CVC Capital Partners plc (CVC) Earnings Call Transcript & Summary

Hello and welcome to the CVC Capital Partners Plc, 2024 Half Year Results Call. Please be aware that this call is being recorded [Operator Instructions]. I would like to hand over to Walid Damou to begin the meeting. Walid, please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for CVC's first results presentation since our IPO in April. My name is Walid Damou, Head of Business Development and Shareholder Relations. Today, we will provide you with an update on the performance of CVC Capital Partners Plc for the first 6 months of the year. Presenting on this call, Rob Lucas, CEO; Fred Watt, CFO; and Rob Squire, Head of Client and Product Solutions or CPS, as you might hear say. Our call is scheduled for 60 minutes. And after our initial presentation, there will be an opportunity to ask questions. I'll now hand over to Rob Lucas for an update on the first 6 months of 2024.

Thanks, Walid, and good morning, everyone. It's a real pleasure to be with you here today. On today's call, we'll provide an update of our activities over the course of the first 6 months of the year. The key points are summarized on Slide 4, which is up on the screen, and we'll cover each of these aspects in more detail in the coming slides. The headline here is that we continue to progress on delivering the guidance presented at the time of the IPO. We've now activated Fund IX and Asia VI, helping drive fee paying AUM to EUR 142 billion, representing a 45% increase in the first 6 months with total AUM increasing to EUR 193 billion. Our fundraising continues to progress according to plan, very much supported by our continued investment performance. And, of course, our deep and long-standing client base that now comprises more than 1,100 individual clients. Whilst we continue to remain selective and disciplined, we have seen a significant increase in deployment underpinned by the wider origination funnel provided by our network. Similarly, we have seen an encouraging increase in realizations, and importantly, we continue to generate strong realized returns with 3.6x gross MOIC and 28% gross IRR over the last 12 months across private equity. Despite continued volatility across the macroeconomic environment, geopolitics and capital markets, our portfolios continue to show resilience with all of our material funds performing on or above plan. We continue to develop the CVC network. And in early July, we announced the full acquisition of CVC Secondary Partners and the completion of the CVC DIF acquisition, together with the rebranding of both businesses, and we believe this represents a significant event as we continue to scale and diversify CVC. Finally, our financial performance continues to track our guidance, and with fundraising substantially complete, our near-term MFE trajectory is highly predictable. Before handing over to Rob Squire to provide an update on fundraising, I wanted to spend just a brief minute recapping on CVC as you'll see on this next Slide 5. As set out on the slide, we have grown significantly to become a leading diversified private markets manager. We are the global leader in private equity with 4 different private equity investment strategies, and the strength of the business is illustrated by Fund IX, which is the largest private equity fund ever raised despite the very tough fundraising backdrop under which we did raise that fund. Across secondaries, credit and infrastructure, at the bottom of that page, we have 3 high-quality businesses benefiting from strong underlying secular growth, and we believe this growth will be accelerated through being part of our global platform. And it's always worth noting that our growth has been built on some really unique features, the CVC network, our entrepreneurial culture and importantly, our disciplined focus on delivering investment performance for our clients. As set out on Slide 6. This growth across each of our platforms has resulted in fee paying AUM growing over the course of H1 by 45% from EUR 98 billion as of December 2023 to EUR 142 billion, as you can see as of June 2024. And this growth has also resulted in an ever more diversified platform with credit, secondaries and infrastructure now representing almost half of our fee-paying AUM. And we expect ongoing fundraising over the next 18 months will underpin further growth in each of these businesses. On that note, I'll now hand over to Rob Squire, who will provide an update on fundraising. Thank you so much.

Thanks, Rob. Good morning, everyone. Before digging into the capital raise during the first half, as Rob has already touched upon, it is important to note that our record fundraising in calendar year '23 underpinned much of that 45% growth in fee-paying assets under management that you see in H1. It's critical at this juncture for me to once again emphasize that the capital raising success we had in '23. And indeed, the current momentum we see across our fundraising is underpinned by the consistently strong investment performance our firm generates for its clients. This performance, in turn, has created a very deep and very long-standing client base, which now exceeds 1,100 institutions with many relationships exceeding 2 decades in duration. Now stepping back, and from a wider capital raising perspective, we believe the market backdrop does remain challenging. Many clients remain in what we would call a wait and see mode, given a combination of geopolitical uncertainty, market volatility and, of course, continued questions around interest rate movements. This environment does make it harder to gain momentum, often requiring longer fundraising processes, which themselves are nonlinear and often more back-ended than we've seen in recent cycles. So turning to CVC in our first half. In line with our plan, we raised a total of EUR 7.4 billion across our 7 investment strategies. In addition to activating Fund IX and Asia VI, we held final closings on our DIF VII and our CIF III infrastructure funds, and we do expect to launch their successor funds in the first half of 2025 with an aggregate target of EUR 8 billion. In terms of our ongoing fundraisings, we have 6 funds currently in the market and fundraising is progressing according to plan. We held initial closings in our secondary Fund VI and our Growth Fund III to start derisking those processes, and we continue to hold interim closings on StratOps III, European Direct Lending IV and our Capital Solutions Fund III. Finally, away from our closed-end capital raisings, there were 2 other important updates in the period. Point 1 is that we raised our first ever continuation vehicle, supported by several major institutions and providing yet further growth in our private equity fee paying assets under management. And secondly, we launched CVC Credit in late Q1. This is our first open-ended investment vehicle for the wealth channel. CVC Credit is focused on private credit, and we expect to add a complementary private equity strategy over the course of the next 12 months. So overall, we are pleased with the progress achieved in the first half as we continue to work toward the fundraising program outlined to you earlier this year. Thank you. And I'll now hand back to Rob.

Thanks very much indeed, Rob. Let's just move on to deployment. Whilst we remain cautious on the wider macroeconomic environment and very disciplined when it comes to investment selection, as we discussed earlier this year, we have seen an increase in deployment activity with H1 2024 deployment up 63% versus H1 2023. There are a couple of features we've seen behind this increase, which I'd like to highlight. Firstly, sellers are becoming more willing to engage on high-quality businesses. And these, of course, are the businesses we like to buy. Secondly, we are seeing pockets of value within public markets. And thirdly, corporates are becoming more willing to engage on strategic transactions. This increase in deployment is most visible in private equity, where H1 2024 deployment levels increased substantially relative to H1 2023. However, we wouldn't suggest extrapolating for the rest of the year based on the first half. And importantly, we do continue to assume a 3- to 4-year investment period for our private equity funds. We also continue to see strong momentum within secondaries, where deployment levels doubled in H1 given secular growth in this space and a narrowing of the bid-ask spread. We saw a slower rate of deployment within credit with EUR 3.4 billion deployed over H1 2024 compared to a particularly strong first half in 2023. However, we do remain confident in secular trends in credit markets and the strong growth potential. And finally, infrastructure. Unlike private equity, we saw high levels of infrastructure deployment activity in 2023. And DIF VII and CIF III, where we only had final closings in H1 are now approximately 60% to 65% committed. Ahead of the launch of DIV VIII and CIF IV in H1 2025, the team is ever more thoughtful on how and when they deploy the remaining capital. Turning to Slide 9. We've set out some examples of recent investment activity here. In H1, we made over 12 investments across our private equity businesses. These investments were spread across various geographies and sectors with a high level of diversification in terms of ticket size. Also, as mentioned earlier, we have been active in public markets. Additionally, StratOps III and Asia VI signed their first investments during the period. And given StratOps' charges fees on deployed capital, this is a positive in terms of MFE. Moving to realizations on Slide 10. We have seen some increase here as well. H1 realizations more than doubled relative to the same period last year, and we continue to generate strong investment returns on these realizations, as we will see on the next slide. Our delivery of strong investment returns underpinned our fundraising success in 2023, and this ability to selectively monetize the portfolio is an important aspect of our role as active portfolio managers. The increase in private equity realizations is driven by a gradual recovery in strategic and sponsor activity with public market exits remaining modest given ongoing volatility. Realization activity at this stage in the market recovery will inevitably be lumpy. So once again, we would not suggest extrapolating for the rest of the year based on the first half. Finally, it's worth noting that realizations across each of secondaries and infrastructure doubled in H1. And this level of realizations both highlights the attractiveness of these portfolios to the potential buyers and the attractiveness of our platform to clients who are looking for a strong level of distributions. Slide 11. We're presenting statistics here on investment returns generated across our private equity businesses. The figures on this slide cover our 4 private equity investment strategies over the last 12 months, Europe, Americas Asia, StratOps and of course, growth. Focusing on the sources of realizations, sponsored transactions represented 57% of the total, as you can see, while IPO activity remains relatively low at 10%. Then importantly, we continue delivering strong returns with a weighted average gross MOIC of 3.6x across our private equity strategies over the last 12 months and a 28% gross IRR. As mentioned in our August activity update, returns for Europe Americas in H1, more specifically, reached 4.5x gross MOIC and 32% gross IRR. Over on Slide 12. As announced in July, we have now completed the acquisition of CVC DIF to form our infrastructure platform. As we've discussed, we see a great opportunity to scale CVC DIF as part of our network and build on the success the team has achieved to date. In particular, we are focused on preparing for the launch of DIF VIII and CIF IV in H1 2025 and leveraging the wider CVC network to support investment origination and value creation. In addition, we have acquired the final stake in CVC's secondary partners following the initial acquisition in 2021. We're delighted with the success we've achieved with our secondaries platform, and we're confident in our ability to continue scaling this business as we continue delivering attractive returns for our clients. Finally, and as Fred will discuss, we continue to see a significant opportunity to drive operational leverage across CVC as we scale the wider business, and we fully integrate both CVC secondary partners and CVC DIF. I'll now hand over to Fred to talk about fund performance and financials. Thanks very much, Fred.

Thank you, Rob, and good morning, everyone. Looking first at the performance of our funds on Slide 13. As Rob mentioned, we remain cautious on the overall macro environment. And as you'd expect, we continue to remain highly focused on the portfolio. However, the overall trends remain in line with earlier this year with each of our material funds performing on or above plan. Turning to each of the strategies and starting with private equity. So that's the 4 strategies on the left-hand side of the slide. Underlying operating performance remains encouraging with revenue and EBITDA growth of 7% and 11%, respectively, over the last 12 months for Europe, Americas, underpinning an increase in the value of that portfolio of approximately 10% across that period, of which 6% was the uplift in H1 2024. In Asia, we are pleased with the performance of our companies, although FX negatively impacted the valuations over the period at the fund level, given the relative strength of the U.S. dollar in the first half, producing a flat result overall in fund terms in the 6 months. On the other hand, StratOps portfolios continue to improve very resilient due to the defensive attributes. Within growth, there's a very slight negative movement on our second fund, but the decrease in gross multiple from 1.9x to 1.7x is simply the result of the closing of our latest transaction in that fund. That new asset is initially included at 1x, which reduces the blended multiple for the fund overall. The underlying uplift for the portfolio on a like-for-like basis during the period is actually positive at 5%. Still within private equity, given the more positive backdrop in the credit markets, our capital markets team has been very active across both new investments and the existing portfolio with more than EUR 35 billion of debt refinancing activity in H1 as we proactively took advantage of improved market conditions. And just by way of example, that financing activity over the first half of the year has generated over EUR 110 million of annual interest savings from 14 repricing transactions across our private equity portfolio, and around 80% of our debt maturities are now in or beyond 2027. Turning to our other strategies. Our secondary and infrastructure funds also remain on track. And finally, within credit, we continue to see resilient performance across both our performing and private credit portfolios driven by maintaining a selective and conservative approach to asset selection and underwriting, remaining active in portfolio management as well as ensuring high levels of diversity across the portfolios. Turning to the next slide, Slide 14, and our fee-paying AUM development in the period. As Rob mentioned, our fee-paying assets under management in H1 grew by 45% to just over EUR 142 billion. And adjusting for the impact of the DIF acquisition, this represents a like-for-like growth of 27% in the first half. As Rob also mentioned, this growth primarily results from the activation of Fund IX and Asia VI in the first half, but we also saw growth across each of our platforms as a result of the first close of the secondary partner of 6, the final closings of DIF VII and CIF III in H1 within infrastructure and continued net growth in deployment across StratOps and credit, where, of course, we paid fees on invested capital. All this clearly outweighs the step-down in fee-paying AUM that we see when we activate new funds, if you take Europe and Asia, in particular, which is also shown on this slide. Finally, as Rob Squire discussed, we would expect to begin to see the positive impact of the latest rate fundraisings for secondaries, credit and infrastructure as we move through the next 18 months. Moving to Slide 15 and the key financials. Whilst we saw a 13% increase in MFR and a 16% increase in adjusted EBITDA and MFE over H1, it is important to remind you that the H1 numbers only include approximately 2 months contribution from Europe Fund IX and Asia VI following their activation in May with the full year impact being reflected as we move through the next 12 months, in line with the guidance we provided at the time of the IPO. This full year impact will deliver the anticipated step change not only in MFE, but also in margin as we benefit from increased operational leverage, again, in line with what we said previously. Also, while the acquisition of CVC DIF only closed on 1st of July, we've also shown the numbers for CVC on this slide as if CVC DIF was included in MFR and EBITDA in the period. Finally, on this slide, within EBITDA, we're showing the split between MFE and PRE. And while PRE is ahead of H1 last year, our prior guidance for PRE is unchanged. And that we continue to expect 2024 as a whole to remain significantly below the medium-term run rate level. Looking at costs on the next slide. Here, again, we're progressing on plan, and we believe the network to be well invested. That said, we continue to be selectively hiring across both investment professional levels and in business operations, and we're increasingly focused on driving operational leverage across the wider platform, including the full integration of secondaries and infrastructure. Across CVC, we're rapidly rolling out AI to improve both our investment capabilities and our operational efficiency. And in addition, we're building out our offshore operational capabilities in Capetown, but we now have a team of 45 professionals, and we expect this team to grow again over the next 12 to 24 months. Our guidance on cost underlying growth remains that we see total costs growing by mid- to high single-digit percentages year-on-year, so exactly in line with what we said previously. As a reminder, our focus on operational leverage, combined with a mechanical step change in revenues from Fund IX and Asia IX in particular, will drive an uplift in margins as we move through the next 12 months, again, in line with prior guidance. Looking at the overall guidance on Slide 17. This is a slide we've used during the IPO process, and this guidance continues to be what we work towards. With the activation of Fund IX and Asia VI, we're getting closer to run rate for management fees and 2024 as a transition year, given the partial contribution from those funds, which were only activated in May. Importantly, guidance in terms of management fee revenues reaching EUR 1.3 billion to EUR 1.5 billion still stance as that's our view of how we see MFE margin developing. And last but not least, our carry potential and therefore, our PRE guidance remains unchecked. Lastly, on to Slide 18 and the balance sheet. Since the IPO, we drew a further EUR 200 million tap on our U.S. private placement program to fund part of the cash consideration for CVC DIF, taking that private placement borrowing program to EUR 1.45 billion. The cost of that remains very attractive with a blended cost of around 2.2% with maturities ranging from 2032 to 2041. On the other side of the balance sheet, our cash position remains in line with our IPO guidance. And as shown here, for illustration after cash settlement of just over EUR 400 million for the acquisition of CVC DIF in early July. With that, I'll hand back to Rob.

Thanks very much, indeed, Fred. So just some quick closing remarks before we move to Q&A. On Page 19. Whilst we continue to remain cautious on the macroeconomic environment, as we've said throughout, and we remain highly disciplined in our investment selection. We have seen an encouraging increase in deployment levels. Second point is our portfolios do remain resilient, reflecting careful asset selection and a big focus on active value creation. We continue to progress fundraising across each of our 7 platforms, and this fundraising has helped underpin a 45% increase in fee paying AUM over the period. We continue to focus on driving growth across secondaries, credit and infrastructure and the completion of the CVC DIF acquisition, together with the purchase of the final stake in CVC Secondary partners is an important step. Finally, all we've achieved in fundraising, deployment and value creation enabled us to deliver significant value -- financial growth, and gives us confidence on being able to deliver on the guidance we set at the IPO. With that, I'll hand back to Walid for the Q&A. Thanks, Walid.

Rob, Fred, Rob, thank you very much for this presentation. We can now move to the Q&A.

[Operator Instructions] The first question comes from Nicholas Herman from Citi.

A couple of questions, please, maybe 3. One on the investment pipeline and a couple of fundraising, please. So on the investment activity, you mentioned the encouraging investment pipeline, can you provide some more details on those pipelines or cost strategies? And maybe what sectors and all regions you're seeing the best value. And as part of that, I appreciate deployment if it on peak, and shouldn't be extrapolated, but it clearly was very strong in the first half. I guess just in light of those strong pipelines, where do you see deployment rates settling, please? And then moving to fundraising, where are we with StratOps III fundraising, please? Apologies if I missed that. The track record is clearly strong. We've just seen some U.S. peers growing much stronger in their lower-return strategies. I'm just curious why it has proved so much more challenging for you to bring in capital there? And then as part of that as well, and the second -- the final question on fund raising. It looks like is DIF VII and CIF III on the infrastructure side are now 60%, 65% committed. Are you still expecting the next generation of fund vintages to activate in 2026?

Thanks very much, Nicholas. Well, let me take the first -- your question and perhaps Rob Squire could take the fundraising questions. So just in terms of the pipeline, looking at where the investments are sort of come from and being based, very, very wide spectrum here, Nicholas, which is what we really like to see. So across the 12 private equity investments that we have made a very wide spectrum as we would often have within CVC across ticket size and across location and indeed, across the nature of those investments. So very, very hard to pick any particular aspects there. But that is normally the way we want -- we would want to see that particularly in terms of the geographic, sectorial and size tickets, ensuring that ongoing diversification. But in terms of where rates may -- deployment rates may settle, I think we still do very much remain despite the sort of uplift, which we -- which, of course, was from a low base over the last 12 months, 18 months, very low base, but we were as when we were talking in November. And I think when we were also talking in sort of March, I was anticipating seeing an uplift. It is always very hard to decide on exactly when the timing. So it's not surprising this has come through. I would expect this to level off to give a deployment rate within that sort of deploying the fund over that sort of 3 to 4 years. That's where we remain, and that's how it sits at the moment. So that's how I would see that. Just in terms of the fundraising, Rob?

Yes, sure. Nick, hope you are well. So we're not going to give individual updates on individual funds, obviously, we operate multiyear fundraising campaigns across each of the 7 strategies and all of the different LP funded platforms on the closed-end side that we have. As I said in my comments, it's never going to be linear, and different products have different fundraising sort of cadences and pace. That being said, actually, we're quite pleased with where we are with StratOps. And we do sort of see continued growth from here. And so we are affirming that target that we've given you in the past. In terms of your third question on sort of the DIF activation, again, we're not changing the guidance of the '26 activation and the '25 launch of both the DIF and the CIF vehicles with an aggregate target together of EUR 8 billion.

And just -- you commented, by the way, on the private equity pipeline. And just in terms of the infrastructure pipeline as well, is that similar as well and also really strong?

The infrastructure is at a slightly different point in its investment cycle as it were. So as I was sort of mentioning in the -- when I was talking earlier on, because they are so heavily deployed and because we are seeing good pipeline. We're seeing activity, but they're having to be quite discerning about what they're doing there, Nicholas. So their rate of deployment is less reflective of the sort of underlying strength of the pipeline. It's more just making sure that between now and H1 2025, we are being as selective, and we're really, really picking the best opportunities there.

Moving to the next question, please.

Our next caller is Hubert Lam from Bank of America.

I've got 3 of them. Firstly, on credit, I know you mentioned that the deployment rate was slower in H1. Can you give an update on your guidance for deployment over the next 2 years over the next 12, 18 months? -- any change towards it and we'd expect it to as activity starts to improve? That's the first question. The second question is on secondaries. Can you talk about the ability to deploy in the secondary environment? And also maybe potential upside to the EUR 7 billion target you have for a SOF VI, just given how good the environment is for secondaries? And lastly, and I know you provided an update on your wealth initiative. Can you just talk about your -- the initial client reception towards your new CVC credit fund and also the private equity fund that you have in the pipeline? And any thoughts around potential target sizes over time?

Thanks very much, Hubert. That's great. Fred?

Yes. So I mean if it wasn't for such a strong period last year in the first half, I think the first half of this year would actually look very, very good for credit. It does look good in its absolute terms. But if you remember, last year, I mean, the syndicated loan market was closed, effectively private credit was picking up all the slack. And we're seeing the market much more in balance, which was why we're now seeing, again, good growth in the CLO business as well as the private credit market. So I would -- I wouldn't worry too much about year-on-year within credit. I think the level of deployment is actually pretty strong. And as Rob said in his opening remarks, we do see the secular tailwinds still giving us growth opportunity as we go forward. So I think we've said sort of above double-digit growth we are expecting in overall capital raising deployment, et cetera, over time, in the near term was in credit, that still remains our view.

Great. Thanks very much, Fred. In terms of secondary and the level of activity in the secondaries area, Hubert, yes, we've seen a very strong pickup and uplift since the beginning of this year. And so -- and we see that continuing. I think that the team over there are seeing good activity levels, both in terms of LP-led and GP-led transactions. Rob, do you want to just comment on the fundraising element and just on the wealth side?

Yes, sure, happy to. Hubert, yes. I mean on the SOF VII secondary partners, VI Fundraise, obviously, this is the first raise that we will handle from start to finish, as part of CVC. And I'd say to echo Rob's comments, we're really, really pleased with sort of the initial partnership and the reception certainly by our investor base. That being said, we're not going to change the $7 billion guidance that we've given. But we are off to a pleasing start there. On your question 3 around wealth, I'm happy to provide a little bit of perspective, Rob, if that's okay. So I think the initial client reception has been very pleasing, again, as you all know from the various meetings earlier in the year, we have taken sort of a typically cautious and measured approach to the wealth channel and certainly to the sort of semi-liquid structures specifically. Again, from our perspective, this is a long-term structural opportunity that we want to get right. We've done a lot of preparation work, and we think we have a very high-quality product in the CVC credit offering, and off a very, very short window for this period, we're pleased with the outcome. In terms of CVC PE, we are well advanced on that. As we've said, we would be earlier in the year, and we expect to launch that, as I said, over the course of the next 12 months. And we expect to take a very similar approach, which is measured and thoughtful. But given the strength of our private equity network, we are optimistic.

Operator, can we move to the next question, please?

Our next caller is Arnaud Giblat from BNP Paribas Exane.

Can I start with a follow-up on the wealth question. In terms of the CVC PE product, could you give us a bit of a flavor of what it will look like. And notably, I'm interested if there will be a secondary component in it. And if not, would you think about launching a secondary stand-alone product? I mean that is, I think, pretty suitable for [indiscernible] Investor Day. So just wondering what your thoughts are there. And also on the wealth channel, if I could ask in terms of what your distribution network looks like, here are your big vendors? And are you signing up more distributors what's the outlook in terms of setting up new distributors. And finally, in the light of the interest rates coming down globally, could you give us an update perhaps on how you're thinking about real estate?

Sure. Well, Rob, do you want to just kick off with Arnaud's wealth questions, then I can handle his real estate question.

Yes, I think you actually snuck in 3 there, but I I'll answer all the 3. So yes, CVC PE, I don't want to get drawn on sort of the specifics of the anticipated portfolio construction there because that is still something that we are working with the Luxembourg regulator on. But it is going to be aligned with our 4 private equity strategies. And so again, we are excited to have that coming to market. In terms of a dedicated secondary semi-liquid, I would assume that over time, that would be something that we would bring to the market. But again, we're very, very focused on just landing the plane successfully with what we've got, just given, again, you have to take a long-term perspective and get these things right from day 1 versus just sort of throwing everything against the wall and scaling as quickly as you can. So -- it is obviously a very well orientated strategy for the mass affluent, I think, was the word that you used. And then your sort of a third question around new distributors. Yes, we are in a position where in the coming months, we will be going plural with CVC Credit. And so again, have had a very nice run with the initial distributor and are pleased with that. But we'll be going to a series of other distributors in the coming weeks and months.

Great. Thanks very much, Rob. In terms of real estate, Arnaud, I think our position remains similar to the one that I've expressed before. It's clearly a gap in our family of strategies. And therefore, we would be interested if the right opportunity arose. Having said that, we haven't felt that the timing was right, not least because we were so involved with our acquisition of DIF and our secondaries platform. So we're not in any rush here at all. But I do think that when I've spoken to you before over the last sort of 12, 18 months, I have indicated that -- I didn't think the timing could improve and the timing wasn't ideal at that point in time and that we've got more to play through in that market. I think that your point about interest rates helps as they come back a bit more into balance, and we can sort of see -- have a bit more of a feel for what's happening on interest rates. But we would remain very, very selective and cautious in terms of making a move in this area as we did with secondaries and with infrastructure, we'd be looking for absolutely the right cultural fit, the right size, fit and the right business to be able to really scale across our platform. So as I say, we're not in any rush, but we -- our view is pretty much similar to the one I've expressed before.

Thank you, Rob. Can we move to the next one, please?

Our next caller is Angeliki Bairaktari from JPMorgan.

First of all, with regards to the much better realizations, that you've seen now in the first half of the year. Out of the EUR 8.4 billion, how much of that is closing in the second half of the year? And considering that PRE was actually quite good at EUR 114 million in the first half. Should we expect, assuming more deals actually close in the second half, that PRE in the second half is going to be much higher than what we saw in the first half? And then second question with regards to the 6% valuation uplift in H1 '24 in Europe Americas, which I think you mentioned before. Was that driven by operating performance? Or was it driven by valuation multiples being higher versus the end of last year? And last question. Other operating expenses were flat year-on-year. How should we think about that line in the second half and also in 2025?

Thanks very much indeed, Angeliki. That's great. Fred, whether you'd like to?

Yes. Let me make a start at that. Angeliki, it's Fred. On realizations, essentially, they were all closed. They're very close to closing. And therefore, they're all treated effectively in our accounts, that's having closed. So I wouldn't worry about or think about any further PRE uplift from the 8.4% that we've achieved in the first half. That's all in the numbers and no further to come just from those realizations. And talking to thinking about the full year PRE, I think we've guided to not extrapolating on the realization side, and therefore, don't also extrapolate on the PRE number either. And we would expect the PRE number to be lower in the second half than the first, just as we probably expect realizations to be lower in the second half than the first, given the extraordinary small -- good number of realizations that we did achieve in the first half of the period. In terms of the 6% uplift in the funds, Europe Americas, it's essentially all driven by operating performance. And so I referenced strong double-digit revenue growth and just getting into double-digit EBITDA growth across the portfolio. So no benefit really from multiple uplift. If anything, a little bit of negative FX, a little bit of negative multiple movements in some places, so essentially coming from operational delivery in that first half period. And then lastly, on your OpEx. In terms of other OpEx, it's now been flat for a couple of years, and we're holding it flat through just being smarter about how we do things. That does include, for example, I referenced Capetown, which is a good source of skilled capital, and it means that we can bring in-house some of the external costs that we used to incur within the other OpEx line. So is a little bit lower than last year, but these are quite small numbers. So moving around a EUR 60 million number, plus or minus EUR 1 million to EUR 2 million, it will come through as a very small movement also in the second half. Of course, we are a little bit second half weighted on that line, as you'll see from previous years. But year-on-year, I'd expect pretty much the same development in H2 with overall cost development pre-DIF at the kind of mid-high single digits. It was 9%, give or take, in the first half, we'd expect something similar in the second.

Thank you, Fred. Can we move to the next question, please?

Our next caller is Haley Tam from UBS.

I just have one left really from everything else. And just to follow up on costs. Thank you for your reiteration that mid- to high single-digit percentage year-on-year growth guidance. Given the comments you've made about the full integration of secondaries and infrastructure and the rollout AI, is that included in this guidance? Or is it incremental? And if the latter, how should we think about the impact, time frame and scale?

Well, there's 2 parts, maybe to the answer. The cost of AI is within our projections, right? So any investment we're making into how we're seeing AI help enable the business to make better decisions, create operational efficiency possibly. That's all within the numbers. So I wouldn't think of adjusting that guidance for any new comment in that area. In terms of integration of DIF and of Secondaries, it's more about common practices and common platforms rather than a cost initiative. So it's really just making sure that we've got the best practice across all of the group, making use of best-of-breed technology, best-of-breed process. So it's not a big cost initiative at this point. And thinking of on the fundraising side, that's where we would see the integration coming to the floor. As Rob Squire was saying, we're only now really employing the full CPS activity that we have across secondaries and we'll do the same across DIF when we come to fundraising for DIF next year. So it's not so much cost. It's more about common practices and enabling if anything fundraising, enhancing what they had previously.

Thank you very much, Fred. Next question please.

Our next caller is Bruce Hamilton from Morgan Stanley.

I think I've got probably 3. Firstly, on the sort of PRE outlook, obviously very encouraging levels in the first half, and you've been quite clear about the second half. As we cast to '25, I guess, consensus is looking at this sort of EUR 500 million mark, so lower half of your sort of midterm guidance range. Is that from what you can see, does that look achievable? And are there any sort of key dependencies that we would need to see either more confidence from sponsors or IPOs coming back? That's question one. Secondly, on the wealth channel, given the scale of the U.S. opportunity, I know you launch initially is in Europe. But what's the sort of time frame for considering the U.S. market? And are you already in discussions with the big sort of wirehouses to try and develop that? And how do you think about the potential sort of public-private partnerships like capital KKR as ways to maybe also expand in that area. The second one. And then final one, just on AI, interested in any of the initial use cases where you see the biggest P&L impact potential?

Fred, do you want to take the PRE?

Yes. So Bruce, it's Fred. On PRE, it's not an unreasonable projection, but it does depend on market for realizations coming back consistently. And I think as we're seeing -- there are -- the ripples on the road. We've had a very good first half, but it will take a bit more than that to really kind of make a consistent recovery in overall levels of realization. That will be the biggest driver of that PRE number. We're confident in the total. And we think that the consensus number for next year is not an unreasonable number for us to be achieving next year, but it really will depend on consistency of market condition across everything from the IPO market. We're less dependent on that, as you know, for exits, but that would be part of the whole equation. So we would want to be absolutely sure about that. We'd want to make sure that the market was fully back. And it's probably still a little bit early to be precise about that. Maybe I'll take the AI one, while I'm talking in terms of any of the case studies, and we're really seeing this in 2 parts. We're seeing it as a way of internal efficiency of just making sure that people are spending less time on things that can be automated and therefore, devoting more time to things that value-added and commenting on an output rather than preparing documentation. So that's part of it. I wouldn't say, again, it's a big driver of cost efficiency, but it's certainly a changing environment for the way that people spend their time potentially. Still early days, and we're still seeing new products arrive in this space all the time. So I wouldn't see it necessarily as a near-term driver of cost efficiency. On the other side, in terms of investment decision-making, we're seeing it as a useful tool certainly as we analyze markets as we analyze businesses. So as part of our diligence and ongoing monitoring of our portfolio, we do see it as a helpful input. And again, that is improving all the time with new technology.

Great. Thanks, Fred. And Rob, just on the wealth, [indiscernible] significant question.

Yes. Sure, Bruce. So as you rightly point out, we were very clear that we were going to start off in Europe with the wealth efforts to sort of maximize impact and obviously sort of align strongly with our brand. Given the size of the U.S. market, we will get there. I'm not going to sort of forecast when that's going to be. What I would say, however, is that the majority of the institutions that you allude to, we actually do have active relationships with them through feed to fund structures in our closed-end funds. And so we do have active relationships there, and it's something that we are very, very cognizant of.

Next question, please. Thank you, Bruce.

Our next caller is Oliver Carruthers from Goldman Sachs.

Just 2 questions left from my side. So first on SOF VI. It sounds like that's had a good start from a fundraising perspective. But can you talk a little bit about the balance of the vision of vintage growth that you're expecting and how that might break down between the reoperate and larger ticket sizes with existing clients and then adding new clients here. So that's the first question. And then the second question on exits. As you highlighted, you did your first continuation vehicle this year. So just wondering, are you seeing any other types of exit routes that are emerging in prominent in this market, either full or partial. It seems like there's growing interest from LPs to buy minority stakes. So just wondering if that's a dynamic it could be meaningful for CVC.

Right. Thanks very much, Oliver. Rob, do you want to take the SOF VI, and I'll cover the exit point.

Of course, happy to. Oliver, as I said earlier in the call, we're not going to give comments on individual fundraisings or sort of get into the granularity there. As I said, we're off to a very, very pleasing start with SOF VI. As we outlined to you earlier in the year, we have a very, very limited overlap of our top 100 investors with their investors. And so we think there's plenty of white space for us to go. And so again, we're off to a pleasing start in sort of what I'd say at this juncture.

Great. Okay. Thanks, Rob. Oliver, just on the exit side of things, yes. We've done our first continuation vehicle. And I think the continuation vehicles are an interesting exit mechanism, particularly from the point of view of having -- earning fees on those. Having said that, I think they will always just be something that is -- we use very sparingly under sort of very specific conditions. If you sort of look at where the sort of pie chart in terms of how the exits have split out, then, of course, the key for us is to always maintain maximum optionality around the types of exits that occur. The -- when we -- at the sort of analyst presentation, we presented a pie chart showing sort of that since 2021, there had been sort of very low reliance on the public markets, the sort of 11%, I think the figure was, we're at 10% at the moment. So those -- the public markets remain relatively quiet from an exit perspective. We would hope that there would be more activity in the public markets as the markets sort of stabilize. We have seen trade sales at a relatively lower level, and we would expect to see those coming back more strongly as there's generally a lag in the market between what we see in the sort of private equity activity and in terms of the strategics activity. So we'd expect to see that coming back. But I think the absolute key to your question is that it's very, very helpful for us to have as many potential exit routes as we can and to keep as much flexibility around that. And I think within that, continuation vehicles and the desire, as you say, for LPs to participate in full or partial access, there is a really good feature for the future.

Thank you, Rob, and thank you Oliver. Operator, can you move on, please, to the last 2 questions.

Our next caller is Sharath Kumar from Deutsche Bank.

I have a couple left. Firstly, a clarification on the upcoming lockup releases at end October. My understanding is that we would have a small tranche coming off, say, 6% to 7% of your share capital from the strategic shareholders, excluding [indiscernible] Capital. So can you confirm this? Secondly, -- on the infrastructure front, if we were to see a faster deployment level, would you still look to activate the funds -- next funds in 2025. Just for my understanding, should we reach 90% deployment levels for the success of funds to be activated?

Great. Thanks very much, Sharath. Fred, just in terms of the lockup.

Yes. Sharath. I mean there's, I guess, 2 parts to the lockup question. Technically, there is a 6-month lockup on the -- what we call the strategic investors and they are a residual holding, which you're approximately correct in total, does come out of that lockup. Now what we don't know is whether they want to be long-term holders or whether they want to sell any more shares into the market. That's not a conversation we've had. But -- so I cannot answer whether that will actually release any shares in the market or not at this stage. But technically, they would come out of a lock up 6 months after the IPO. In terms of the -- your infra fund question, I wasn't absolutely clear on the precise point you are wanting to get out there, Sharath.

No. What I intended to ask is from -- firstly, from a technical point of view, would you want to reach a level of 90% deployment level for the successor plans to be activated? And related to that, if we were to see a better pipeline than anticipated, would you kind of look to activate the next funds in 2025 instead of 2026?

Yes, sure. I mean, again, I don't think we're changing our guidance at all there. So it's really as it was earlier in the year, Sharath, in terms of launching the successor funds in H1 '25 and activating the success of infrastructure funds, excuse me, in 2026.

Thank you, Rob, and thank you, Sharath. We've got the last question for today, please.

Our final call today is Julian Dobrovolschi from ABN Amro.

I have 2, if you don't mind. The first one is on the performance in the exits in your private equity portfolio. So 3.6x gross MOIC and 28% Gross IRR in the last 12 months. But if you look at H1, then that 4.5% more than H2 IRR, which basically implies that the exit in H1 was much, much stronger in terms of performance. Can you please explain the difference here and what does this mean actually in terms of the exit multiples maybe reflecting on the H1 2023 multiples versus H2 2023 multiples. And is that some sort of an implication of a sharp recovery in the exit multiples overall or just kind of selling high-quality assets in H1 versus H2? And then the second one is on investment income. This one grew about 20% year-over-year based on the H1 figures. Can you please talk about the returns on your balance sheet investment in H1? And where does this plan within the 15%, 20% target that you have on the medium term?

Sure. Thanks, Julian. Let's just try and answer those very quickly. I'll take the first if you're happy to take the second, Fred. Just in terms of the returns, yes, the returns were very strong. I think they were strong last year, and they were even just even stronger this first half. I don't think there should be anything to read into that, Julian, actually. I think it's just reflective exits are lumpy. The -- we just had a couple of very successful exits in the first half of this year. I don't think we can necessarily read anything in terms of trends into that.

Yes, Julian, in terms of returns on the balance sheet investments, they will really track the underlying fund performance that we're investing into as an investor in each of the funds. So as you say, we said 15% to 20%. The lower end of that range would be our investments in, say, the credit funds, the StratOps the upper end of that range would be returns from our investments in our PE strategies. So that's unchanged. And of course, period-to-period, it will defer depending on the actual returns achieved. But that as a medium-term -- estimate or midterm guidance is still relevant.

Thank you, Fred. Well, thanks, everyone, for your questions, and thank you very much for taking the time for this call with us today. We look forward to speaking again very soon.

Thanks very much, indeed, everybody. Thank you for joining.

Thank you. This concludes today's call. Thank you all for your participation. You may now disconnect.