off €8,600,000,000 Fee paying assets under management are up significantly at plus 16.7 percent and that is what will make a big difference in increasing our income in the years to come. You have to keep in mind that these fee paying assets are mostly in closed ended funds on long durations, which means that we have excellent visibility on future cash generation. But we will get into the details of that. But for H1, we have EUR 150,000,000 mandate from Evergreen, and that extends the duration of our funds and therefore of our income of our revenue. The key item I would like to emphasize at the bottom left corner on the slide is the growth in operating income in our Asset Management business, up 39.5% 39.5% over the past 12 months, which confirms that our development strategy is profitable for the group. And finally, the net income attributable to the group stands at minus €240,000,000 It reflects the complex market, the complex and volatile business context that we had in H1, which has, of course, a negative impact on our direct investment business as well as the cost of financial instruments used as part of our risk management instruments. We move on to Slide 8. And on that slide, you can see how far we've come since the IPO. You have 6 indicated that we monitor and we always look at them carefully. 3 years after the IPO, how capital improved its profile on all its key figures. You can see that we have €25,700,000,000 in assets under management, 2.6 times more than at the time of the IPO. And you may remember that in our guidance during the IPO, we were looking we were hoping for €20,000,000,000 €20,000,000,000 only in 2020. International developments has worked well for us because we multiplied by 3.7 the share of international investors that stand now €7,800,000,000 and initially, we only had EUR 2,000,000,000 when we had the IPO. On management fee rate, is up 23 basis points since the end 2016 at 94 basis points. And this is important because in Asset Management, people believe that as a rule, management fees are low. In traditional asset management, this is true, but in alternative asset management, this is not the case. And what we've seen over the past 3 years, we have significantly increased that rate. Our NOPAM is up 39.5% over the past 12 months at €28,600,000 You may remember that at the when we started off in 2016, it was only €3,500,000 We have improved our infrastructure and we have kept costs under control around the world. But I mean, although we had expanded our coverage, we have 570 people working in 11 offices around the world. Initially, we only have 5 offices at the time of the IPO. So to sum up, we've made headway since the IPO. We are more dynamic. Our strategy is bearing fruit. We are delivering on our commitments, and we're doing everything to continue this momentum, thanks to our very motivated teams, but also we have partners around the world. Let's move on to Slide number 9. As we like to say, we operate in what is known as a people business. Our main asset is our human capital. We keep beefing up our teams with people that are experts in each asset class and each territory and we pay great importance to diversification in terms of human capital. We have as many as 27 nationalities with an average experience of 14 years. And what is unique in this industry, we keep lining up the interest of the various stakeholders with capital with 44% held by TKO's management. This key component is will guarantee selectivity and discipline in asset management. And this is this trust has been proved proven by our clients and investors ever since we started off. We also have strong governance and recently we were rewarded, as I just mentioned, by the Extra Financial Rating Agency, Viggo, and we are one of the best companies in Europe in terms of governance in this industry. We have a supervisory board with 50% of the members independent and we completed our platform with an international advisory board created in 2019, which brings together complementary and diversified profiles, which enables us to have an international network. As an expert, the regular exchanges that we have with IAB, International Advisory Board during the lockdown has enabled us to monitor in real time the developments of the COVID crisis and propose customized solutions to our customers and have adapted solutions for our own workers, our own people. We had 2 people from Singapore, 2 people from Japan. We had 1 Filipino and the secretary of the group, Alaya. And as we know that the COVID crisis fell off in Asia, very early on, we had good vision of what was going on. I mean, we have to remain humble in this crisis, of course, but we had a good idea of what was going on and that enabled us to remain very effective, keep our eyes on the ball. And that's why we were able to have a very good fundraising business in the first half year. We raised significant funds at a time where around across the board, business was very, very slow indeed. Let's move on to Slide number 10. In terms of ESG, TIKOHO was a pioneer ever since its inception. We didn't emphasize this as many as much as other players in the field, but we were pioneers as asset managers and as investors of performance horizon is the long term. And when we commit to generate sustainable performance, we cannot dissociate financial criteria from extra financial criteria. And that is why the ASG issues are at the heart of our process and our fundamental analysis of 100 percent of our investment opportunities. Of course, we have an ESG teams. But in each of our 4 businesses business areas, each investor has to apply an ESG criteria. So whenever an investment application arrives, we look at these ESG criteria. So as to be straight on the line, we have developed strategies with a positive impact on climate change. We have keeping on that track and we have innovated. In fact, the Energy Transition business, we have a good example with AlixStream in Singapore, where we were looking at the Healthcare business that this ESG approach was rewarded at mid September by one of the main extra financial rating agencies, which give us a rate of 66 out of 100. Those familiar with that rating system know that this is an outstanding score, which shows our commitment to ESG. And also for the 2nd year running, we've got an A plus rating for PRI for the UN PRI for our strategy and governance module. And in 2020, we were also ranked number 2 out of 2 46 Asset Management and Asset Depositories by the extra financial agencies, Systemalytics. So very proud of our ESG approach and we will continue to pursue efforts to generate sustainable and profitable growth. And of course, ESG is not something that we have to cope with. ESG is at the very heart of our drive, and we are actually being proactive. We generate positive investments. It's not just a matter of having a sort of plain ESG performance. We want to have a positive performance. Slide number 11, to conclude on this first part, I would like to emphasize 4 indicators that are our main commitments. Number 1, EUR 35,000,000,000 this is total AUM by 2022 profitability, operating profit should be above €100,000,000 and that is what will make a determination of our market value. Looking at the multiples of other alternative asset companies. When we introduced the company when we had the IPO, we were standing at €3,500,000 in asset management in profits. And so we are reasserting this objective of above €100,000,000 by 2022. We are investing in our own funds. This is what we have what is known as having skin in the game. Not only that, it generates more finer granularity because we well, we have anywhere between 65% 75% of our own funds invested by our own balance sheet, our own funds. And we are looking at a return on capital of about 10% to 15%, again looking at the funds our own funds invested by the group. Moving on to the following slide, Slide number 13. In operating terms, we have been proactive in all our business areas in private debt in the absence of any flagship fundraising on the first on H1, we focus mostly on our institutional customers and retail customers. We raised the upwards of EUR 40,000,000 as part of the second closing through the initiatives, started with a private bank in Italy called Fiduram. For those of you who remember, we had a partnership with Fiduram, which is a sort of fund of funds, Fiduram fund of funds that is marketed in Fiduram private business. It's an Italian bank and we had already raised €400,000,000 at the end of 2019. At the end of 2019, so the idea is to have retail investors. That trend is being confirmed and you will see that that also applies to private equity later on. Regarding real assets at the beginning of 2020, we finalized the raising about discretionary fund for our value added strategy that the first such fund EUR 560,000,000 is pretty good for the first such fund, Certify or Certify, which is our management for investment and savings products had a good performance. We also beefed up our stake in IRATE, which is a listed company in Singapore, focusing on the European property business, mostly in Germany with the corporate and state clients. And so we increased our stake from 16.6 percent to 29.2 percent. We took advantage of the breakdown in the market in March to strengthen our stake. That was a good business because we got about SGD 49 per share, now back up to SGD70 per share. After the acquisition of Star America Infrastructure Partners that was finalized in July, we decided to rename our asset class from real estate to real assets. And so you have to recognize that because we include infrastructure and property. This is a tricky business. The cost of infrastructure is high, so you have to be cautious, but each territory has its own momentum. And the American infrastructure market for those of you familiar with it, especially small infrastructure, that business that market is not doing very well. And so all this the stimulus plans are there to help. And so we believe that we're in a good position to take advantage of the American aspect of infrastructure. The upscaling of the Private Equity business has continued over the 6 months of the year with sustained fundraising, especially with successful 2nd generation funds for special situations up. PE fund for the energy transition continued its fundraising and is now eligible for the TV label, and that should enable us to raise even more funds to collect even more funds. And as I mentioned earlier on, we started in the spring a long term investment fund on the Altice format with the Banco March in Spain, it's a private bank that enabled us to collect as much as EUR 60,000,000 only in our energy transition funds. So 2 birds in 1 stone. A, we raised funds, but also we speed up the private equity business. And then our CMS Capital Markets Synergy, that was particularly resilient in H1. I'll give you one example. As you know, we had 5 funds. The biggest funds was called TK01, had net positive collection of EUR 200,000,000 whereas it's mostly shares in it. And whereas the performance yesterday was minus 0.7%. That is negative, but compared to the other equity business, it's pretty good. Let's move on to Slide 14. On group wise, our assets under management stand at €25,700,000,000 up 10% since end June 2019. The Asset Management business itself has assets up more than 30% over the past 12 months at €24,000,000,000 which is unique in this business. It is it should be pointed out that we raised €1,100,000,000 over the 6th 1st month of the year for the Asset Management business and we have continued on that trend. I should like to thank the TKEO teams that were extremely motivated and very active, enabled us to achieve that extremely satisfactory performance. Let's move on to Slide 15 on the granularity of fundraising. If you look at the 2 pie charts at the bottom of the slide, at the time of the IPO, we stood at €8,600,000,000 on 3 business areas in Asset Management. Now we have €24,000,000,000 and we multiply by our collection in Fundraising and Asset Management. We have 4 business areas and it should be pointed out that in H1, we collected mostly in real assets and private equity. So we strengthened the diversification that We have a finer granularity, but that also meant that we were able to improve our income in terms of basis points. In terms of profitability, real assets and private equity enjoy good management fees. It should be also for growth to continue, it has to be profitable. And as we improve the business mix in asset classes, this means that we can improve short term profitability, but also long term profitability. Let's move on to Slide 16. What is true for our asset classes is also true in terms of customers and their psychologies and territories at the end of June 2020, 32% of assets under management for that business are international investors, twice as many at the end 2015 when you did develop the company in various countries as well. You have to re explain your brand, your know how, your DNA every time. And we have to say that we're pretty pleased with our international development. We have a number of achievements in Asia, in Europe now, but also the North American market is very promising indeed. After all, it is the largest such market, the U. S. And Canada and a few successes also in Canada and in the U. S. Already. Let's move on to Slide number 17. For an alternative asset manager such as TKO, what is essential is to be able to, of course, to raise funds, but it is just as important to invest this capital properly, this funds properly and deploy funds in a disciplined fashion at the end of June 2020. We deployed upwards of €800,000,000 within our closed ended funds, which is significantly down compared with the H1 twenty nineteen. We mentioned this several times, but we are very vigilant on these upside down elements. You look at the number of deals on the table, those that we've signed a letter of confidentiality, the one that we actually closed, we are very selective indeed. And this is why we have such robust performances across our funds and we keep raising significant funds. And that trend, if anything, has accelerated in H1 because, of course, in the context of COVID, we had to be extremely cautious indeed and we slowed down investment. All in all, we financed as many as 108 companies and or assets. So private equity, private debt and real assets. So you have 108 companies that we have a very fine granularity. On Slide 18, there you have these upside down pyramids. So you start, you can see that screened as many as 177 deals in private debt and ended up with 9 firm offers. And in the end, we closed only 8 deals. So what you can see on this slide is that not only did we reduce the size of investments, a number of the size, but also we're very selective if you look at real estate now or real assets. We closed a large number of small operations with SOPD and there were no real asset investment in H1 and the amount invested in real assets stands at about EUR 115,000,000 which is rather modest in view of how much dry powder we have in real estate. But we well, there were effects of COVID in real estate. We had to be careful. It's too early days to know exactly what the effects will be, and we'll be able to adjust this during the Q and A. Let's move on to Slide number 19 and look at private debt. Age 1 was rather untypical in many respects. The European companies and economies were badly hit by lockdown brought about by government. During that period, we played our role as a committed and active investor to support these companies and advise them. In private debt, in particular, we have a close dialogue with the companies in our portfolio. We supported them on several levels. And in particular, we in some cases, we help them obtain state guaranteed loans. Well, there may not be that many of them, but if you look at our portfolio, this is significant. But we had no defaults since the beginning of the year 2020. Now there were cases where we had talks and try to adjust some reimbursement timetables, but no defaults. And the idea was to help companies keep their cash position. At the end of the day, if you look at the TDL-four, which is our flagship private debt portfolio, the average leverage of companies remain modest about 4 times net debt on EBITDA, well below the European average. Let's move on to Slide number 20. A few words about our private equity approach, which is a differentiating approach in many respects. Number 1, our core business consists in providing growth capital or growth equity to help growing companies achieve additional equity to finance our oil expanding. We don't conduct a majority LPOs. We stand by companies, entrepreneurs and founders as partners over and beyond financial aspects. So we are indeed active investors and what we hope is that our companies in our portfolios can take advantage of the wealth and depth of particular capital platform. Companies can take advantage of our 11 offices around the world plus our international advisory boards for their international development. And so this is what all our companies can have as part of our service. Our private equity approach is based on strong themes and beliefs, for instance, the belief that economic stimulus must involve new equity, new funds for companies. And so the idea is, so you have the state guaranteed loans, it's not very well, but companies need equity being their own funds and that's a whole business of particularly private equity business and companies should be the 1st actors in the energy transition. For a number of years, we've introduced a number of initiatives with our general purpose growth capital with energy transitions and other goals. This is nothing new for us, but at TK, we keep innovating and we are doers. We're not just this is not just theoretical. This is an illustration on Slide 21, a few examples of the way in which we support the company's portfolio. We have what are known as the 5 pillars of value creation for green, yellow, which is very dynamic company. It offers innovative solutions to achieve energy savings. We worked with Bouygues Immobilier because Green Yellow initially installed solar panels in supermarkets. And now thanks to that, they had a contract with a number of real estate portfolios, especially in Spain and Italy. Next team and another private equity partner, which specializes in complex mechanics, we improved their operational performance and we supported them in accelerating the digitalization of its processes. And so since PIKO is investing funds to develop companies, what we try and do is to play our role as share as active shareholders standing by these partners to help them grow. And this is not just a financial investment. And this is very important because we try to imprint our own entrepreneurial DNA to these companies. And it's a win win deal as far as that is concerned. Let me just say one word about the following slide. And I think for the first time, some of you will be discovering this for the first time. We have 2 slides and we move on to Slide 22 on initiative entitled TKS, TKO, Sprint. As we mentioned this, we want to create not compete. TKO is very much involved in alternative asset management and is an innovator in terms of company development. So let's look at that partnership that we have with SPRIM. SPRIM is an international expert in medical and healthcare advice. It has been 400, 150 customers serving pharmamedtech. We have 600 colleagues and experts there. So this is partnership with a company in the Healthcare business. In March 2018, we announced its initial closing called PKS 1, which was looking at venture capital in medtech and life science companies. The first vintage was very successful and now we are in the process of marketing the 2nd generation of the sales same fund. The first fund had EUR 56,000,000 in it. So and that reflects the Keyyo's strategy. We start things in nursery because EUR 56,000,000 is not a lot. But as you can see in the following slide, on Slide 23, we invested in a number of companies, ViewHealth, Fibonostics, Antares. These are highly innovative companies, and I'll give you an example on the OpioHealth. OpioHealth is a digital healthcare company, digital apps to monitor a number of diseases. And in COVID, OpioHealth was one of the first companies allowed by the American FDA to monitor patients with COVID or post COVID patients. And in parallel, Acquia, which has €30,000,000,000 in market capitalization, has a stake in ARPU Health and has offices around the world. Now because of the COVID crisis, a number of investors are saying, oh, we have to invest in health care, what should we do? Where should we go? Well, we started an initiative in health care as early as 2018. We raised initial funds. We raised the 2nd fund. And we have dedicated teams. And now we are stepping up this Health Care business. And likewise, with the energy transition, everybody wants to engage in energy transition. And we started more than 2 years ago, our partnership with Totalian Energy Transition. TKO will continue innovating. And we will be now producing new profitability for the group and growth opportunity. I would like to give the floor to Henri Marcou, who will tell you about the financial performance. Thank you, Antoine. Good morning, everyone. I'm on Page 25. Let's look at the key figures for the first half of twenty twenty. On the top of the slide in dark blue, you've got what's related to the asset management scope, the first driver of our model. You can see that business generated EUR 88,300,000 in revenues for the first half or an increase a high big increase, slightly more than 16% compared to the same half year last year. Thanks to a cost reduction policy, we were able to limit the increase in our operating costs to 7.7%. So they now stand at €59,700,000 for the first half. Consequently, operating income from Asset Management is posted at EUR 28,600,000, a growth of a bit more a bit less than 40% or an operating margin of 32.4%, which was at a level of 27% for H1 2019. This growth proves how relevant our model is and how able we are to generate steady growth, profitable growth in Asset Management. At the center of the page, in the gray part, you've got the figures related to our investment activities, which were impacted by the volatile market context that we experienced in the 1st 6 months. Thus, given the negative change in fair value for some assets, the revenue from investment activities were minus €77,200,000 after including operating costs. The operating result from the portfolio was minus EUR 124,500,000. Well, given the complex context in the first half that we went through, we've decided at the beginning we've decided at the beginning of Q2, given the exceptional circumstances that we were going through with all the uncertainties, we decided to implement some financial instruments as part of our risk management policy in order to protect our portfolio from an important market reversal. These financial instruments generated a cost minus EUR 165,000,000 over the 6 months. So after including these FX, the operating income from investment activities was a total of minus EUR 290,000,000. At the bottom of the P and L, you've got the financial income, a negative income of minus EUR 19,000,000, an improvement compared to 2019, especially with a lesser impact compared to the previous year of the fair value adjustment of our interest rate hedges on our syndicated bank loan. Taxes were proceed at EUR 41,000,000 mostly related to deferred taxes and the capitalization of tax deficits. After including financial income and tax credits, the net income group share was minus EUR 240,000,000 at the end of June. Regarding our AUM, we've talked about it earlier. In order to measure performance in our business lines, we group assets within 2 scopes of business. First of all, the first one on the left hand side is EUR 27,000,000 where you can see the AUM for Asset Management, EUR 24,000,000 distributed into 4 asset classes that you all know, that you heard from heard about from Antoine. Private debt, real assets, Capital Market Strategies and Private Equity, for each of these asset classes, you can see the split of AUM between what was entrusted to us by our investor clients, the blue part, and the amounts committed from our balance sheet, TKU Capital, which is in orange. Thus, at the end of June 2020, a total of EUR 2,200,000,000 were committed from TKU's balance sheet and invested in our own strategies, which is fully in line with our policy of aligned interests with those of our investor clients. And you can see that the amount is equitably split between all of our strategies. Assets under management and investments are listed in gray on the right at EUR 1,700,000,000 at the end of June. This part matches with the direct investments from the Itikyo portfolio outside which is invested in its own funds as well as the group's cash. Then here we've given you details about the change in AUM in our asset management scope by separating the share of AUM coming from investor clients, 3rd parties and what's committed from the balance sheet. You can see that with a total commitment of EUR 2,200,000,000 or EUR 400,000,000 more than a year ago, TKO has investments also from third party investors for EUR 21,800,000,000, so SEK 2,400,000,000 more than a year ago. This shows the multiplier effect of TKO balance sheet commitments in its own balance sheet in its own funds and also the trust shown to us by our current investors because of these aligned interests. We'll remind you once again that this is a key aspect that we care particularly about and which is a differentiator in our model. We wish via our balance sheet commitments and our own strategies to create conditions for a clear alignment of interest between the balance sheet of the group on the one hand and on the other hand, the investments made by our clients. This is a central approach, which has remained the same since the IPO. It's also unique in the establishment of a trust based relationship for the long term with our investor clients. On the right hand side of the slide, you can see that out of EUR 2,200,000,000 committed from the balance sheet, EUR 1,500,000 were already drawn from our funds. So invested in this in a fairly balanced way between all 4 asset classes. As we said earlier in previous conference calls, we want to actively carry on investing in our own strategies because that helps us guarantee the launch and marketing of our vehicles, thanks to this multiplier effect, also to create an alignment of interests that's clear with our investors and also get leverage the yield of these vehicles, which generates a recurrent source of income for which matters a lot for our P and L. Now let's look at the analysis of our AUM on Page 29. Here, we have split it into 3 categories: AUM that generates fees, future fee paying AUM and non fee paying AUM. So fee paying AUM grew faster than total AUM for the group, which is a relatively positive indicator, now standing at EUR 20,300,000,000 at the end of June 2020, with an increase of 17% compared to June 2019, which was mostly driven by steady inflows in capital investments as well private equity and real estate also combined with steady growth in our funds in private debt and real estate. As I was mentioning, we also benefited from EUR 2,700,000,000 in AUM that will generate fees in the future. This is a reflection of our debt private debt strategies and partially of our real estate strategies, especially via the Trejo funds that Antoine talked about earlier, where the management fees are paid based on the capital deployed and not the capital committed by investors. This is important to understand because these EUR 2,700,000,000 will be converted into income as the funds are deployed. And so it's not yet reflected into our P and L. We're talking about EUR 20,000,000 to EUR 25,000,000 extra in management fees that will reach our P and L because of that. You also know that we usually look at the duration of the AUM. As you can see on Page 30, we've just noted that the share of fee generating AUM is 85% of total AUM for Asset Management, so 3 percentage points more than in June 2019 and the level has remained steady versus December 2019. Please note that with that excluding open ended funds within Capital Market Strategies, our funds are mostly closed ended for long durations. For SFIDI funds, you can't really talk about closed ended funds, but the average holding duration is higher than 12 years. Therefore, we have products that are very sticky, very long, so our clients are committed for the long term with us. If you look more precisely at the closed ended funds, you'll see that over 90 8 percent of fee paying AUM has a duration higher than 3 years, which gives TTO very good visibility of our fee generating ability, which is key in our business model. Now regarding more precisely the income revenues from the first half of twenty twenty, you'll see that revenues grew by over 16% over the last 12 months. This strong growth should be compared with the growth in AUM that pays fees that I explained a minute ago. So revenues from Asset Management made up of management fees for the first half to the tune of EUR 87,100,000. Regarding carried interest and performance fees, well, their contribution to income was EUR 1,200,000 for the half year and the carried interest is coming from our private equity business. Note also that regarding revenues, we have good that over the last 3 years, we've also had very good diversification in our revenues, which is very good if you want to grasp the risk within TKO. And you can see that private equity and real assets account respectively for 15% 42% of revenues, which is once again fully in line with the rebalancing of the product mix towards higher yielding strategies. One of the indicators that we put in place after the IPO in 2017 is important because it measures a ratio between revenues and AUM. For the 12 months ending 30 June, the average fee rate was 94 basis points, which is a strong increase over 10 basis points more than June 20 than June 2019. And if you compare that compare revenues to AUM, that shows how relevant our model is and that shows that the product mix has become more diversified with higher paying strategies since the IPO. So revenues related to performance fees account for 5 basis points over the half year. Keep in mind that most of the funds developed by the group are young and our model does not depend on generation of carried interest in the short term. And in this respect, we are certainly less mature than our peers. And so we have a lot of growth potential for our revenues and profitability in the future. Now regarding more precisely carried interest, every 6 months we give you an update on the AUM eligible to carried interest, and you'll see that the AUM eligible to carried interest keeps increasing. It's now EUR 9,000,000,000 at the end of June 2020. So over 4% growth plus 20% for the last 12 months. And this growth is higher than the growth in AUM overall for the group. The carried interest is triggered on fund maturity as soon as a target yield rate, the hurdle rate is reached. Our ability to generate revenues will, of course, depend on our ability to invest the funds that we are interested with and generate performance, and that's what we've been able to do for 16 years since the creation of TQO. I'll also remind you that the listed company, TKO Capital, as part of its alignment of interest concepts, will receive 53% of carrier interest on all of the closed dividend funds for the group. And now the flip side of all that, revenues and the key elements that I mentioned a minute ago, Of course, all that results into the operating income from Asset Management. You can see that there's been significant growth, almost 40% for H1 2019 compared to H1 2020 versus H1 2019, over 3 times more than what we generated 2 years ago. That's related to the growth in revenues from the asset management scope, but also allied to very good control over operating costs for the first half. The change in operating margin, as you can see from operating margin from Asset Management, as you can see on the right, shows how relevant TKL's model is in Asset Management even during crises, major crisis as the one we had in the first half and also proves how able the group is to maintain profitable and lasting growth. We've mentioned it time and time again. We wanted to remind you that our platform is leveraging more and more effects of scale. It's now more scalable. And so our revenues can grow more than our costs. For instance, we haven't yet reached the full capacity for a certain number of business lines, but revenues are growing very favorably compared to our level of business, and that's very clear to see in the figures of H1. Now let's look at a review of our investment activities on Page 36. Revenues from investment activities stood at minus EUR 77 point 2,000,000 for the 1st 6 months. You can separate 3 components in these revenues. The first effect is that of unrealized fair value changes that's in light blue on the slide. So minus EUR 143,000,000 for these effects. This is the fair value adjustment of underlying assets that are within the portfolio minus EUR 143,000,000 for the first half with 2 noteworthy effects. First, the effect of the euro the year line minus €61,000,000 and also minus €24,000,000 for our listed real estate company that we have in the portfolio, Select Hurant. And since then, the share price has gone back up. The second effect is that of realized fair value changes. So the underlying assets have been divested from the investment portfolio. There, we leveraged a fairly chaotic first half to make a number of arbitrages within the portfolio. And that translated into revenues of EUR 23,800,000. That's the dark blue part on the slide in the center of the site, so a number of disposals of assets that helped us leverage major revenues. And so the 3rd effect, which is also high, is the orange part on the slide, EUR 42,300,000 for dividends, coupons and as well as payouts received by TKO because of these investments in funds, which is a slight decrease compared to H1 2019. We had EUR 49,000,000 and the decrease is because of the absence of dividends for the 2 listed lines that we have on the balance sheet, Euroseo and DWS. Please note one major thing. These EUR 42,000,000, these revenues remained high. It's mostly made up of revenues related to holdings in TQO funds. It's important. We talked about aligned interest. We talked about investing from the balance sheet into our funds. Well, with that, we can have steady recurring income, even growing income for the first half. Please note also that the realized effects, so the orange and dark blue parts on the slide, increased compared to June 2019. Thus revenues from investment activities, as I said earlier, were mostly impacted by changes in fair value from unrealized investments in the first half. So those decreases could be reversed in the future. I'd also like to draw your attention to the right hand side of the slide, the split of revenues between the 1st and the second quarter as you can see on the screen, whereas unrealized fair value changes were highly negative in the Q1 because of the extremely volatile market context, talking about minus EUR 204,000,000 minus EUR 287.5 million. This turned into a positive in Q2 with EUR 147,000,000. Regarding the financial instruments that are here to hedge the listed assets, they were put in place at the beginning of Q2 when the markets were not very favorable and as the global economy was facing major systemic risk. And so that's offset the positive market impact of the second quarter. So now let's review the balance sheet. I'm on Page 38. As you can see, our balance sheet structure remains robust, which is an essential asset in a deeply changing environment, especially with such an uncertain and volatile market context as we experienced in the first half and that we are still experiencing. On the asset side, you can see mostly our investment portfolio standing at EUR 2,400,000,000. I'll get back to it in a minute. Our consolidated cash, it's a bit less than EUR 900,000,000 and a certain number of asset aspects, with in particular the goodwill. Our equity is still high at EUR 2,800,000,000 and financial debt is stable at EUR 1,000,000,000 euros We also have EUR 500,000,000 in undrawn credit lines, and our gearing ratio is still under control at 36%. Let me remind you that Fitch had given TKO its first financial rating in January 2019 with an investment grade BBB- level, and this rating was confirmed this year in January. As we mentioned earlier, we are going to carry on harnessing our balance sheets for the development of our business, in particular, by investing more in our own strategies and also by using external growth operations. Our investment portfolio of EUR 2,400,000,000 is, of course, a major component to be analyzed within our balance sheet. This portfolio is still as granular with EUR 210 underlying assets for a total of EUR 2,400,000,000 at the end of June 2020. Moreover, as we said earlier, we carried on investing in our own strategies. Therefore, the share of investments from TKO balance sheet in its own funds is now 65% versus 49% just a year ago. This is fully in line with our goal to raise the exposure of TKO's balance sheet in its own funds to 65% to 75% by 52%. With the complex market context that we've had since the 1st January, we've also had some important rotation in our assets. Therefore, in April, we increased our stake in iREIT, a listed real estate company in Singapore, focusing on the European property markets. As Antoine said, we raised our stake from 16.6% to 29.2%. We also leveraged market conditions to dispose of 64% of our share in DWS, helping us generate some proceeds of EUR 110,000,000. And as we said in January, well, more recently, we got the reimbursement of the EUR 115,000,000 loan that was given in early 2018 to Conferama. This loan was partly financed from our balance sheet and also by financed by some of the funds managed by our subsidiaries. More precisely here, we put together a focus on Page 40 on the granularity of the EUR 2,400,000,000 in investments carried by the balance sheet. You can see here the split between the direct assets EUR 823,000,000 and investments made through our funds. At the bottom of the chart, you can also see strong diversification between all four asset classes when it comes to investments within our balance sheet. Let me remind you that the direct investment component is relatively well balanced between listed and non listed investments. Now I'll turn it back over to Antoine for the outlook. Thank you, Henri. On Slide 42, over the last 16 years, ever since the company was created, we've built up a global resilient platform, especially given the current context. It's even a bit more visible. First of all, we've built up a platform with a very robust balance sheet, as Henri reminded you of. It's fairly rare to have a robust balance sheet with a loss of equity in Asset Management. We have EUR 2,800,000,000 in equity shareholders' equity. As Henri reminded you, we have EUR 900,000,000 in cash and undrawn credit lines of EUR 500,000,000 so that we can leverage selective external growth as we did in the past or we can even launch new initiatives. The line broke up for a minute. We have great granularity in all the subjects. We have the next private debt flagship, TDL5. The previous fund had EUR 2,100,000,000 in AUM, TDL 4, and we had SEK 600,000,000 in TDL 3. We also have the Energy Transition Fund, T2, TGE2, the 2nd private equity fund, but we are also launching a number of initiatives like PDS, Private Debt Secondaries. We hired an associate from Stepstone to develop this practice in Europe in New York. And as you probably know, Stepstone is listed on the U. S. Market. It's a consultant in alternative management with a market cap that's roughly the same as our own market capitalization with the same metrics in terms of profitability from Asset Management, but they only have EUR 100,000,000 in shareholders' equity when we have EUR 2,800,000,000. So we are convinced that we are undervalued now after tonight. We have also become stronger in our current asset management platforms, in particular, whether they are listed or not. On the listed side, Hari talked about iREIT or Select Hurant. We have 2 listed real estate companies that held up very well because of the current turbulence, not just in terms of share price, but also in terms of collection of rents. So we'll carry on developing these platforms. We're integrating STAR infrastructure that we're going to help grow. For those of you who remember, we announced in July, we talked about it, we won the request for proposals from big European aeronautics companies Airbus, Thales, Dassault and Safran. We bought ACE that managed €300,000,000 at the time just a year ago. We're adding a fund that already has €630,000,000 in it. That shows how able we are to integrate new platforms and grow them in a fairly significant way. And the acquisition price of ACE for this company that managed EUR 200,000,000 is extremely moderate. Now moving on to Slide 44, you can see the pipeline of realized acquisitions and integrations, which are some fairly different animals. And so if you look at apart from the acquisition of Soffiti that we bought for a bit more than EUR 100,000,000, most of the acquisitions were fairly moderate and earnings enhancing in terms of shareholders' equity. Now maybe if I can drop off with Slide 45, the year 2020 is not an easy year by any stretch of the imagination. There's an unprecedented sanitary crisis, and we need to remain humble because no one knows whether the health crisis is over with some very different effects depending on the sectors and geographies. So it's a relatively complex year. We believe that the group's got the right strategy, and we're not slowing down quite the opposite. Our inflows in the first half and January show it, our ability to innovate and be ahead of the pack on various issues like the energy transition, health care, cybersecurity, all that is very well illustrated. We've decided to communicate a bit more and to promote the successes that we initiated in terms of ESG and governance. So you'll see now a bit more communication about these topics, although we think that we've always been pioneers and all of the ratings that we got from the various market players confirm that quite well. In the short term, of course, there will remain some uncertainties in health terms, political, social or monetary terms as well. We are still very, very vigilant. All of our employees at TQEO are vigilant in their positions to manage the capital that we are entrusted with, to seize opportunities to value the assets that we've invested in and to carry on investing. We are still very confident about our AUM goals by year end, but also regarding our guidance for 2022. The group's got many, many assets, and we are well armed to face the cycle, whatever the cycle is. And so we're now in marching order in order to deliver on our goals by 2022, and we are happy to confirm these objectives. Thank you so much for your time. We are a bit over time. It's now 37 minutes past 9, and let's have a Q and A session. Press star 1 on your keypad on your and make sure that you have activated, unmuted your mic. We'll let you know. Question number one comes from Nicolas Paine from Kepler Cheuvreux. You have the floor. Yes. Good morning and thank you for this presentation. I have three questions. Number 1, the hedge the cost of the hedging instruments, can you give us to date or an update to see whether there will be additional costs with a positive or negative outcome. Then on IRES, you said that you were able to manage all your acquisitions, but you believe that you're acquiring your American partner, are you happy with that? Or are there other verticals where Zikyo would like to strengthen its position? And question number 3 is on, well, you gave some guidance on assets under management, €27,500,000,000 But if you compare this with your AUMs at end June and the net inflows in July were at 27.3%. While you have Capital Markets with negative market effects, maybe that's the reason. But I'm a bit surprised to see that there's very little between the 2. Why is it? Well, you have a number of funds that are in fact raising funds instead of steadying them. Yes, well, thank you for these three questions. The hedging costs are detailed in our half year document, and so this is now available online. We decided to hedge the entire listed portfolio, Erazio DWS, 2 listed property companies, if you want, and in our Capital Market Strategy funds, we and Plus loans, all this has been hedged. And we still have it and that we believe that there will be turbulence ahead. And as Henri pointed out, we are long on assets. We have EUR 2,400,000,000 assets of our own assets invested and we have kept that hedging instrument. The question number 2, the setup that we have in terms of verticals is that have we completed that? Of course, the answer is no, because if you look, well, there are many asset classes, things and geographies around, but we have to be very careful indeed because when we acquire something, we try to keep the acquiring price down as low as possible. And we look well, private debt is something we look very carefully at because when we look around the world, Asia, North America, for industry or by territory, we added infrastructure, but we went that was a modest acquisition. We purchased a platform with the EUR 600,000,000 in assets. So that's not huge, but there may be other verticals. We might create some. The healthcare vertical is a case in point. For France, this is something we had in Nastry. We will have a health vertical like we had energy transition vertical. It's too early, too soon to tell. But our business plan is flexible enough. We do not we're not saying that we will stick to this or that business or asset class. We will add something if we think that may improve our profile that gives us additional expertise. We are well equipped with our 5 verticals. Sorry, it's a bit it's lengthy answer, but there's no perfect answer. We're looking if I mean, we're happy to diversify if we can, but all initiatives either in external growth or in organic growth has to reach a significant critical mass. Otherwise, it's just a distraction as it were. On the question of the 3, on the AUM 27,500,000,000 you have to remember that in H1, we had EUR 500,000,000 in distributed dividends. And of course, if you don't raise funds and you return capital to investors, well then, of course, mechanically, AUMs will go down. So there's a distribution effect. We also invested EUR 300,000,000 in our own assets into our own funds. And there shouldn't be a double crunching. So we are being cautious here, maybe over cautious, I don't know. But very all will very much depend on the market and what happens around the world. There's one example that we often quote for English speaking partners. When we look at most of the big insurance companies, the pension funds or the English financial institutions, well, at the beginning of 2021, they with Brexit, they may not be in a good position to raise funds. And so it will very much depend on what happens outside France and we have been very conservative on our guidance so far. Thank you. Thank you. The next question comes from Arnaud Giblas from Dan. Thank you. Two questions. On your targets for EUR 20,000,000,000 EUR 35,000,000,000 in AU Main compared to EUR 27,500,000,000 in 2020, You in this presentation, you're looking at a stepped up fundraising by 2022. How should one look at this? Are you expecting flagship fundraising? I mean, will that be the main driver of fundraising? Or can you give us details on these future flagship fundraising? And question number 2, can you comment on the talks you're having with your clients on demand for alternative asset management. In March, April May, the peers have been saying that business was down, that people would there was less appetite to risk. Now we hear this appetite to risk is coming back. Is that your assessment as well? Thank you, Arnaud, for these two questions. On AUM, well, from EUR 27,500,000,000 to EUR 35,000,000,000, Our expectation, well, there are a number of flagships and where we are forging ahead is private debt. We have our private debt program, will definitely be part of the flagship. And so CDL5 will should generate a significant amount in fundraising, but we also have larger funds when we raise funds. I mean, in energy Transition, it was €600,000,000 the first closing of Aeronautics with the 4 manufacturers, 30,000,000 and plus new initiatives. And so I mean, these are maybe models, but the health fund, we did one fund reopening another one. So we're looking again at great diversity, find granularity in the products, which of course might make it a bit more difficult for you to see, but it means that the performance risk is lower because if you collect funds on the 10 or 12 funds, well, it's best to have to have a couple of flagships. We do have these lined up. We will see whether there will be more sub assets within that. Looking at CMS, we are looking at positive fundraising and CMS are our targets. So we have daily cash capital income in our hearts. We have been positive since the beginning of the year, which is rather unusual because cash market funds have been going down and the equity funds collected a few €100,000,000 and we're just above €1,000,000,000 1,200,000,000 and we should be collecting funds there. So a long answer to say there's still granularity in our funds, which makes it a bit more difficult for you to have to make forecasts, but we do have the TDL5 as a flagship and in energy transition and aeronautics that we are looking at new flagships that it's worth. On alternative demand, demand for alternative asset management, there are consecutive movements. Number 1, we have found well, the structural movement of interest rates, I mean, they are all negative or very low interest rates in North America. That is something of an incentive for asset managers or for investors or pension funds, but private banks as well and retail banking as well. I mean, the life insurance in France hasn't been collecting much because and so they look at other account units in private assets. And so we're looking at alternative assets with higher yield and that are more D core related. And so that's a lasting and positive trend. The biggest investor in alternative assets is the Japanese post office, dollars 8,000,000,000 and it's the it has a huge savings rate in Japan and while they're looking for alternative assets. So there's this trend, which is a strong trend. With COVID, there were 2 negative effects and some people have been realizing this. A number of pension funds and sovereign funds had their prudential ratios strongly deteriorate. Pension funds has an asset portfolio with, say, 100, and they were hit directly by the collapse in the equity markets and the mortgage bank is a case in point. The mortgage bank is a case in point. They have to reallocate their assets and that was particularly true in certain American institutions. If you look at the foundations of American schools, since schools have closed down, they're collecting much less by way of funds and so they will be investing much less in both in traditional and alternative asset management. That's one negative trend is that if you look at the big investors, all of them find themselves, well, in a rather different situation when it comes to fundraising. And so we can see that fundraising has come to a halt. And then other negative aspect is the financial industry tends to be somewhat sleepy, and that is the reason why we exist at all. And in the COVID comp in the context of COVID, we have found that if you have an insurance company that has no investment policy and they can have a meeting with you in a month's time, well, you might have to wait a long time before they start investing. So there's a long trend for alternative asset management. Right now, there's a slowdown in the short term, but our own fundraising activity, well, we haven't suffered that much from this trend. We are entrepreneurs. We are the only alternative asset managing company that is run by entrepreneurs. And I think Blackstone created Stiggy Partners Group. They are run now by managers, talented managers, but we are fortunate to have the 2 founders that are running the show have an entrepreneurial DNA and we and they are using their talents to raise funds where funds can be found. The more cautious and the more conservative players in terms that diversified in terms of geography and business, Cesar or Bank of March and these are growth factors. So Ominiti is our real estate platform of crowdfunding where we have 22,000 small investors. So we have several channels to raise funds. So it's true there was a slowdown. It's picking up again, but it's too early to tell whether the structural trend is back on the rise. I don't know if I don't know if this is a satisfactory answer. No, no, that was crystal clear. But I do have a follow-up question. Could you tell us comment on the pipeline of acquisitions that you're contemplating? It's true that we're looking at a number of possible targets. The trend now is that the price of alternative management assets is quite high. I mean, just look at the metrics and the listing of capital stone from last night. It just gives you the closing last night was 38 times the price of our own share. And so it means that many alternative asset management companies that we may wish to purchase are expensive. The only exception is when they are small, which was the case for ACE, only €300,000,000 or STAR infrastructure that was €600,000,000 But we're looking at small companies that can have either an additional asset class or an additional geography. We're not present in Germany, so we'll be looking at more possibilities in Germany. But we have a big pipeline, but there is nothing no that major target now. The main criterion is the acquisition cost. Thank you. Thank you. If there's no question on the waiting line, we're switching to French. If you want to ask a question, press star 1 and now questions back in English. Yes, 3 questions from my side, please. My first question is with regard to the current fundraising momentum at Soffiti. So did you see here any signs that inflows are returning to their previous levels after the slowdown that we have seen in Q2? The second question is with regard to the CLO business. What is current situation here with regard to a new CLO? And should we still expect this in this year? And lastly, could you provide us with some color on what you expect for the operating cost development in Asset Management in H2 compared to the first half? And our explanation is the following. Number 1 is the company has been funded in 1987, is more than 13 years of track record across cycle including the pretty large 1990 real estate crisis. Their track record is pretty strong. And I give you a sense, Q2 has been very difficult in Europe for collecting rents across the board. And what we saw that Unibail announced yesterday meaning a massive share capital increase and they published their Q2 in terms of rent collection. Let's call it, they were in the 40% range, 40% range of rent collection, I. E, they are supposed to collect 100 and they only collected 40. At SOFIDI level, we are currently at 82% and it's not finished yet. So we continue to manage properly the rent collection. So track record is robust. Software fair is quite unique. And remember, I remind you that we have 200 people working at Soffitie. And the trend in terms of inflows remain positive. So I give you a figure which is non public, but you can find it you should give a reply either on the regulator or on the various internal side. The net inflow that's obviously as of end of August is €500,000,000 which is pretty decent. So we continue to attract good growth in further absorphy. Cielo, we've been on your second question, we've been fairly calm even pre COVID because we saw that your spread were too tight. We take the opportunity of market dislocation and all that to relaunch and be in a mode of having 6 CLO on the way. So that's a project underway. And number 3, operating costs. We consider that our setup really decent in terms of people and the increase of margin in the Asset Management illustrate the fact that we are very cost conscious. And at the balance sheet level, operating expense, we do not expect additional or relevant additional costs. Does that answer your question, Christophe? Yes, that's very clear. Thank you very much. The next question comes from the line of Mandeep Jagpal from RBC Capital. Please go ahead. Good morning. Thank you for the presentation and taking my question. Just 2 for me. First one is on the hedge and the second one is on deployment. So on the macro hedge, it was implemented at the start of Q2 and I understand it's Eurostock futures that can be rolled every 3 months. How are you thinking about the macro kind of macro additives at the moment? Are you thinking about rolling that over at the end of September? And then the second question is on deployment of capital. H1 was tracking at about 50% of the level of 2019 at around €800,000,000 There's still significant dry powder in the funds. And I was wondering how you're thinking about deployment in H2 compared to H1? And has the opportunities that changed due to COVID? Yes. Thank you for your 2 questions. You're correct. We are rolling every 3 months, sorry, macro hedge. Our view is to put that in place. The timing was not perfect, but people, no timing, obviously, it's almost magical. So we are rolling every 3 months. The way we see that with your question of end of December, we're going to be very opportunistic in the way we decide to stop the macro hedging. As you noticed, we owe DWS stake. So if we think that opportunistically, we can reduce our market effect, positive and negative on the investment and or on the hedging, we will do it. But our view is that the markets are pretty crazy and it's not only the tech bubble in the U. S. I mean, valuation are super expensive and people in that's our view don't really realize that a lot of industrial company are really in disarray with this sanitary crisis. So we kept the edge in place. If market become more turbulent, I suspect we're going to probably reduce the aging, number 1. Number 2, on deployment. At the end of the day, people are when they invest in your fund, they give you money to invest. And the most important thing is to make sure you deliver a good return. And when you look at our return across our strategies and our fund, it's been mainly due by the fact that we are very conservative as a firm. So that's why we continue to keep a big amount of dry powder. Obviously, when you keep dry powder, it's not generating day 1 management fees because on the majority of funds, we receive management fees when we invest. For H2, we see some activities more activities in private debt than H1. We remain very, very cautious on real estate. And when you look at what's happening with large real estate property company, it doesn't seem super appealing and it's too early to say. But for instance, if you are a big owner of a big office space, which is not our case, and you have tower on Canary Wharf for LA Defense, do you want to invest and buy office tower on Canary Wharf? The answer is The value of these assets will decrease. So in terms of real estate, we remain very calm in deploying. And then in terms of private equity, we continue to have a strong pipeline for our energy transition fund. And again, we think we are ahead of the curve. So we've made already 5 investments in this fund, and we are contemplating a new one. Cybersecurity, which is smaller, will invest. Our health care, medtech and biotech will invest and will continue to invest. So I suspect that we're going to continue to invest in H2, but probably at a small base because we consider that the sanitary crisis is not over and the consequences also economical and political are not fully there. Does that answer your question? Yes, got it. Thank We have no further questions. So I will now hand over for any questions via the webcast. Michellet ODDO asking 2 questions. What could be the impact of the macro hedge on H2 in terms of €1,000,000 on P and L? You have strong inflow goals, but on what type of funds? Regarding the macro hedge, same comment as for the first question of the details in the midstream results, the impact could be positive on the market growth offset by our liftgate in the U. S. And the U. S. Market growth subject to schedule changes. Question on fundraising on what types of funds, what will that focus on in the second part of the year? We are marketing energy transition, cybersecurity, aeronautics, CDL5 for private debt and TSO2, our special situations fund, where we collected EUR 450,000,000 so far. We haven't talked about EUR 450,000,000 on that fund to be compared with less than EUR 150,000,000 for the 1st vintage. So we think that this TSO2 fund should have good inflows. But what you should see is that we've got a lot of different initiatives, so several different engines on. And I think that those engines that are on are quite attractive engines for investors. You for your time, for your support. And rest assured that we keep our eyes on the ball as always, and we're at your disposal to carry on with the conversation. Thank you so much. Thank you for taking part in today's conference call, where you can now hang up.