Good morning. Thank you for joining ICG's results for the 12 months ending 31 March 2025. The slides are available on our website, along with the accompanying results announcement. As a reminder, unless otherwise stated, all financial information discussed today is based on alternative performance measures, which exclude the consolidation of some of our fund structures required under IFRS. This morning, I'm joined by our CEO and CIO, Benoît Durand, and our CFO, David Bicarregui. They will give an overview of our performance during the period, and we will then take questions. You can submit these through the webcast messaging function or by telephone. More details are on the online portal. With that, I will hand over to Benoît.
Thank you, Chris, and good morning, everyone. This has been a milestone year for ICG. The financial results speak for themselves, including $24 billion of fundraising and a new high of GBP 600 million of management fees, up 19% on the year. More important is what this means for ICG's positioning as a business. This was a critical year for us, and I'm very pleased to report that we have surpassed even our most ambitious targets and have, as a result, already anchored fundraising for this four-year cycle. We have $32 billion of dry powder available today, and we have underpinned our management fees in the medium term. In terms of client offering, we have reinforced our market-leading positions in GP-led secondaries globally, in European direct lending, and in structured capital.
We have also successfully raised three scaling strategies, including North America Credit Partners and European Infrastructure Equity, that are now established and are positioned for further growth. Our funds have continued to perform well, and our deployment and realization activity has been strong despite a generally slow market, giving our clients exposure to attractive investments and anchoring fund returns, continuing our track record of consistently returning capital to our LPs as measured by strong DPI metrics. We have been saying for some time that we want to have breadth at scale, which I believe is increasingly important as our industry evolves. As clients and the broader industry face a challenging environment for the 4th consecutive year, our performance has reinforced ICG as one of the few global alternative asset managers who are seeing their competitive position strengthened through this period.
This year has seen ICG successfully continue to deliver on our strategy of scaling up and scaling out, building our franchise on excellent investment performance across strategies and geographies. We now manage $112 billion of capital and have fee-earning AUM of $75 billion, up 8% year on year. Our $32 billion of dry powder, $20 billion of which is not yet earning fees, gives us significant firepower to capitalize on the opportunities which inevitably arise in a more volatile market environment. From a corporate perspective, we opened three offices and now operate from over 20 locations globally, and we continue to invest in our platform, including with a number of senior hires during the year in our client solutions team, that's marketing, as well as our investment teams.
The financial outcomes of this are clear: management fees up 19% year- on- year, increasing performance fees, a robust performance from our balance sheet, and at the profit level, fund management company PBT up 23% year- on- year. This is enabling us to pay a total dividend per share of GBP 0.83, up 5% on the year, while continuing to have an appropriately capitalized balance sheet, and David will discuss this in more detail shortly. Breadth at scale is hugely important for our business, our clients, and for shareholders. It has become a strategic necessity in our industry. On the back of our cycle-defining fundraising campaign, I believe we have now reached a high level of market relevance across several uncorrelated strategies. Over the last decade, ICG has focused on moving to the top right quadrant of the graph you see on this slide, where I believe we now firmly sit.
Of course, this does not spell the end of our growth ambitions. It does mean that we have the earnings power and the balance sheet to support and grow a now established and complex operating platform and marketing team, and we have attained a global relevance with investors that we can further build on. This should see us continue to benefit from structural market trends of LPs concentrating their capital allocations on a narrowing set of managers. On the right-hand side of the slide, there are some figures to illustrate that. Our AUM is now $112 billion from $20 billion 10 years ago, and during the same period, our client base grew 4x and our management fees almost 9x . ICG today is very different from what it was just a few years ago.
We are now a relevant global player in several verticals or families of strategies with significant organic growth potential for at least the next 10 years. We enjoy a recognized leading position in structured capital in Europe, where we have an unrivaled track record and the largest fund of this type globally. We are now a major player in private equity secondaries, notably with a number one position worldwide in the GP-led segment, and we are, of course, a significant actor in private credit, notably as one of the largest providers of direct lending in Europe. Our real assets platform, which is a more recent area of focus, is performing well and a source of significant growth potential as we look to build the same relevance and presence in this segment as in the others. The charts underline how broad-based our growth has been over the last five years.
Secondaries is clearly the standout, having grown over 6x in the period, admittedly from a lower base, and structured capital, private debt, and real assets have all grown at high teens, Kagers. Having more scaled and scalable strategies, largely uncorrelated as we now do, diversifies our growth and fee streams, reinforces our market relevance, and gives us more organic growth drivers in the future. The result of this is that we are able to raise more capital from more clients into larger funds. You see this in the last 12 months, during which time we held final closes for four different strategies. To put this performance in perspective, 2024 was the third consecutive year of decline for global private markets fundraising, with 2024 numbers more than 50% down from the 2021 peak.
I won't go through every statistic on this chart, but it's worth noting that Europe Mid-Market II was ICG's largest ever vintage-to-vintage upsize, three times larger than the predecessor vintage. Strategic Equity Five is, by some margin, the world's largest GP-led secondaries program focused on single-asset continuation vehicles, and SDP V was the largest ever direct lending fundraising in Europe at the time of closing. In addition, Infrastructure Two is already larger than its predecessor fund, and it is still in the market, and we expect to hold a final close during calendar 2025. This is really quite an achievement for a 2nd vintage that has been raising through a very challenging period for fundraising generally and for real assets especially.
Of course, each individual fundraise is a success in its own right, contributing to our scale and earnings capacity, but more broadly, and in particular the success of our scaling strategies, this shows that ICG is benefiting from LPs looking to do more with fewer managers. Turning to fundraising in the year, as I mentioned earlier, this was a critical year for us given the number of strategies we were marketing concurrently. It's fair to say that we made a few strategic calls which help explain the positive outcome for the year. Since we could see that our efforts were successful and our positioning and strategies resonated with investors, we decided to keep Strategic Equity Five open longer to maximize demand, which in turn put us in a position to increase the hard cap with LP consent, of course.
We also brought forward the first close of Europe Nine to lock in client capital. Clients from the Americas, and that's mostly the U.S., were the largest contributors of capital in the year. This is not surprising as this is by far the largest source of capital, but it does highlight our growing presence and recognition in North America. Overall, we attracted 122 new LPs, which is quite an achievement in this environment, and we saw good cross-selling, in particular into Europe Mid-Market II. As a result, and as I said before, we have materially underpinned fundraising for this cycle. Looking ahead in full year 2026 and likely full year 2027, the only major strategy we are raising for is the 9th vintage of European corporate.
In the context of our four-year fundraising guidance, we're off to an extremely strong start, but it is likely to be barbelled with a low couple of years in the middle. On Europe Nine specifically, early indications for that fundraise are very good, and we have already had a first close at EUR 4.5 billion. This is the largest first close in ICG's history. The strategy's focus on structured transactions, its track record, and its focus on Europe are all likely to be appealing to investors globally in this environment. Moving to our transaction activity, which was impressively strong, somewhat bucking the market trend. On the deployment side, we saw good levels of activity in European corporate and in secondaries. Strategic Equity Five is already roughly 40% deployed, and LPS One, that's LP secondaries, which only closed in March last year, is 90% deployed.
Real assets had a record year for deployment in absolute terms, reasonably equally spread between real estate equity, real estate debt, and infrastructure equity. It is more challenging in direct lending, which is dependent on the level of buyout transaction activity, which has been depressed and remains so. The bid-ask spread on valuations remaining the main issue there. In this segment, direct lending, we do, however, benefit from the additional financing requirements of our existing portfolio, and so we've been able to maintain deployment even year- on- year. The contributions were slightly different within realizations, which were largely driven by direct lending and structured capital. We closed some very successful exits for infrastructure equity as well and for structured capital, both mid-market fund and European corporate, and this anchored top decile DPI performance for all three funds, which no doubt played a significant part in our fundraising success.
Importantly, as we look forward, our portfolios are still performing very well with still meaningful average EBITDA growth across the board and relatively modest, by historical standards, certainly levels of leverage. A very good year strategically and financially across all metrics, which positions ICG well for the future. Looking ahead, we want to continue to offer our clients an attractive waterfront of private markets investment strategies with a differentiated and attractive risk-return profile. As such, investment performance is our top focus always. We are known and recognized for this in the market. We are convinced that across cycles that will remain and enhance our brand and reputation amongst our growing client base of institutional investors and high-net-worth individuals. We will continue to add new strategies that fit with that ethos and to develop new products to enable our clients to invest their capital with us efficiently.
Finally, while our client base is now large, it still has significant room to grow, which we will do, as well as ensuring our operating platform delivers excellent experience to those clients. The last few years certainly have not been easy in private markets, and I believe this will remain the case for some time. This is making ICG stronger. In future years, when we look back on today's environment, I'm confident we will be able to say that ICG emerged with its reputation enhanced, its client franchise strengthened, and its competitive positioning reinforced. With that, I will pass to David to talk in more detail about our financial results.
Thank you, Benoît, and thank you all for joining us today. I'm pleased to report that we have published strong results this morning with growth across key financial metrics.
Fee-earning AUM up 8% in the period at $75 billion, fee income of GBP 690 million, up 19%, group operating cash flow of over GBP 500 million, and FMC profit before tax of GBP 461 million, up 23% year on year. Despite the ongoing macro uncertainty and wide range of potential outcomes, as Benoît said, our performance over the last 12 months anchors our fundraising for this cycle and underpins our medium-term financial outcomes. As a result, we are confident in reiterating our medium-term financial guidance. On fundraising specifically, I'd reiterate Benoît's point about it likely being very barbelled, with FY 2026 and likely FY 2027 quite low irrespective of the market conditions given our fundraising cycle. In a sense, our fundraising cycle has insulated us from being too buffeted by the current levels of volatility. We remain confident in the short, medium, and long-term outlook for ICG.
Now turning to the outcomes of the year in more detail and starting with fee-earning AUM. This grew 8% during the period to end at $75 billion and over the last five years has grown at an annualized rate of 14%. In the past 12 months, we have raised $11 billion for strategies that charge fees on committed capital and deployed $9 billion in strategies that charge fees on invested capital. In addition, we have $20 billion of AUM not yet earning fees, largely in private debt, which has management fee generation potential of approximately GBP 140 million. I mentioned fee income of GBP 690 million at the beginning, and as you can see from this chart, our revenue is clearly management fee-centric. Management fees reached a record GBP 604 million this year, up 19% year- on- year or 8% excluding catch-up fees.
As you know, this revenue stream is long duration, visible, and recurring. Our effective management fees increased by five basis points in the last 12 months and now stands at 0.97%, driven by mixed effects and in line with our expectations. Performance fees were GBP 86 million, largely due to additional revenue for Europe Seven as we get more confidence on that fund's hurdle date. This represents 12% of total fee income in line with the five-year average and our medium-term guidance. As a reminder, these are almost all European waterfalls, so this is a durable and valuable income stream that turns to cash, as you can see with the black dots on the chart that show realized performance during the year.
The final component, our total balance sheet return, which is defined as NIR plus CLO dividends, was GBP 241 million, all of which comes together as a solid year for revenue as a whole, with continued management fee growth very much the highlight. Now turning to group-wide operating expenses, which were up 4% year- on- year, with the low growth primarily due to lower incentive costs compared with FY 2024. Over the last five years, group OpEx has grown at an annualized rate of 12%, materially lower than the management fee growth of 19% during the same period. Over 75% of our cost base is people, and we now have 686 permanent employees. I have spoken before about operating leverage, and as you can see on the right-hand side how the rate of growth in our headcount is shallowing.
We've continued to invest in our investment teams and our client solutions group and in our firm-wide operating platform, CBS. These investments position ICG for continued efficient growth. Strong revenue and limited cost growth have translated directly into higher profits and operating margin. We are reporting fund management company profit before tax of GBP 461 million, up 23% year- on- year, and growing at an annualized rate of 20% over the last five years, along with fund management company operating margin of 60%. At a group level, our profits are increasingly driven by the fund management company, reflecting the fee-centric nature of our growth. As well as higher earnings, our growing fee income is generating increased amounts of cash, and our balance sheet is structurally cash flow positive.
As a result of this, we are reporting operating cash flow of just over GBP 500,000,000 for the year, up 44% on FY 2024. We repaid GBP 241 million of debt over the year, and if we look back five years, that number sums up to GBP 1 billion. We ended this year with total available liquidity of GBP 1.1 billion, net debt of GBP 629,000,000, and net gearing of 0.25x. During the period, S&P Global Ratings upgraded our credit outlook to BBB+ stable, which sits alongside our BBB+ positive rating from Fitch Ratings. Our balance sheet remains a strategic asset for us and a powerful resource to grow fee income. In that context, I'm pleased to be able to say that it is stronger than it ever has been. Now, we're very focused on being efficient in the use of our balance sheet.
We have recently seeded new strategies such as LP secondaries and Asia infrastructure, as well as new products such as core private equity. Our ability to ramp new products and seed new strategies is very powerful as we continue to innovate and allow our clients to access our investment strategies in different ways. Once strategies or products are launched, we seek to reduce our co-investments through vintages. As you can see on the right-hand side of this page, we have successfully done this for a number of funds during the year, lowering our absolute GBP million commitment despite raising more capital. As a result of this deliberate approach, our balance sheet now represents less than 3% of our total AUM. To conclude, the financial consequences of our growing breadth and scale is that we have significantly more liquidity and capital today than we did even five years ago.
Since March 2020, ICG has generated over GBP 2.2 billion of cumulative earnings, almost half of which has been returned to shareholders through dividends, which have increased by 48% over the period to GBP 0.83 per share for FY 2025. Looking ahead, I believe this trajectory will continue, and we have a clear toolkit for how we think about allocating that with the aim of generating recurring and durable growth for shareholders. The starting points are the need to maintain a robust, appropriately capitalized balance sheet and our progressive dividend policy. Beyond that, we're in a fortunate position of having a number of options available, including seeding new strategies and accelerating the growth of current seeding and scaling strategies by putting more capital behind them. Delivering on our ambition of breadth scale has meaningful and positive strategic consequences for ICG. It gives us increasing confidence in the future trajectory of the company.
It also has very positive financial outcomes, which are clearly visible today and which I look forward to discussing with many of you in the coming weeks.
With that, I'll turn back to Chris for any questions. Thank you, Benoît, David. To keep things moving and ensure that everyone gets an opportunity to speak, I would ask if possible that you limit your questions to a maximum of two each, and we will be finishing promptly on the hour. As a reminder, you can ask questions in writing through the portal by clicking the messaging icon in the navigation bar or, if connected by telephone, by pressing star one to join the question queue. To start with, Benoît, we'll take a question that's been submitted online.
You mentioned briefly European corporate and the fundraising there as to why it might be attractive for LPs, but could you talk a little bit more about LP sentiment more broadly at the moment?
Sure. I think the broad undercurrent is that LPs are still, most LPs are still struggling with a relative lack of capital because not enough capital is being returned to them, which is mostly from private equity, which takes us back to the low level of deal flow and the issue that the market has been dealing with of a bid-ask spread on valuation now for about three years and ongoing. That is the general sentiment. There are exceptions.
It's not exactly the same in the Middle East and so forth, but as a whole, that's the general picture, which means that LPs, they're not stopping allocation to the space, but they're clearly being more selective, and they're focusing their efforts and their allocations on fewer managers. If you're in that group, you are benefiting. If you're not, it's a very, very difficult environment out there. We're fortunate to be in the right group. The other two elements that I would mention is one, which is more recent and post the, call it the tariff noise. There's been a rethink about allocations and a greater appetite for diversification and for allocations to Europe and potentially Asia as well. We're seeing that across the board, including from US investors.
That is very meaningful because historically, the U.S. was attracting almost more than two-thirds, almost three-quarters of the flows were concentrated on U.S. managers or U.S. managers investing globally. As far as we are concerned, that is capital that was moving away from us. That can be incredibly helpful as long as this lasts, and there is every reason to think that it will. The other aspect that I want to mention is a number of LPs, they are taking a step back and they are looking at the overall performance of private equity. They are noticing two things. One, in many instances, the performance over a long period of time may not have been as high as they had hoped. Certainly, what the recent past has shown is the level of liquidity is low. Those DPI numbers, distributed to paid-in ratio, are incredibly low for private equity.
They're reconsidering how they're viewing the asset class, and this could benefit some of our strategies, particularly structured capital for Europe Nine, because of the significant debt portion of this investment strategy. There's a much more constant and consistent return of capital and certainly much stronger DPI levels. We're top decile DPI compared to the private equity industry with that strategy.
Thank you very much. We'll now turn to the phones. The first question, Oliver Carruthers at Goldman Sachs. Ollie, your line should be open.
Thanks for the results. On two questions, I guess I'll go with firstly, number of clients. I think stepped up again this year. I think you added 100 new institutional investors to your LP role. I'm guessing Strategic Equity Five was a big driver of this, but any color on where you're winning new clients would be helpful.
Then second question, if we could zoom in on the FMC Opex, I think it grew only 10% this year despite it being a busy year of fundraising and a new flagship launch. How should we be thinking about that growth rate in FMC Opex for this year? Thank you.
Yeah, I'll take the first question on clients. Thanks for that question. I mean, the first comment I would make is this is unusual. Kudos to our marketing team because in the current market environment, what you find is most market participants are focusing on farming much more than hunting because it's so much more difficult. I think being able to increase the client base by 122 is quite an achievement. It's actually broad-based. You're right. SE5 did contribute meaningfully, but actually, it's across the board.
I mean, we had a number of new clients in infrastructure equity, for instance. We had some new clients in the mid-market fund. The mid-market fund, the investor base for the mid-market fund, is not just a mirror of European corporate. It actually attracted new investors. Hopefully, we're going to try to cross them over into the larger vintage as well. It is very broad-based. I think this goes to the point I was making about investors generally focusing on fewer managers, which is why it is so important to have a broad platform because they're looking for GPs who obviously have the track record, but who can deploy across a number of strategies. I think that's what we're seeing now, and we're seeing the benefit of that.
The other element, which is why, and as I was going through my presentation, I realized I was using the terminology relevant a lot, but that's because we fought for so long to be relevant globally. I remember mentioning years ago that you needed a few strategies that were $10 billion or more per vintage in order to be meaningful to a number of our clients. We're now there, and I think that's also a reason for the success in broadening the investor base even in this environment.
Yeah. And Ollie, on your question about FMC OpEx, you're right. It was 10% year- on- year. Remember, the year before, it was above 20%. So we've clearly put a significant amount of focus on the platform. It links very much to the growth in client numbers and the record fundraising environment that we've had.
Those things all come together in terms of increased cost. I think from here, and the reason we put the slide up is we have a further opportunity to shallow the rate of that growth. Less than 10% effectively. I think we'll do that because this will be a different kind of year for us. We'll have fewer funds in market. We will still be focused on selective ads around the client experience and other places on the platform, but it will not be a broad-based growth year in terms of cost.
Thank you. Marina from Morgan Stanley. Marina, I think your line should now be open.
Hi. Good morning. Thank you for taking my question. The first one is on the portfolio performance. Can you perhaps talk about the underlying portfolio trends?
Should we expect any potential negative markdowns following volatility in April on the balance sheet or elsewhere? A second question on the recent launch of the US Evergreen product. Can you perhaps discuss the demand and traction you have been getting there with clients? Thank you.
Sure. Do you want to say the balance sheet? Yeah. On the balance sheet, Marina, we are still seeing very robust outcomes. You can see that in terms of the total balance sheet return, and we have published what the five-year average has been at 12%. We feel good about the robustness of the balance sheet. I mentioned deliberately, it has never been as resilient as it is now in terms of concentration of positions, diversification, lack of leverage. There are lots of things to like about the balance sheet in its current form.
Obviously, we look at the fundamentals of the portfolio companies, and we're not seeing any particular concerns in that regard at this point.
Yeah. The comment I would make about portfolio performance, and this applies to the whole market. We have, through our direct investment strategies, but also our secondaries and CLOs, quite a good view on the overall markets across geographies. By and large, company performance across the board remains quite strong. Again, as we've mentioned, I think in prior years, this is largely because in the buyout world, the focus is on services companies. It's on companies that tend to continue to do well even in an environment like this. Having said that, I mean, I'm always very cautious because it pays to be cautious.
I do expect that it's going to become more difficult for management teams going forward to maintain growth rates, if only because the economic environment across the board is not showing significant growth. That shouldn't really be a problem for all of the debt strategies because they'll be doing fine. Leverage levels, by and large, are relatively modest. There are exceptions. They're a bit higher in the U.S. than Europe, but overall, they're relatively modest. Companies are very well capitalized generally because valuations are high. That's where I think the biggest question is, if you're seeing an economic environment with lower GDP growth across the board. I think the question mark that's been there around equity valuations, I mean, I think should be even more pronounced, which we'll see how that evolves.
I think that's raising a significant question on some of the historical vintages for private equity funds and at what point does that market unlock. That's the main comment I would make there on portfolio performance. On the US Evergreen, which is essentially a secondaries product, I mean, it's early days, and these things take a long time to grow. Once they grow, then it becomes a constant flow of capital. This is a slow burn. Interestingly, we are in the process of replicating this in Europe because there is significant appetite in Europe. We're replicating exactly, well, not exactly, but almost exactly the same structure in Europe, which is an Evergreen structure for secondaries, which I think is very well suited because secondaries naturally generate liquidity. Even in a downturn, you can look historically several decades back, there's greater rotation of assets.
These structures generate natural liquidity. They lend themselves quite well to Evergreen structures. We'll continue with that. In my mind, this is just a different structure, just a different way of accessing capital. We may very well have institutional investors who opt for one version versus another. They could go into LP secondaries in the closed-end fund and/or opt for the Evergreen depending on how they are, what their strategy is. I mean, some of them essentially want to invest for a very, very long period of time. We've seen that, for instance, in strategic equity. We have a client with a 25-year mandate. They do not want to see any money back for a long time. Evergreen vehicles are very useful for that. I think we should see growth, but I do not want to overstate it.
These things take a long time to take hold and start generating meaningful numbers.
Thank you. Angeliki from JP Morgan, I think your line should be open. Please go ahead.
Good morning, and thank you for taking my questions. Just two for me as well, please. First of all, I heard your comment with regards to the fundraising in fiscal year 2026 and 2027 being naturally lower than the big number that you produced this year in fiscal year 2025. Can I please just get an update with regards to your expectation for sort of start of fundraising for SDP 6 and Strategic Equity 6? What is the timeline based on the deployment that we're seeing at the moment, which is, I think, around 40% for Strategic Equity 5 and 50% for SDP 5?
Second question, with regards to private debt, the fee-paying AUM declined by 15% year on year for the reasons that you described. In terms of the direct lending deployment from this quarter onwards, have you seen any retrenchment from the broadly syndicated loan market? What is your outlook with regards to the net deployment in private debt for fiscal year 2026, please?
Yep. Thank you. Thanks, Angeliki. Your two questions partially dovetail. Let me address direct lending deployment, which will partially answer your question about when we expect SDP V to be in market. Listen, the direct lending deployment is a function of two things. It is primary deal flow, which is directly correlated to the private equity buyout activity. That is low. It remains low.
I was not in the camp of those who believe that in Q1, we'd see a sudden resurgence. We did not. This was pre-tariff news. We did not because the fundamental issue has nothing to do with tariffs or even with GDP growth prospects. It has everything to do with the bid-ask spread on valuations. I think as long as there is no consensus there, either by private equity sponsors deciding that they can keep on paying high valuations or by accepting that they need to drop their valuation expectations on exits, you are not going to see a material uplift in deal flow activity. Having said that, there is an enormous backlog, which is increasing.
At some point, that will need to unlock because some private equity funds are coming to the end of their investment period and/or they're under intense pressure from their LPs to return capital. Something will need to happen, but I do not think it's going to be a sudden or a cliff edge move. I think it's going to be a slower evolution, probably a slower ramp-up over the next couple of years. That's one aspect of deployment for direct lending. The second one, which benefits only those players who've been in the market for a long time, but that's fortunately our case, is benefiting from your own portfolio-generating financing opportunities. Essentially, that's what we've been doing for the past two years.
I mean, there is some primary deal flow, but we're clearly benefiting from the additional financing requirements from our existing portfolio. That is likely to continue. That's providing, if you want, that's providing a base, which is why we've seen the deployment being stable year on year despite the environment. You pointed to the fact that last year was net negative for us, but in a sense, that's just a reflection of there were a number of realizations, but there were fewer the year before. That's more of a timing thing than anything else. It's the deployment number that I think is the key. In terms of fundraising, I mean, it's hard to say, but I mean, certainly not this year. Possibly, we could start next year on the fundraising for the next SDP vintage.
We do not want to rush this. I did make an important comment, is that our priority is always to preserve investment performance. We are not a volume player. We are going to remain selective. There might be a time where if the market does reopen because there is consensus around valuation between private equity players, there could be a time when there is accelerated deal flow, but I do not see it yet. Right? It is hard to say. On strategic equity, we are actually managing deployment because this is one area where there is enormous demand because that is one way to create liquidity for private equity sponsors. There is huge demand there. That means we can be incredibly selective. I mean, the performance for this strategy has been exceptional. That explains why we are the global leader in this space. We want to preserve that position. We are being incredibly selective.
We're not going to rush into this. Likewise, this is certainly not for this year. At best, but this is a bit of crystal ball gazing. Maybe back end of next year, we start fundraising, something like that. Again, this one, we're more managing it to slow it down to make sure that we don't invest too quickly. That's always a bad idea. Also that we just raise the bar. We can be incredibly selective and just pick the best managers and best assets out there. Thank you. Before we move to the next phone question, there was a question online about the 97 basis points weighted average management fee rate. Just to clarify, that does not include catch-up fees. That is calculated as the fee-earning AUM at the 31st of March and the effective management fee we charge on each fund and each compartment there.
Put another way, what that implies is if we did nothing for 12 months, the fee-earning AUM just stayed completely the same. We would earn 97 basis points on that $75 billion, which translates to GBP 560 million-GBP 570 million of management fees as a sort of an exit rate management fee. That is how the 97 basis points is calculated.
With that, let's turn to the phone again. Arnold from BNP, go ahead, please, Arnold.
Yeah, good morning. I've got two questions, please. On the Outlook slide, you talk also about the US insurance channel. I was just wondering if you could develop there a bit more. Could you be eventually looking at doing some asset-back offering? I think some of your credit peers are doing particularly well there. Is this a channel you could explore?
Secondly, if I could follow up on the wealth, you mentioned the Evergreen efforts in secondaries. I'm just wondering, given the traction that some of your peers are seeing as well in terms of credit Evergreens, if this is an area you'd be looking at doing too. Thank you.
Yeah, thank you. On the U.S., there are two different things. I mean, U.S. insurance channel, a number of our U.S. peers have actually bought insurance companies, which is giving them access to capital. It's typically capital looking for lower-yielding strategies, some of it investment-grade. That's not really where we operate. We do raise quite a bit of capital from insurance, as you have seen, but not at the lower-yielding product end of it. You're also right.
Asset-based has been very popular and quite successful in the U.S., not so much in Europe because there is not much depth of market there. This is not an area that we are planning to get into because if you look at these strategies, they are very, very broad. By asset-backed, I mean, they include a lot of things in there, from music rights to containers to just about everything, which is interesting, but as a result, it requires a very, very large origination platform. That is in the U.S. You need hundreds of people in the U.S. originating these deals. That would be too expensive for us to deploy, and we are not well-positioned for that. That is on the asset-back. There are subsets of that. Obviously, we have a very successful sale-and-lease-back strategy in Europe, but I think you were more thinking about the former.
On Evergreen, so Evergreen, again, outside of the U.S., there is a lot of appetite typically coming from the wealth space for Evergreen credit solutions. We actually have some Evergreen vehicles within the SDP family. So yes, this is something that could grow. It's fair to say that there are more regulatory constraints, unsurprisingly, more regulatory constraints in Europe than there are in the U.S., which is raising some hurdles. For instance, you cannot put the same level of leverage as you can in the U.S., which means you cannot reach the same level of return. It's a low-risk profile as well. Essentially, it's a different product that you can deliver in Europe versus what can be done in the U.S. Yeah, listen, I agree. I think it's still early days, by the way. No one's raising huge amounts in this space in Europe yet.
But I do think it's likely to be an area of growth, again, provided that market participants are lucid about realistic rates of return. Right? I mean, putting it differently, today, you cannot generate double-digit return with senior debt assets. It just doesn't exist. You need to put leverage on it. Even then, once you factor in the fees and the cost, even then, you're going to struggle to generate double-digits. If there's appetite from the wealth space for something that's generating 7-8%, maybe a bit more if you're adding some sub-debt in it, then yes, that's an area that will grow. Otherwise, it won't. We are positioned, and we are already doing some of it. Yes, there's a lot of appetite from insurers, banks, a number of players in that space. Thank you. Cons of time. Let's keep going through.
David McCann at Deutsche. David, your line should be open, please.
Yeah. Morning, everyone. Yeah, two for me as well. Firstly, just on the cost point, you obviously lower cost growth, particularly in the second half compared to what you've seen in recent years and what you've been talking about. You obviously comment, David, about shuttling the rate of growth below 10% in future. I just wondered if you could put some more specific numerical guidance on that for the market just so we kind of get understanding of what below 10% actually means. That's question one. Secondly, broader question. You rated your cautious comments, I'd say, on the deployment, particularly in credit.
Is that more a reflection of the competitive environment you're seeing there in valuations, or is it more a reflection about your desire or caution, if you like, to actually just want to add risk more generally in what you're seeing from a macro perspective? Thank you.
Sure. Morning, David. Yeah, my comment on cost was really below 10%. We don't give in-year guidance on costs, but the point is that the direction of travel, I think, is pretty clear in terms of what we're trying to achieve and our ability to do it given the investments we've already made and sort of the year ahead of us. For now, I'd say think about it as less than 10%, and we'll continue to respect the margin guidance at the same time.
On your deployment question, just to clarify, I know you're specifically thinking about direct lending, but just to make sure it's clear for everyone, deployment numbers and prospects are very different by asset class. In secondaries, there's a lot of deal flow, whether it's traditional LP secondaries or GP-led secondaries. In our structured capital products, because this is largely self-originated, it's not correlated to the buyout market, that's actually deploying quite well. Last year was actually a record year. It is really for direct lending, senior debt that is dependent on buyout activity. There, it's not really the competitive intensity because there is competitive intensity today, but that is the result of very low deal flow. What's really going to drive the overall level of deployment is buyout activity.
Yes, it does link to valuations, but not in the sense that those valuations present a risk for the debt. The debt, what's important is your level of leverage. Whether the private equity sponsor buys a company at 18 times or 15 or 12, I mean, if you're just putting four or five times the leverage on it, it doesn't really change anything for you as a lender. It is not a question of risk, but it is a question of deal flow. As long as there is no consensus within the private equity industry on where valuations should land, you are not going to see a significant uptick in deal flow. As I have said earlier, because there is so much pressure on many of the private equity sponsors to return capital to LPs, you are bound to see an uptick in activity. You could see that right now.
It's very hard. To be fair, it's very hard for market participants to form a view as to where valuation should be. After the tariffs announcement, I heard some market participants saying, "We're not going to wait for the midterms to have a real view on valuation." In private equity, you can sit on assets for a very long time. Until that is resolved, you're not going to see a significant uplift in deal flow. As I pointed out, answering the previous question, we have a bit of a floor or a safety net, whichever way you want to look at it, because of our existing portfolio. That alone is creating quite a bit of financing opportunities. Right now, we're clearly taking advantage of that. As for the rest, we're not driving the buyout activity.
Thank you very much.
Moving swiftly on to Hubert Lamb at BFA. Hubert, please go ahead.
Hi. Good morning. Just a couple of questions. Firstly, for Europe Nine, obviously, had a great start. Just wondering how big could this fund be? How long will it take to fundraise it? When do you expect it to close? The second question is on catch-up fees. It helped in fiscal 2025. Just wondering any thoughts for catch-up fees in 2026. Thank you.
I'm sure you'll take catch-up fees. Listen, on the European fund, I'm afraid I don't know. The only thing I can observe is, yes, we've had a very strong first start, particularly since we brought forward the timing of the first close because we finished investing Europe Eight a bit faster than we'd anticipated. We accelerated the first close. It was the largest first close in our history.
Maybe it's also worth mentioning because there was a question on fees that we gave zero first close discount, which is rare. I'm not sure that many funds out there give zero first close discounts. We gave no first close discount, and we still achieved that. That's a very good result. Having said that, we can't ignore the fact that the overall fundraising environment remains incredibly tight. All fundraising takes much longer than they used to. That's why it's hard to say. In a sense, it doesn't matter all that much because for these strategies that have fees uncommitted, what really matters is the final number because you do have catch-up fees, which will segue into your question on you do have catch-up fees.
In a sense, it doesn't really matter what the timing of the fund is, as long as you have got capital to deploy, but now we do. We're in a relatively comfortable position, but it's very, very difficult to know how fast or how long it's going to take to raise. Typically, what happens in a fundraise is your first close, you get a lot of the re-ups, a lot of your existing LPs who come back. Then there's a bit of a lull as you bring in new LPs or maybe some of your existing LPs that didn't make it into the first count start thinking about it. They know that the pressure is off after the first close. They can take their time a little bit and see how the portfolio develops. We've seen that. We saw it for strategic equity.
We saw it for the mid-market. We certainly saw it for infra. I mean, that's a common theme for the market, so.
Yeah. Maybe to dovetail, Hubert, then into catch-up fees specifically. As you say, we've had a year when we've had funds straddle in multiple years generating the catch-up fees. For the year ahead, there's really only one to call out. That will be Infrastructure Two, which is still in market, but in the final weeks now. So we're really into the final throes. There'll be a bit there, but nothing highly material.
Let's see if we can get through the remainder nice and quickly.
Mike Sanderson from Barclays, your line should be open, please.
Morning, all. Couple, please. I guess just reversing back to Europe Nine, you say good demand, etc. I mean, how open are you to co-invest in this?
Because there did seem to be some level of sort of non-fee earning co-invest that seemed to be disclosed, unless I'm incorrect. Also, how much balance sheet are you planning to commit there as you were talking about lower allocations? The follow-on, I suppose, second question is, as you're talking about balance sheet, how are you thinking about any potential incremental capital returns to shareholders, or is the growth opportunity such that that doesn't seem likely in the near term? Thank you.
Yeah. On Europe Nine, I mean, Europe Nine generates co-invest, but as it goes along. For instance, we closed a very large deal at the end of last year, which was much larger than what we could do within the fund. In order to get the deal done, we raised just under EUR 2 billion of co-invest.
That is something that we're doing as we invest the fund and as we need it. For Europe Nine, we do not have any committed free co-investment, if that's the question. We do not have that. We do have the ability to go to our LPs and offer co-investment if we have deals that are too large for the vintage. That is co-investment. There was another.
Yeah. I said a couple of other things you mentioned, Mike. One was just on the capital from the PLC. That is yet to be determined in terms of final form, but it will be in line with the strategy of reducing the percentage of PLC to fund size. We will be in line with that strategy, I am sure. We have not disclosed that yet. You mentioned sort of capital options.
I put the menu up as usual in terms of what we could do. At the moment, the priority is paying down the debt, deleveraging. We actually have some staggered maturities, but we have some coming due in the next couple of years. We are clearly not there yet in terms of paying down the debt and deleveraging. That is one of our priorities alongside the progressive dividend policy where we have increased the dividend 5% this year.
Thank you. We had a question online, which is an acquaintance. We hear very clearly your performance track record is a key focus for you and that you remain disciplined on deployment to achieve this. There have been some very significant European private debt fundraisers in the last year, as well as lots of interest in secondaries. Are you seeing any evidence of less rational deployment by competitors?
Interestingly, how long can you maintain your discipline before LPs push you to deploy if they will?
Yes, listen, whenever there is an increase in competitive intensity, which is the case now, not so much because there is that much capital raised, because actually, if you look at capital raising in direct lending, it has come down in the past few years. It is because of the lack of deal flow. It is supply and demand. Whenever that is the case, you always see, not all, but some actors focusing on putting the priority on deployment more so than on being selective. That is not unusual. That is always the case. We are always going to be in the camp of preserving performance. There is not really, I mean, LPs are quite sophisticated. I mean, they understand.
Direct lending, senior debt is not an area where you want to take excessive risk because you can't afford to have too many defaults and certainly not losses. It's not like private equity where you can hope to compensate one poor deal with an extremely good transaction. LPs understand that the key is consistency, is low default. That's been our case for a long time. We have decades of track record. That's going to stay our focus. We're not under any significant pressure. Also, as I said, we're actually deploying pretty well just by taking advantage of our existing portfolio and additional needs in our existing portfolio. That alone gives us pretty good deployment. We may not deploy in two years. We may end up deploying in three or four, but so what?
We are at 10. I think there's one question left. Let's be just quick on that. Nick at Citi, do you want to, your line should be open.
Thanks, Chris. Morning, guys. Just two quick questions from me, please. One on valuations, performance, and NIR. If I look at Molex and your R&S, the fund valuations look pretty stable versus the first half. Just kind of understand a bit better, please, what drove the strong NIR and performance fees in H2. I guess the performance fees kind of actually make sense on fund seven, but particularly the NIR. To avoid a doubt, can I clarify that fund valuations did not incorporate any impact from the lower market valuations that we saw in early April? I'll stop there, actually. Okay.
Let me start to answer your question there. You're right on performance fees.
Europe 7, we called out specifically because that was a driver as we get more confidence in the hurdle date. That is in line with that model. NIR, I think I characterize it as, yes, we have had sort of flat to up valuations by and large. There is accrued interest in the NIR as well as pure valuations. That comes together into the total balance sheet return that we published and the NIR we published. We feel that is robust enough. You mentioned, what was your third question? Sorry.
Whether we had reflected, I guess, the public market movement. Yeah. Oh, yeah. I mean, that is not really how it works.
I mean, when we have an equity exposure, because obviously, that's not the case for debt, when we have an equity exposure, in most instances, valuation, well, they're a combination, but they're mostly done on discounted cash flows. If only because in the mid-market, it's incredibly hard to find comps that really make any sense. No, this is not something that would be reflected in any event on the way down or on the way up for that matter. Also, just sorry, generally, we tend to be reasonably conservative because we can, because we don't have pure-play private equity strategies. In structured capital where we have some equity exposure, we also have a lot of contractual elements. We can afford to be conservative on the equity portion because in the end, it doesn't move the dial for overall portfolio that much.
There is a bit of a psychological thing as well, which is LPs always like when you have a bit of an uplift at the end on an exit. It is a bit of a thing in our market. You strive to achieve that. There is always a little positive surprise at the end.
Marvelous. With that, we are just over the hour. Thank you all very much for your time. We look forward to speaking in the coming days. Thank you.