Earnings Call: H1 2019

Nov 15, 2018

Okay. Good morning. I'm hearing the bells ring 9 o'clock, so I guess we can formally start. Thank you. Thank you all for attending. This is ICG's half year results presentation. So I'm sure you will have seen this morning, it's been a remarkable first half. Our fund management company profits are up 45%. We have raised 6,100,000,000 in the 6 months period, €6,100,000,000 which is a new record for us. This means that our total AUM is just under €34,000,000,000 So that's around the $40,000,000,000 mark, which in our industry is a meaningful milestone. All of our strategies in the market have contributed to the success. And of course, we have benefited from the very successful fundraise of our ICG Europe Fund 7, which has closed a few weeks ago at the hard cap of €4,000,000,000 That's a 60% increase on the previous vintage and we've increased fees on that fund by 7%. You may remember, it's a meaningful fund because it features fees on committed. It's a 10 year fund extendable to assets on balance sheet and notably of an exceptional gain on one asset, but Philippe will go through this in greater detail. As a result, the group company profits are more than double what they were last year. Dividends as per our policy are up 11.1 percent that is 10p per share. Our strategic priorities have not changed. Obviously, I would just point to 2 things. One, it's a good problem to have. But nevertheless, even though our fund management company profits have increased 45% because of the performance of the investment company, this first half, first company sorry, investment company profits are actually higher than fund management company profits for this half. This doesn't change the long term trend, which is that the growth in FMC profit will be the main driver of the growth in value of the business. The other point that I'd mentioned is after having raised 7 point €8,000,000,000 last year, we've now raised €6,100,000,000 in the first half. So I think we can comfortably say that we will meet our long term target of raising $6,000,000,000 on a 3 year rolling average basis. And you may remember this is a target we've just reset last February. We've increased it by 50% from $4,000,000,000 to $6,000,000,000 So it's been quite a successful couple of years on the fundraising front. I thought I would take this opportunity to address a few questions that were often asked. I'll try to be succinct, but I welcome questions after this session. We can continue this discussion. And there are 2 areas. 1 is, what do you think about the cycle or a cycle? And 2, what would be the impact of a rise in interest rates on the business? On the point to keep hammering home is our strategies are very long term. Most of our strategies are 10 years. They can often be extended further. In our world there is no such thing as early redemption provisions. So when we're thinking about our funds, intrinsically we're thinking about a long period of time and we have to anticipate that over a 10 or 12 year period there will be cycles. That's what we do. It also means that we're building into our mandates for all of our strategies, the ability, the flexibility to take advantage of market dislocations. And that's what we've done in the past. This is what explains the long term track record that we have. Actually our through the previous financial crisis, our funds did very well. The fund that was most impacted by the financial crisis, which was our 2006 vintage, eventually returned 1.8 times the money. So that's part taking into account and taking advantage of these long term investment period is part of our business model. On interest rates, there's a misconception and I'm not quite sure where it's coming from that an increase in interest rates would be negative for ICG. It's actually the opposite. An increase in interest rate would be beneficial for ICG. If you think about our fund performance, looking back, the single most significant negative factor impacting our funds in the financial crisis was not losses. It was the drop in interest rates. And the reason for that is most of our debt instruments are floating rate. So a drop in interest rates as we experienced in 'nine, 'ten immediately impacts our the performance of our fund downwards. Now if interest rates were to rise our funds would directly benefit. There could be a question on would there be additional risk on the underlying companies. And actually there wouldn't be because even though we lend in floating rate, we require the underlying portfolio companies to hedge. Another point to note is hurdle rates, which is the measure that our investors are using to measure a minimum target return on our strategies, hurdle rates are fixed. So for us, an increase in interest rates just means that reaching the hurdle rates, it's so much easier. Hurdle rates for us today are the most difficult to achieve because rates are in Europe are actually negative. On the balance sheet, likewise, because we borrow either fixed or we hedge, and then we invest alongside our funds in floating rate instruments, an increase in rates would also be immediately beneficial to the PLC balance sheet. If we think about fundraising, there's a legitimate question says, would an increase in rates affect the appetite of investors for the alternative asset classes generally because they would be content with the more traditional fixed income space for instance. I don't believe so. I believe the shift towards alternatives is a structural shift. It's driven by many factors. Diversification is 1. Long term investment period is another. Downside protection because these strategies have shown over cycles that they are quite resilient is another. So this is a structural shift. I think we're only at the beginning of this move. And interestingly, we have a bit of a live example because interest rates have risen in the U. S. I mean they're more than 2.5 points higher than they are in Europe. So it's a meaningful difference. And this has had no impact whatsoever on fundraising from U. S. Investors. There's a lot more and we could cover a lot more about the resiliency of the model. And I'm sure we'll continue with questions after this session. But for now, I think Phil will take us through the financial review. Thank you. Good morning, everyone. All of our financial indicators are performing extremely well. If I'm honest, I think probably a little ahead even ahead of our expectations. AUM is up 17%. Fundraising, a record 6 months at €6,100,000,000 Fund management profit up 45% on last year and margin at 49%, and the fees up 35%. So overall, I think this provides a very, very strong platform for a good financial year as a whole. Segmental analysis. Headline profit is our fund management profit, as you know, at £64,400,000 45% up on last year, 26% up on the prior 6 months. And that's been driven by an increase in 3rd party fees, which itself has been aided and abetted by Europe Fund 7. So if you remember, we closed out at the end of May. So we've had 4 months' worth of fees on committed capital. That's been about £18,000,000 of fees from Europe Fund 7. The second half, we'll see a full 6 months of fees, so there'll be an uplift on that. For the investment company, we've had a very, very strong performance in the investment company. A chunk of it is a part of it is driven by a capital gain on a single asset. Now this is an asset that we hold principally on our balance sheet. It's a single legacy asset. It's the largest and one and the only one of its kind. It's a company called Intelsat, which is a publicly traded satellite business, where we've invested in a vehicle along with a sponsor. And we've recognized £41,000,000 gain because their share price increased in the period. If I take and that gave us a net investment return, which is our basic revenue measure for the investment company. That gave us a net investment return of 17.1%. If I take Intelsat out, the net investment return was 13.3%, which is still a very strong half, above our guidance of 11.5% and very favorably comparable to recent years. So if I take it out £64,000,000 if I exclude Intelsat, which is ahead of the £37,000,000 last year, and that is driven by the performance of the underlying portfolios. Our balance sheet is looking very healthy. Investments were up £211,000,000 to £2,100,000,000 That's really matching our line to the deployment of our funds in which we invest. The second line, the assets for syndication. This is our where we incubate new strategies, where we effectively do our R and D, where we're looking to acquire assets so that new teams can prove the concepts before we start fundraising. That has also seen an increase of £125,000,000 to £232,000,000 And I expect to see a bit more of that in the second half. We have a new infrastructure team that's looking for assets at the moment, and I expect that they'll do their first deal in the second half. So that's a very good indicator of how using the balance sheet to drive new strategies and growth long term into the future. On the liability side, which is the the liabilities you see gearing is a little bit higher. We expected that because we saw deployment was going up and we're putting assets into this R and D area. Gearing up from 0.77 at the end of the year to 0.86, still giving us healthy headroom and certainly nicely within our range of 0.8 to 1.2 times. We've had a we have a recently restructured and renewed bank facility and no reliance on a single bank. And I thought as I'm coming towards the end of my term, I think I'll probably have one more results session in me, but I would do and for maybe to indulge in a little bit of nostalgia, I thought I'd look back at the balance sheet of 10 years ago, March 2009. And just to really emphasize the difference, in 2009, the balance sheet was about 50% larger. It was roughly £3,000,000,000 versus £2,000,000,000 now. And importantly, gearing was 2.7 times, a huge distance away from the 0.86 that we have now, Huge distance away actually from the top end of our range as well. It's a very, very differently funded business. If I look, let's move on to the fund management company specifically. Superb 6 months fundraising with a third party AUM at €31,000,000,000 up 18% dominated by the £4,000,000,000 raise of Europe Fund 7. Now because Europe Fund 7 has fees on committed that means our fee earning AUM was up 24% in 6 months, which is a big indicator of where fee income growth is going to come from in the immediate short term. The fundraising pipeline is now focusing is focusing on newer strategies, realizations, pretty levels are holding up across all of our products. We've got seen a small increase on a weighted average basis. But if we dig down into a bit more detail, I think you can see a trend. And I think that the important trend is, what are we charging for the latest vintage compared to the previous vintage in each of our strategies, because that is the best indicator of our pricing power. So if I look at Europe Fund 7, that has a fee rate after various discounts are given 143 basis points. Fund 6 was 134 basis points, so a nice uplift. Very recent data, obviously. Senior Debt Partners went from 86 basis points sorry, 68 basis points for Fund 2 to 85 basis points for Fund 3. Real Estate, you can see there we've seen a reduction, but that's largely a mix effect because we've seen far more fundraising in the half for our senior debt senior real estate senior debt strategy in real estate rather than our mezzanine. So it is a low priced product. So like for like, these strategies are much the same. But on a when you look at the mix, we've seen a reduction in real estate. In secondaries, that includes strategic equity, which is we're fundraising for at the moment. We are expecting the price to be higher for Fund for Vintage 3 than it was for Vintage 2. But as we're in the midst of fundraising, I don't I can't give you final details for that. But I think the important point is we're seeing no reversal of this trend in the foreseeable future, and we're not under the same pressure as traditional asset managers are on fees. Not included in this analysis is our performance fees, which were £10,600,000 for the half, which is comfortably within our guidance of £20,000,000 to £25,000,000 for the year. I want to take another look at fees. What this shows is looking out for the next 5 years, what would our fee levels be if we didn't raise any more capital from clients, from 3rd party clients at all. So these are our locked in contractual fees. All I've assumed here is an average level of deployment and realizations. And what you'll see is a very, very shallow decline. It's about 6%, 6.5% per annum loss of fees. If we stop deploying, and therefore stop realizing because the 2 go together because of the market, or the market clamps up, this would be even shallower, because where we wouldn't raise any more money in this scenario, we also wouldn't lose any. And so in a severe downturn when the market climbs up, those fees are even stronger. When we look at investments, if we saw a contracted income from mature strategies, so this means we're getting new fees in with pretty minimal increase to our cost base. It's the strength of our operating model. It's very leverageable. And we've known we've been showing this now for some time. So there's little charge in the period for new teams, but that is coming because we've got 4 strategies currently that are in R and D using the balance sheet. In the second half, I expect the margin to remain high if for no other reason we got a full 6 months of Fund 7 fees and it is our highest charging fund. Moving on to the cost base. We see an improving operating leverage with the cost ratio going from 54% to 51%. Our staff costs as a percent are also increasing with including incentives from 38.5% to 35%. We've invested in the period in our credit fund team and strategic equity. We're also continuing to strengthen our control and support functions. I like this slide. This shows fund management profit over the last 10 years. This is our headline profit. And what it shows is from 2014, a 30% compound annual growth rate in our fund management profitability. This is the profit figure that drives our value. I have to admit the last 5 years have been more fun, but it is based on the hard work that was done in the previous 5 years. For the avoidance of doubt, FY 'nineteen is annualized for the first half. It is not a forecast. Moving on to the investment company. So the ICO I mentioned includes the impact of Intelsat. Share price went from $4 to $30 and of course, could fall. Our shares are in a vehicle controlled by the sponsor, so we can't sell them. And in a sense, this investment doesn't really reflect any of our current funds or our current strategies. So for the purposes of analyzing the investment company, I'm quite happy to take Intelsat out and ignore it. If I do so, then the net investment return is 13.3%. The net investment return is all of the running yields, all of the contractual PIK, all of the capital gains less the impairment. So it's basically what our investors in the assets in which these funds reside that we're kind of investing with, how do our investors look at our look at the income on the assets, we're looking at it the same way. That 13.3% is consistent with recent history, possibly a bit at the top end, and that's because we've seen good returns on our fund co investments because of the strengths of the underlying portfolios. We look at the returns on these long term investments as co investments in our funds, so they're aligned if I break that 13.3 percent, 30.3 percent net return, break it down by fund co investment, which shows how it aligns with clients. You can see what we've enjoyed in the last 6 months is really quite outstanding returns on those investments, which of course our investors see as well. So on the right hand side, you can see the fund return, which is what our investors see. That's since the fund's inception. And on the column 1 in from the right, you'll see our return in the 6 months. So there's slightly different time comparisons, but the story is still the same. Fund 6, Europe Fund 6, 21% return in 6 months for us. Europe Fund V, 28%. ICAP, which is our Asia Fund III, 32% Strategic Equities, 29%. This gives a slightly distorted but snapshot of our current track record. What you see on the right hand side is the longer term track record for those funds. One other historic note looking at the asset base. I just again wanted to compare the Marco 9 balance sheet with the current balance sheet. First thing to note, as I mentioned earlier, the current balance sheet which is on top, much, much smaller. It's virtually £3,000,000,000 versus £2,000,000,000 And we've been talking a long time about leveraging a balance sheet more effectively to grow the assets under management around it, which is exactly what we've been doing. But very importantly, the current balance sheet way more diversified. In March 2009, €2,500,000,000 of the €3,000,000,000 balance sheet, €2,500,000,000 was in European corporates. Now that's down, that's €1,000,000,000 Also, what you'll see here is we're now investing our balance sheet across a greater range of strategies, greater range of instruments, a greater range of geographies, far more diversified. In our balance sheet and in our portfolios, we have no companies incidentally that rely solely or rely heavily on EU to U. K. Trade. Investment company costs, very comparable to last year and the prior half. Staff costs are a little bit lower because our business development expense has reduced some a little bit because we closed down the energy, the oil and gas project that we during last year. So we don't incur the cost of that this year. Deferred incentives are linked to our expected cash capital gains, so there'll be a bit of fluctuation there. But overall, there's not a lot of change if we look back 6 months or 12 months to the cost of the investment company. So let me finish up our looking forward to guidance for the second half. Well, fundraising, we're clearly going to exceed the £6,000,000,000 but of course that £6,000,000,000 is a rolling 3 year average. This year will provide a very nice base for the next for this year and the 2 to follow. Our margin, I expect to be in the upper 40%. Net investment return excluding Intelsat looks comfortably above 11.5% for the year, but that is going to be subject to market somewhat subject to the market because we value our portfolio based on what we're seeing how comparable companies are trading. Gearing is edging up towards the middle of our range of 0.8 to 1.2 times. So all in all, we're anticipating a strong year for FY 'nineteen based on a first half that's seen a very high level of fundraising and very, very strong fund management profit growth. And Benoit will now explain how we managed it all. Thank you, Philip. This is, should now be a familiar slide. The ICG Value Creation Triangle, investing selectively, managing portfolios and funds and growing assets under management. I propose to go through each in turn after a few observations on generally on the market. This is ICG proprietary data. There are actually some reports outside if you want to pick them up. We are tracking 300 to 400 private companies in Europe. Some in our portfolio, some not. And we believe that is a fairly representative sample of the market. We can see here is overall revenue and EBITDA growth remains quite solid across the board and across countries in Europe. This is a European focused database. If we were to look at the U. S. The numbers would be even higher. And this is consistent with what we're experiencing in our portfolios. All of our portfolios with no exception are doing incredibly well. The second slide still based on the same data set. Perhaps more surprising, particularly given the noise in the market, that credit fundamentals remain quite strong. There is an increase in leverage, you could see. It's nowhere near the levels of 2,008, but there is a notable increase in leverage. But I would point to 2 things. 1, there is a much greater proportion of senior secured debt instruments in the structures. That's the blue part of the bar chart. And that is largely the consequence of the growth of direct lending, private direct lending in Europe and the use of instruments such as unit tranches. And these, if there is a downturn, will have a stabilizing factor. The other element, which is quite meaningful, is that red line. The interest coverage is at a historical high. So that's defined as EBITDA over net cash interest, which is a that's a measure of the ability of companies to service our debt. And as you could see, not only is it at a historical high, but it is materially above where it was in 2,008. And that is indicating a very different risk profile. Structures are in a much better risk position than they were 10 years ago and by some margin. The other point to note is these are industry averages. If you have strong origination capability and you're focused or your and or you're focusing on certain segments of the market, you can structure financing that are more conservative than this. And if I take it as an example Fund 6, Philip just mentioned the performance of Fund 6, which is showing 28% IRR. Well, Fund 6, which we've just finished investing, so it's a recent fund, the average senior debt level in that fund is 3.5 times. So nowhere near the market averages here. Going back to our value creation triangle, starting with investing. All of our strategies are on track. I think that's the key message on this slide. All of our strategies are on track. They're deploying as expected or at the pace that was expected. Again, and we keep pointing that out. We're an origination heavy platform. For us, the key is the origination is having senior executives on the ground in the various countries. That is what is enabling sufficient quality of sourcing to maintain a level of be able to select the best possible deal and the best possible risk return profile throughout the cycle. Which leads to this. This is a slide we're quite proud of. It's our track record. Not many asset managers could point to such a long term unblemished track record. It's probably our most valuable asset. And importantly, the recent vintages are significantly outperforming. So you've seen some of the numbers from Philip. Our Europe Fund 6 is showing 28% IR. It's actually already at 1.9 times the money multiple even though we've just finished investing it. The strategic equity strategy is showing an almost unbelievable 45% IRR. Our North American Private Debt Fund, the Fund I, which again we've just finished investing is showing 18%. Its target was more in the 14% range. So all of these recent funds are outperforming, which is obviously very good news for these specific vintages. But even more importantly, it's a very strong indication of our ability to successfully fundraise in the future. Everything we do is long term. So when you think about it, we've just raised in Europe. We've just raised Fund 7. The strong performance of fund 6 will essentially be what determines how successful we are in raising fund 8, which is several years away. So you look at this and that's already giving you a pretty strong indication of our ability to successfully fundraise Fund 8. We've just started investing Fund 7. So that's giving you an indication of the visibility that this gives us. That's another approach to performance looking at exits during the period. And it's telling the same story, which is if we're comparing to historical numbers, you know, the performance is extremely good across the board. What I thought I would do for a change because we always focus on the best deals And we do have a few outstanding deals where we've exited with IRRs north of 30%. But I thought I'd pick one from the red part because that's interesting as well. There's always a bit of color behind those stories. And so we've had 2 deals that have underperformed. And one of those is a transaction that we made several years ago in Spain where we invested in senior debt at a relatively low leverage, 2.5 times EBITDA. So this was a low risk investment. But these things happened, force majeure completely unforeseeable event. The company goes on the brink of bankruptcy. The team locally, again, through the importance of having strong teams locally on the ground, the team locally managed to salvage the situation, reinject some money, save the employees. And in the end, after a few years of work, a couple of weeks ago, we received all of our money back. So we didn't make a return on this transaction, which is why it appears in the red, but we received all of our money back. These situations are valued immensely by our LPs because they demonstrate our ability in difficult situations and there will always be difficult situations. Our ability to fight for the asset to protect the capital makes a material change. Incidentally that investment is in ICG Europe Fund V, which has already returned all of the money to investors and more and is looking to be one of our best vintages. As I pointed to, in my introductory slide, given our performance last year at 7.8, we're doing quite well if we compare that to our long term rolling average target of €6,000,000,000 per year, which as I've mentioned earlier is a level we've just increased materially this past February. So this is a strong period of fundraising for us. Not entirely surprising. Last year we had our senior debt strategy. This year we have our European fund strategy. So these were always going to be strong years. This should not overshadow the success we've had in other strategies, where all of the strategies that were in market have fundraised either as expected or in some instances better. Looking forward for the reminder of the year, the focus will be more on those strategies that are constantly in market and fundraising, notably our capital market strategies as well as some of our real estate strategies. And we are also as we had indicated in our full year presentation, we are also fundraising for ICG Strategic Equity 3. So fundraising has started. We are looking to raise $1,600,000,000 which is a 60% increase on the previous vintage. That's the objective. It's not a hard cap. We have no hard cap on this strategy at this point. And we are also looking to increase the fees. And this would be a first for ICG because we're not just looking to reduce the discounts, but we're actually looking to increase the headline fee rate. And this is a strategy that has fees on committed. So it has a significant impact, long term significant impact on our profitability. I think you've heard enough about the success of the fundraising of Europe Fund 7. The only thing I would emphasize here is this is our oldest, most mature strategy. And I do take significant comfort from the fact that our most mature strategy is still able to grow 60% and increase fees and therefore grow its contribution to the firm's profit. You will also see the red line that as a result of the successful growth of the strategy the co investment ratio keeps improving. The efficiency of the balance sheet keeps improving. This is a great slide. If anything, it shows how much the business has changed, how different we are as a business from 5 or certainly 10 years ago. It shows the strength of the platform, the brand and the synergies that we're trying to that we're starting to extract between strategies. On the left hand side, you're seeing a breakdown of our investors in the European Fund 7. What's interesting here is despite having increased the size of the fund by 60%, 75% of the investors in the fund are repeat investors. So strong feature we have a sticky client base. And that's a very good sign when you're thinking about the ability to a future fundraise is investor base tends to be extremely sticky. The other point to note on the right hand side is the increasing number of our investors who are invested across strategies. And actually just over the past year, the number of our investors who are investing in more than one strategy has increased 26%. We're not only increasing our number of clients, but also more and more of our clients are investing in several of our strategies. And there we're clearly benefiting from a shift in the market where not only is there a shift towards a greater allocation to alternatives, but many investors are consolidating their GP relationship because they have too many to manage. And therefore, they're looking for GPs who can offer a broad range of strategies. And that's exactly what ICG is providing them. That's exactly as we broaden the number of strategies we're getting a virtuous impact. In conclusion, it's been an excellent first half, I think we'll all agree. 45% increase in the fund management company profit, a record $6,100,000,000 raised over the period. Importantly, our portfolios are all performing well. We're actually at a low point in the number of underperforming assets and watch list assets historically. And finally, the strength of the balance sheet remains critical to drive future growth. And I'm absolutely convinced that we have very significant additional future growth potential. So that concludes the our presentation. I thank you for your attention. We're quite happy to take questions, continue on some of the themes that have been evoked or answer any other question you might have on these sets of results. Great. Hi, good morning. It's Gertrude Campbell from JPMorgan. A few questions. Firstly, are there any structures where you're thinking about evergreen structures, given more and more of your clients are giving you money again in new funds? So firstly, is there any sort of evergreen structures you're looking at? Should I go one after another or should I I'll go one by one because I may forget your first question by the time you get to the last one. So evergreen, we do have a few evergreen structures. They have pros and cons. The pros is you no longer have to fundraise again. The con is, you know, they're evergreen, but they have to have some sort of an exit clause. And even if we make and that's what we do, we make these exit clause extremely comfortable for us. So typically they have more than a year of they need to give them more than a year of advanced warning. It's only all it does is it's only turning off future new investments. You never have to sell anything. And so it's more comfortable than what you might have in the more traditional asset management space with some early redemption. Nevertheless, it's not as comfortable as having people locked in for 10 years. So there's a balance. It's useful to have some evergreen mandates, but you don't want that to be too significant a part of what you do. And for us, it's small. There are instances where it's very useful is, for investors that have very significant appetite in our strategies and appetite that far exceeds what we can absorb. Because what we can do then is we can say, fine, let's open that evergreen mandate and you're going to keep adding to it every year. So for that, it's useful. Otherwise, we much prefer to have investors locked in for a really long period of time. The second one in terms of I think the Fund 6 you said the senior debt leverage was about 3.5 times 3.5 times. What was the sub Is that also sort of similar levels in terms of the Well, the sub day is higher. So but the why I'm mentioning why we're tracking the senior debt is that's because it's what's ranking ahead of us in those structures. So it's essentially it's our risk level. So by pointing to that, what I'm pointing to is that Fund 6, even though it's a very recent vintage, the risk level on that portfolio is actually quite reasonable. That's what I'm pointing to. Then the level of sub debt will vary from deal to deal. And sometimes it could be quite low. And actually in some instances, we are that senior debt. So I mean, when I'm telling you that's what's ranking ahead of us, I'm actually giving you a conservative view, because sometimes we are part of that 3.5. But that's a good proxy for the risk on that portfolio. Okay. And then just a final one. Obviously, there's been a lot of talk in the press about Obviously, there's been a lot of talk in the press about BBB bonds coming under some pressure, leverage loans coming under pressure. From what we can see, the default rates still remain very low. Issuance of CLOs is already high. Is that sort of what you're seeing? Yes. That is absolutely what we're seeing. And the fact that default rates are low in itself is not a good indicator, because if structures become way too stretched, the risk level is it could be extremely high even though you have low default rates. So what you have to look at is the evolution of those structures. And what I was pointing to in one of the slides is, yes, you are seeing an increase in leverage. But for one thing, it's not across the board. So you can choose which deals you want to invest in. That's one thing. And the second one is with that interest cover level is actually the structures are not that stressed. And because the higher leverage is being put on companies that have very significant cash flow generation, which was not the case in 'six, 'seven where people were putting high leverage on just about every company. It means that those companies that have higher leverage typically have the ability to actually weather that sort of leverage. Okay. Thank you. So it goes. Can I just say your question on BBB bonds was around that as an indicator for the quality of corporate credit not because we hold BBB bonds? No. Yes more around the Ashford. Because we don't have any portfolios where that where Just looking Just looking at Slide 23, 24 again, which I think were quite helpful, just the ones where you were talking about the European market trends. Just a few questions on those. I mean, how similar are those trends to your actual portfolios would be kind of question number 1. I think on the 24th, the way you shared the interest coverage ratio was particularly helpful, I guess, in responding to concerns that might be out there on where the risk in this portfolio is. But I do note that that says net cash interest rather than total interest. So how does that line look if you look at total interest, including obviously PIK provision? And then I guess finally, obviously, it's not as easy to show quantitatively, but how would that line look if you looked at the kind of covenants taken over time? Have the covenants kind of been weakened recently? So it's very different questions. I'm not sure the covenants would feature on that slide at all. So on your sorry, all of your questions were on this slide actually. The first question is, how do we compare to this? It depends by fund. So as I said, the Europe Fund 6 looks much better than this. Our senior debt fund would not look too dissimilar, but we would just have the blue bar because in those structures we have no sub debt at all. So it would be lower, but it would be all blue for our senior debt strategies. Your second question was on interest cover. Most of the deals being done in the market have as you could see, they have very limited sub debt. So actually there's very little pick. If I look at what we do in senior debt, it's all cash pay. It's 100% cash pay. So it wouldn't look materially different. Which is that incidentally that would be very different from 2,008, where you had a very significant proportion of PIK interest. So you're right, if we did an adjusted line, it would look even more slanted and pronounced compared to 2,008. We could try to do that. It would be interesting. And covenants? And covenants, yes. I mean, there's no doubt that there's a general weakening of covenants, but that's particularly in the large syndicated deals. So apart from the CLO part of our business, which is more market driven and there the key is the ability to trade. And what we mostly do, which is the private end of the market where you do not trade because there's no trading, it's not as pronounced. And it will vary dramatically from deal to deal and region to region. So in Europe, where, we invest through SDP, we're investing a couple of 1,000,000,000 a year. So it's significant. We've never done a Covelight, for instance. So the market hasn't moved to such a stage where you no longer have covenants. It's true that in a number of deals the covenants are what they call getting looser. So there is more room on the covenants than they were maybe 3, 4 years ago. But 3, 4 years ago, they were particularly tight because this was still a post crisis type of approach. So it's getting back to in most deal a more normalized level where there's a 20% headroom, which is not it's not if you think about those transactions, and so this applies to senior debt only. When we're in the sub debt or in other tranches, it's a completely different equation because sometimes you may prefer that there are no covenants because if they're going to be used against you by the senior, then you prefer to have different types of protection. So the story becomes more complicated if you're not in the senior debt. In the senior debt, what happens is indirect lending because you only have one lender, could be ICG. If you're the private equity sponsor and you don't have a 20% headroom, that's a really dangerous position to be in. Because you don't have unlike in 2,008 where part of your protection if you're a private equity holder is that you're dealing with large syndicates of banks and various holders of debt and that's always complicated to manage. That's giving you a little bit of flexibility if you're the private equity holder when the company underperforms. Here you're just dealing with 1 lender. And 1 lender can very quickly take over the company if things are not happening as they should be. So it's not unrealistic I think for to we did a lot of work after the referendum and we've been continually monitoring and updating that. I don't think anything has fundamentally changed. We are focusing on access to clients, which we now have unfettered access to clients through registrations In Continental Europe, we have registrations here. We the U. S. Uses different routes to get to European clients. So we have a number of routes to retain access, which so we're that's pretty well covered. We've got a growing office in Luxembourg, which meets all the regulatory requirements, And we're using that actively in some of our newer funds. From a people point of view, which I think is one of the other key dimensions we would look at, we manage a lot of money. But actually, in terms of numbers of people we employ, we're still fairly modest sized. 2 thirds of the business or 60% of the business are on this floor of this building. Actually IT is on the ground floor. Which means that if we need to if people need to move around, what's important for us is that our investors are near the companies they're investing in. So it would take very little movement of people and very small number of people if we had a cliff edge Brexit to make sure that our investment teams were close to where they were investing. We might need to move people around a little bit for investment committees, but it's relatively logistically modest compared to what a lot of companies may have to do. We're pretty flexible. If I look at the portfolio, the U. K. Businesses that we're invested in, we've been very careful to select businesses, particularly where we have larger positions where they're pretty much hermetically sealed. We've talked before about Park Holidays, which is holiday homes in the U. K. We've got a business that does supply teachers in the U. And these are U. K. To U. K. Businesses rather than relying on cross border trade. Since the referendum, all of our monitoring and we're very active in monitoring the businesses that we invest in. We've been making sure the businesses have got very good plans for Brexit. Some of them for some, it's irrelevant. And for some, it's a bit more work. But we've been doing all of the hard work has been done in advance. Thank you. Thank you. So all we're doing is keeping those plans up to date. Good morning. This is Liz Miliadas from Bank of America. Your net investment return guidance is 11.5%. Obviously, we've got 13.3% for the half annualized adjusting for the one off. Just wondering why we perhaps aren't revising that up even just slightly given the performance. And then a second question on impairments. Obviously, you're not disclosing that this time around. If you could give us some sort of high level commentary as to where that is, that would be awesome. Thank you. On the net investment return, we are that does fluctuate with the market. So I think we'll be quite cautious to and I'm not sure we're really in a position to say that we're going to change our outlook on that because your view on the markets in terms of what they'll be like at the end of the year are probably better than our own. So I think I prefer to let that one play out. When we set that guidance, we thought what is we really looked at what is the a relatively conservative view of the capital gains that we can expect to achieve from our portfolios that we invest on the balance sheet. And therefore, long term, what do we think is a good is a sensible return overall, not really considering particularly necessarily whether that comes through lower impairment or higher gains or what kind of running yield. So it's worth mentioning, Phil, as well that a greater and greater proportion of our balance sheet is dedicated to launching new strategies and to seeding assets for new strategies. Some of these strategies are lower yielding. And we're not seeding those strategies for the underlying assets themselves, but for the value that will be created out of those funds. And so as a result, that target is becoming more of a mix between the various strategies that we're launching than actually reflection on the performance of the portfolio, if you see what I mean? Impairments, I think the number is in the data pack. Ian? Yes, he nodded. I can't remember offhand what it is, but I think you would find it would be very low for the period, probably one of the lowest we've seen in a long time. So I can't recall the exact number of these low because the portfolio we have as Benoit mentioned, we have we can't remember a time when we had so few companies that we're really concerned about. Thank you. Any other question? Okay. Well, thank you very much. We'll be around if you want to continue chatting outside of the main session. Thank you very much for attending.