Eurazeo SE (RF) Earnings Call Transcript & Summary

Hello, and welcome to the Eurazeo Financial Information H1 2022 Results Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this call is being recorded. [Operator Instructions] And I will now hand you over to your host, Virginie Morgon, Chief Executive Officer; joined by William Kadouch-Chassaing, member of Executive Board, General Manager of Finance and Strategy to begin today's conference. Thank you.

Thank you very much. Good morning. Thanks, everyone, to join this half year earnings call. It's my real pleasure with William -- William Kadouch-Chassaing to welcome you all to our half-year results for 2022. Our accomplishments for the last 6 months highlights our very strong operational execution. And as we are entering a more challenging environment, I feel starting from a very strong position, following not only the 2021 record year, but that very strong half year set of results. So let me take you through some of the most important highlights and drive you through some perspective. So successful execution of our strategy is really the main message. First, you continue to see me -- that our asset management business is growing. Assets under management overall have been growing by 27%. We are reaching EUR 32.5 billion. And our FRE, fee-related earnings are up also by 24% year-on-year. We continue to raise funds in line with our plan. The second thing, which shows a very strong execution of our strategy for that first half, is that you see very strong solid trends across our portfolio with top line and EBITDA growth. And I share with you my conviction that our choice of sectors riding future trends has really paid off with strong performance and inflation-proof companies. Notably, just to highlight a few, biotech, health care, tech-enabled business services and financial services. My third highlight of that strong execution is -- are very much on track, exit program. We have sold up to now 14%, 1-4 percent of our net asset value, which is about 2/3 of the program for the year. We achieved our latest exit in excellent condition, I'm very proud, with 3.6x average cash-on-cash multiple. And we'll come back later to the detailed returns north of 35% IRR. And prices have been above our latest valuation in our net asset value that we published in March. Fourth, and as absolutely critical, we continue to build on the greatest investment opportunity of our lifetime. We are accelerating the decarbonization of our portfolio, and we are launching new impact funds with more to be announced in the months to come. Overall, our net asset value is slightly down at EUR 115.5 per share. So 2 things. Despite very good operational growth in the portfolio, we reflected the fall in the market multiples in the growth tech segment, the markdowns we have applied are in line with correction on public markets in order to be on the conservative side. For the rest of the portfolio, we have set aside a contingency buffer taking into consideration the overall uncertain environment, William will detail this later, of course. So let's start with fundraising. What we've seen today makes us confident about '22 and 2023. So first, how much have we raised? We raised EUR 1.8 billion in the first half. Several of our flagship funds have had a strong momentum. Just to mention a few, in the small mid buyout sector, our PME IV funds has closed above EUR 1 billion. It's a 50% increase from its latest vintage. And the other example I can share is private debt. Private debt continues to be in high demand with, again, more than EUR 1 billion already secured for EPDV VI, Eurazeo Private Debt VI. Looking forward, we continue to see an acceleration of allocation towards private market and very strong appetite for our products. The market, though, are quite busy for 2022, especially on buyouts due to the acceleration of deployment after COVID that may lead to extending the time line. The good health of the portfolio, the crystallization of value through recent exits and our recent attractive new funds like Energy Transition Infra and the very topical nature of our impact-proof product, all combined to make us confident that the fundraising momentum will continue in the coming months. All in, we are growing our assets under management and our management fees, and we continue to build a strong asset management platform. So that's for the fundraising. But let me deep dive a second and tell you more about the retail performance for this year. We raised EUR 380 million from private clients in the first half. That's about 60% increase year-on-year. You can see it on the slide. Private client solution now represents about 13%, 1-3 percent of our third-party assets under management. And I see this, you know it, as a major source of new growth in the years to come. 2022 should be another record year in the segment. We have a very strong competitive advantage with 20 years of experience and an extended network of distribution partners. Our goal and as very critical, our goal is to have 1 private client fund on offer for each institutional fund that we launched. So I give you the two recent examples of the product that we launched for retail. The first one is our Eurazeo Principal Investment, which is a bundle of our 2 buyout activities, the mid launch and the small to mid, which we are offering for distribution for a much broader public. The second funds that we're launching this year is dedicated to real assets with a very much value-add positioning for our retail investors. So now let's turn to the portfolio. My conviction, the conviction of the Executive Board is Eurazeo is extremely well positioned to be embracing and facing a more challenging market environment. So let me deep dive into our current portfolio. We are, for sure, confronted today with an unusually high number of uncertainties. We're mentioning inflation, rising interest rates, geopolitical risk and supply chain disruption to name but a few. We can't ensure how those risks will evolve, but my conviction is that Eurazeo is entering this more challenging time in a very strong position. So I'll tell you why, first of all, as is probably the most critical to remember is our diversification plays to our advantage in full. We're building resilience, and we're protecting value. And I think in volatile times, portfolio effects is obviously absolutely keen. So let's go through a few highlights. So we take first buyout. So you see buyout and private funds, which account for 36% of our assets under management. We have invested in market-leading companies in asset-light sectors like business and financial services or like health care. These companies are able to pass on price increases, which provide a natural hedge to inflation. Remember, Elemica or Scaled-Agile in tech-enabled business services, very strong pass-through. Cranial and DORC in the Netherlands in health care, same thing, very strong pass-through. Second highlight in the portfolio of buyout, we see some acceleration post-pandemic with a rebound in the travel sector. We have WorldStrides in the U.S. and we have Planet as a global player in payments and DCC. And finally, we are monitoring closely the normalization and the rebalancing from direct-to-consumer to brick-and-mortar retail with a few examples in the portfolio like Aroma-Zone or like Group Gisou at PME. So then let's move on to Growth and Venture. Those investments represent 30% of our assets under management. They have structural tailwind, very strong revenue growth. We're certainly continuing to benefit from the digitalization of our economies. And those companies generate outsized revenue growth, are very well capitalized. Our sector leaders, I'll just name a few, like Doctolib or BackMarket or ContentSquare, continue to gain market share and extend geographically. We have conservatively taken some markdowns on valuation in H1, William will detail, but we are confident in the strength of our portfolio. Move on to Real Estate and Infra. 6% of our assets under management, real estate and infrastructure businesses benefit from the natural pass-through of inflation and from our strong position in hospitality hotels with grade and the very strong and attractive energy transition sector, which is covered by our team, Energy Transition Infrastructure Funds. Finally, the Private Debt, which is 20% of our assets under management, our Private Debt business is doing extremely well with a very strong portfolio, likely leverage, very secured and benefiting from floating rates. This makes it a compelling investment in the current environment. The third highlight is about the strong execution of our exit program. I have to say I'm very proud not only of the decision, which was taken more than 18 months ago in September '21 -- September '20 to accelerate the rotation, but of course, the execution has been nothing but excellent, including during the first half. So first, we exited around EUR 2 billion of assets year-to-date. In a tighter purchasing market, execution and timing are key. The remarkable 3.6x cash-on-cash, an average IRR of 36%, delivering proceeds of more than EUR 1 billion for Eurazeo, reflect the pace of development we achieved at Reden Solar, Trader Interactive, that was our first investment in the U.S., Orolia and Vitaprotech. You'll see more exits by the end of the year. Regarding deployments, the second leg of our asset rotation investment, the geographic and sectoral extent of our deal flow allows us to be very selective as we invest in tomorrow's successes. In H1, we invested a total of EUR 3 billion. That includes EUR 1 billion in private debt, EUR 0.5 billion in private funds, and EUR 1.5 billion in buyout, venture and growth. Company is benefiting from very exciting and long-term trends with strong tailwinds. The core sectors that we're reminding you in terms of focus for us in investment, health care, consumer, financial services, tech-enabled business services and energy transition. Those 5 sectors represented in H1 more than 90% of our deal flow with a very strong focus on asset-light businesses. And finally, before I turn to William to go deep into the review of our results, I want to highlight our strong inroads during the first half in terms of new steps towards a more inclusive and more low carbon economy. You know our commitment to driving sustainability across the portfolio, creating resilience and increasing the value of our companies in stronger than ever in that environment. So in 2020, a reminder, we became the first private market firm to apply the science-based target for carbon neutrality, establishing that model for our portfolio companies to follow. In '21, more than 80% of our active funds were classified at the highest standards of European sustainability regulations, namely Article 8 and Article 9. This figure is now 89%. Now in 2022, we're actively working on our next-generation impact funds, focusing on themes of planetary significance. I'm turning now to William for the full detail of our results for H1.

Many thanks, Virginie. Good morning to all. Thanks for the interest you take in our company. We now guide you through our financial results, and let's start with the key drivers of our P&L. I'll start with the asset management. As Virginie mentioned, asset management continues to pose strong growth. Total AUM are up 27% in H1 from a year ago to reach EUR 32.5 billion. The main driver, as mentioned, is fundraising with AUM coming from limited partners rising 32% in the last 12 months to EUR 23.4 billion. The balance sheet component, as you see on the slide, has increased 16% compared to a year ago. Importantly, fee paying AUM are up 31% relative to the same period of last year and amount to EUR 21.6 billion. Turning to the next slide. You see stemming from the strong pace of collection, the strong -- the double-digit growth in our recurring earnings from asset management. Earnings stemming from asset management grew at a double-digit pace. As I just said, management fees were up 30% in H1. They reached EUR 181 million. Management fees from third parties grew at approximately 40% and now represent 77% of total management fees. This is to be compared to 71% in H1 2021. FRE were up 24% over the same period of last year, standing at EUR 50 million. During the first part of the year, we continued to invest in our platform with recruitment in our investment teams, sales and marketing, operations and some key corporate functions. Turning to the portfolio companies. As Virginie said, we have there a strong contribution. First, our consolidated portfolio companies delivered some growth across the board, revenues and EBITDA. Consolidated portfolio economic revenue at constant Eurazeo Scope and exchange rate increased 43% compared to last year. The portfolio EBITDA is up over 40% when adjusted for the base effect related to the insurance indemnification received by WorldStride in H1 2021, which amounted to EUR 61 million. Second, our growth companies, which are not consolidated in our P&L, as you know, have also done very well with revenue growth of about 46% in H1. As Virginie said, we think we are well positioned in a more challenging environment. One case in point is that we think we are very resilient in an environment of rising interest rates. Let me explain why. A few key facts. At corporate level, as you see on the left-hand side of the slide, we aim for a structurally low gearing pro forma of the realized sale of Reden Solar and Orolia. Eurazeo has a net cash position of plus EUR 21 million at the end of the first half. On top of that, we have a EUR 1.5 billion credit line with a 2026 maturity. Turning to the portfolio. Half of our strategies have no or little leverage. In addition, private debt operates in a floating rate environment with low default rates. Our strategy is using some leverage, i.e., buyout or real estate, we take a very cautious approach. In buyout, the level of leverage is more direct for the industry. It is in fact at less than 5x EBITDA in aggregate. The average debt duration for the portfolio is 5 years or more with very little function and 1 year of maturity and overall, these favorable covenants. In real estate, more specifically, we have a moderate loan-to-value of about 60%. And I'd like to stress that nearly 90% of rates are hedged. As Virginie said, we are well on track to execute the investment company exit plan. As we mentioned during our full year results presentation, we aim in 2022 to exit roughly 20% in value of our balance sheet assets. We've executed 14%, which is more than 2/3 of this target. To date, we announced or realized 4 exits or EUR 1.1 billion of proceeds at a 3.6x average cash-on-cash multiple. All these transactions were done at or above their value in our net asset value. Due to the timing, this transaction did not impact H1, but will provide approximately EUR 750 million of net capital gain group share in the second part of the year. That is EUR 530 million capital gains related to realized exits, Reden and Orolia, EUR 220 million capital gains on announced exits, i.e., Trader and Vitaprotech. In addition, realized transactions will generate approximately EUR 66 million of performance fee for the asset management company, which will be booked in the second half of the year 2022. Turning to the profit and loss figures. Our net results group share for H1 stands at minus EUR 96 million for H1. Pro forma for the realized net capital gains, i.e., the EUR 530 million I just mentioned, net group result share would have been EUR 437 million, plus EUR 437 million in H1. And if you look at the asset management line i.e. the EUR 44 million contribution, which is here solely associated with the FREs with no PREs accounted for. If you add back the EUR 66 million I just mentioned that will be booked in the second half, you will find that the asset management contribution have been up 18% standing at EUR 110 million. To finish, let's look at the net asset value. Net, at the end of June, our net asset value was down 1.9% at EUR 115.5 per share. The value of our investment portfolio represents EUR 89.5 per share is down roughly 4%. The value of the asset management activity is up 5.5% at EUR 26 per share. You may have noticed that there is a slight difference in the percentage of decrease in the net asset value between the -- what you find in the tables in the appendix relating to the absolute amount of NAV versus the per share amount. The difference stems from the share buyback, which create -- which has an accretive impact of roughly 50 basis points. Looking more at details for the investment portfolio first. There are 4 main blocks to consider here. First, positive variations in the valuation of our portfolio, excluding growth assets. This results from the following factors, which you see on the slide. The realization of Reden Solar had a superior net asset value to that, that was marked at the end of 2021. This accounts for EUR 1.1 per share. The effect of a strong U.S. dollar on our U.S. assets. This is another EUR 1.7 per share. The strong performance in revenues and EBITDA of our companies in H1 2022, as I mentioned earlier. But let me stress that for this portfolio, we kept a constant methodology using last 1 month figures and average multiples. We only checked that the multiples that we were using are in line or below spot multiples for comparable companies. So again, this remains a very conservative approach to valuation that translate into positive variations. Second, we marked down the valuation of our growth portfolio, taking into account several factors, as Virginie already highlighted. On the plus side, we had the strong performance in revenue growth of those businesses, as mentioned, plus 46%. New rounds of financing for some companies like ContentSquare, which were done at varying valuations above the last mark we had in our NAV. On the downside, we applied an average 25% air cut on the rest of the portfolio, excluding ContentSquare, in line with the decline in market indices for tech companies such as NASDAQ. Note that we have already largely anticipated this markdown with a contingency of roughly EUR 270 million we have taken at the end of 2021. Third, we applied a discretionary contingency buffer of EUR 500 million related to the nongrowth portfolio. As Virginie mentioned, this is purely linked to the level of uncertainty we see in the market, which may or may not materialize. Fourth, variation in the cash position essentially linked to the distribution of the cash dividend in 2022 for an amount of EUR 3 per share, as you know. The NAV of the asset management is up 5.5%, you see, to EUR 36 per share. This reflects the continued strong growth with FRE last 12 months, up to 31% at the end of H1. We applied last 12 months figures as well for the asset management as we do for the portfolio companies. To value FRE, we use a multi-criteria approach based on LTM numbers and cautious multiples, is translating to implicit multiples which are below those of our peers, as we've already mentioned a few times and at the low end of our DCF. On PRE, our main approach is the DCF with a 12% WACC or a 6x multiple, which, again, is fairly conservative. I will now hand over to Virginie for the conclusion.

Thank you very much, William. Last line in conclusion to project ourselves for the year to come, '22 is proving more ambiguous and challenging than '21. But the key growth drivers of our business model remains strong for the future as we demonstrated in H1. These include growing our asset management business, delivering strong asset rotation and maintaining a disciplined approach of investments in promising sectors. The half year set of results show that our fundamentals are strong, that we are a responsible investor in terms of deployment, exits and valuation. So as we are facing more challenging time, our group first is resilient. We're building a diversified model in terms of asset classes, sectors and geographies. We are also prudent, prudent in how we value our assets and our asset management activity over time, especially today, but also, our group is fit for growth. We continue to demonstrate the strength of the portfolio. We create value through successful exits, and we invest in the right sectors to create value in the years to come. We have gathered over time, a very significant investment capacity in addition to our own resources with investment commitment given by our investment partners that gives us more than EUR 5 billion to be deployed in new opportunities over the years to come. And finally, of course, we continue to invest and innovate in ESG and impact, consolidating our leadership and competitive edge. Thank you very much for listening to our half year results. And of course, we are now ready to answer any of your questions. Thank you very much.

[Operator Instructions] And our first question comes in from the line of Mourad Lahmidi, calling from BNP Paribas.

I have 3 questions, please. The first one is on fundraising activities. So you raised EUR 1.8 billion in the first half. If we compare to the same period last year, it was EUR 2.4 billion. So could you please comment on the context in terms of fundraising activity? Has it been more difficult to raise funds due to the context? Do you see any extension in the closing of the program? And what do you foresee for the current year? Could you -- could you elaborate maybe on -- not necessarily on the number, but compare it with the record year that you had last year? The second point is on the buffer that you applied to your net NAV of EUR 500 million. Could you please explain the rationale for this EUR 500 million? Why EUR 500 million and not a number above or below? And finally, on performance fees, the EUR 66 million that you mentioned, can you give us the share of the balance sheet out of the EUR 66 million?

Thank you for your question. I'll start with the fundraising and William will cover buffer and performance fees, balance sheet versus third party. So listen fundraising, you know it because you're very knowledgeable about our industry, always extremely difficult to compare H1 to an H1 of previous year because it's about -- it's about the timing of our own fundraising, which funds we have in the market from one semester to another. So that's my first comment. So don't take the EUR 1.8 billion compared to last year as a change and a difficulty of raising. It's about the product we have in the market. So which product do we have in the market. I mentioned private funds. Sorry, I mentioned small-to-mid buyers, which we have successfully announced reaching EUR 1 billion. I mentioned private debt, which is ongoing as the first half has been pretty active. We'll continue to be very active for the second half. Second half, what you will usually expect is private debt to continue to fundraise. We have a target of EUR 2 billion. You should also expect the start of the buyer and the mid-large buyers coming to the market second half. And in terms of the big program, you have Growth and Venture. Venture is already in the market and starting and Growth will be in the market during the fall. There are other teams, which are fundraising like Infra, going very well on great products, Green Economy, Energy Transition. So -- so that's the first sort of highlights to your question. Second, which is more about the market sentiment and what has happened. So I should say for us, H1 is very satisfactory. We're in line with our expectations. There has been a few months during which the institutional investors, and that was right after invasion of Ukraine, March and April were softer for institutional, but came back to the market. Institutional investors are not willing to play the market. They will need to deploy regularly and consistently with alternative asset manager that they trust. So retail has never stopped, the collect of retail. As you could see, EUR 380 million year-to-date is very strong. I would actually say neither no stop in March and April, but even some form of acceleration. So the fund program for H2 '22 and for '23 is quite strong for us. So retail will continue to be very strong with new products, as I highlighted in my presentation, both buyout and real estate and with more partners coming in and partnering with Eurazeo to distribute our product. And for institutional funds to be launched. I mentioned Growth. We have great ambition for Growth. There is big push-up called Scale of Europe at the European level with EIF and a number of strong institutional investor backing the large player in Europe, north of EUR 2 billion of size. So that's a European initiative that you should compare to the TB initiative, which was at the French level. We have mid-large, I mentioned. We have Real Estate. We have Infrastructure and Private Debt, which is continuing to raise money. So we have very good premarketing, positive. I did say in my presentation earlier that it's about being eyes wide open that it may be a bit more timely to raise the money in a notably buyout so let's see, time will tell. It's a lot of moving parts as some of the funds, some of them are very tactically positioned, meaning that when you have on offer Article 9 products in health care, in Green Economy, in digital transition, just to name a few, there's a lot of needs and a lot of attraction in the market, including for U.S. LPs, who have been a little bit on the back foot and late to the party in terms of their own deployment. So that's what I can share with you, Mourad, as to the highlight of H1, some of the perspective for H2. And as you know, we never comment on and never give guidance on full year fundraising but I hope it's helpful. So buffer and performance fees.

On the buffer, Mourad, if you look at the table we provided, the detailed table from the NAV in the press release on the appendix, you'll find the way we've calculated it. We've decided it's about 7% roughly of the value of the portfolio ex-growth, so the asset management part from it deduct the growth component from it. And so that's a bit judgmental, I have to say. The rationale, again, is that we consider that there is no reason to map down that portfolio line by line today, given the strength of the performance, the quality of the assets and a few factors, I've mentioned, be it the realization of a NAV or NAV, sorry, or the foreign exchange. But as Virginie highlighted, there are uncertainties, and this is sort of an uncertainty buffer. So 7% looked to us conservative enough, the stress that we may have or may not have usage of it next year to the end of the year. Performances, the amount of EUR 66 million is largely related to balance sheet performance fees. And the reason being that Reden Solar has only had by the balance sheet to the new LPs only a stake in Reden Solar and this is the chunk, the largest chunk of the net gain in the first half. So this is EUR 62 million, the balance sheet, EUR 4 million for -- related to NP money. Let me say without giving you a number of performance fees, that the ownership of Vitaprotech and Trader is much more balanced between balance sheet and NPs and you should expect that the balance of performance fees that will be associated to this production will see more deals towards the lease.

Okay. I have a follow-up one on fundraising again. Can you give us some insight on the origin of the money in terms of geography?

I mean we tend to give highlights of geographical origin of the money rather at year-end both for full year. But you could assume that from the French market, about 40% and 60% is rest of Europe and rest of the world. Take into account the fact that depending on what's in the market and not to get into too many details, Eurazeo SME fund of EUR 1 billion, we probably tend to raise more money towards France or with French clients, while private debt, EUR 2 billion funds will be way more balanced actually, France would be quite a small amount of the private debt fundraising of EUR 1 billion so far. It would be Asian, it would be European with big clients in other -- outside France, it would be middle eastern to give you a few examples. So the geographical source of resources also absolutely depends on which products are in the market.

The next question comes in from the line of Johan Van Acker calling from Degroof Petercam.

I have 2 questions on the very strong reported NAV. First, one if you look at the investment companies throughout Europe like Investor AB and Sofina has already reported, when they report about the private equity segment, they can only report the Q1 NAVs of these funds. Now of course, I know you have a lot more visibility on the valuations. But if you look at your EUR 115 NAV for the private equity or for the whole portfolio, should we look at it as you're using Q1 NAVs? Or are these already updated for Q2 NAVs? And the second question is if you look at the overview of the NAV in the appendix in the table, you see a net cash and others line of minus EUR 1 billion. We know the net cash is EUR 21 million. So could you explain which items constitute the minus EUR 1 billion then?

Thanks for your question. So I'll take the first one and William take the second one. So we are reporting on Q2. It's not Q1 performance. Portfolio performance is at the end of June with all updated results, top line, EBITDA, net debt, every even post event, post-closing events. Every evaluation line by line, and that was William was describing for all the portfolio from buyouts to Venture and Growth or as of today, like literally as of last week, last Friday. So I don't know why our peers stays on Q1, but we're definitely on Q2. And for every investment strategy that you're seeing, although it may be different vintages. So like take the example of the mid-large buyout, which you see as 1 investment strategy, there's actually 2 funds in there. There's actually 3 funds in there, 3, 4 and 5, the reporting to our LPs will be made on these valuation for end of Q2 results, and they will receive their full reporting completely consistent with what you see there as sort of synthesis of our performance at the latest 45 days after closing, so at the latest on the 15th of August. So that's for your first question.

As to the second question, if it relates to the very bottom of the NAV and what we call the cash and others. I mean, starting with the main factor, which is a net debt or net cash position of the company at the end of the quarter. I mentioned plus EUR 21 million pro forma for the sale of Orolia and Reden Solar. Remember, this transaction has been completed on the early July, 6th of July for the first -- and that means that the cash came in our account after the 30 June cut of date. So in fact, you find it in the press release in detail. The net debt position of the company at the end of the H1 was EUR 726 million, to be precise. So logically, in the cash position we have in the NAV, which is dated 30th of June 2022, and Virginie just reiterated, you have this net debt position. In addition, you have a few factors which are usual and then they fluctuate, but you have things such as the provisioning of taxes, so tax liabilities that will be then spent over time, which are related particularly to the sale of assets. So that's this point. Overall, it doesn't change much particularly the net cash position in the NAV because usually, what you spend, you will find at the end of the NAV in the form of a change of perimeter in new assets on the balance sheet. So overall, this is not necessarily a material difference in the NAV.

Does that answer your question?

Very clear.

The next question comes from the line of Christoph Greulich calling from Berenberg.

Three from my side, please. I would like to start with a follow-up question on the buffer. So is it fair to assume that you will, going forward, adjust the buffer upwards or downwards depending on your market outlook? And is there a clearly defined framework in place according to which you will adjust that buffer? Then the second question is with regard to the debt financing of new buyout investments. If you maybe could describe the changes you have seen since the start of the year? And then lastly, when we look at the demand from LPs, given that you cover a range of different strategies and asset classes, have you seen any shift in demand between the strategies and asset classes in light of the change in macro outlook? How would you say the demand trends rather uniform across the group?

Can you just -- Chris, can you rephrase your last question, I want to be sure that I understood it well?

So I'm just wondering, given that the macro outlook has changed quite significantly since the start of the year. Have you seen that translating into a shift of demand that maybe some asset classes are kind of increased demand at the expense of others? Or would you say the trends are rather uniform across all the strategies that you cover?

Okay. That's very clear. Let me try the buffer because you all have a lot of questions, and I'd like you to understand that how would you feel if we had published a net asset value at EUR 121 per share growing from the EUR 117, which we published in March? A big question mark in the current environment. CAC 40, most of the public market index are down like 15%, 20%. There have been a significant market correction in the NASDAQ that we already anticipated back then in March. So listen, it's a prudent -- it's a contingency. We have no detailed analysis, anticipation behind it. Could we have taken less? Yes. Could we have taken more? Probably, not. I mean it's already EUR 500 million. We are talking EUR 6.5 per share of contingency buffer. It wouldn't have been professional to come with a much bigger number because then you would have said it must be allocated some ways in some special situation. And it is not, it's just that you would not trust me if I was telling you, I had a lot of visibility for the future. So it's not -- William will complete my answer, but I'm trying to share that approach. So you feel it rather than you understand it. It's about being more conservative so that we are protecting the months to come. And you know us, we always want to publish good results and overperformed and not oversell. So it's us, it's a conservative approach, and we are hoping that by March next year, when we publish our next net asset value, we are not disappointing the market, and we have a sufficient runway in the portfolio growth and some of those contingency buffers, so we continue our path of growth for our net asset value. But William will complement that.

I mean that's exactly that. Just the thing I wanted to add is relating to your question as to what could we do and how with that buffer depending upon what we see and in which time frame. The time frame, obviously, we can't control, but it's clear that we will monitor the situation in the coming quarters. Again, as Virginie stressed, some of the risks you see in the economy and the broader environment may not materialize or may not have a negative impact overall, they may be transitory. Some may. And at this stage, we have to be humble, we don't know. So to your point, if they do not materialize or do not have an impact on the performance of our companies and the valuations overall, this EUR 500 million is an upside. So it may be written back in other words. If they materialize, it limits the downside to the shareholder because it would have been really pricing. So that's the way we should look at it.

On the financing environment, which was your second question, we can do 2 voices with William. Large buyouts, large transactions probably are facing and it's sort of an understatement headwinds in terms of financing because the capital market financing is closed. And the large sort of financing is probably going to be with banks or with private debt operator a little bit more complicated. However, as far as we're concerned, operating in the mid-market segment. And maybe it's about also the quality of our companies, the strength of the sectors in which we operate. But both on the exit, Vitaprotech has been very well financed and it's been acquired by a private equity buyer. Orolia, it's a different play, been acquired by a corporate buyer. But in mid-market, we think we're going to be sort of a little bit more protective in terms of financing availability because they are banks, which are still willing to finance good mid-market companies in Europe, if it's not overleveraged. And they are private debt players, which are very much there because they understand and it's good business there. So overall, that's how I would characterize the current market environment. So slightly more tight overall. And probably quite complex for larger deals in terms of putting financing together.

And maybe just on the pricing side. Not to repeat what you already said, we're probably are in the right segment where we're not dependent on either the high yield market, which is close as a result of the bridges from banks, which are full in the underwriting commitment. So placed with our advantage in a sense. So the direct lending space is still available. There is some tension on the spreads, some repricing, but as of yet, not very material.

And your last question was about do we see in terms of demand from our clients, some sectors or some geographical or some trends which are more looked for than others. Yes, a little bit, at least seen from our standpoint. So I'm not -- I don't mean to give you an overall view of the market because I'm just talking about what we see at Eurazeo and who we are. Private debt, there's a lot of appetite. I think LPs are seeing this as a good risk return profile. And at least for us, we have a great diversification of companies that we finance. The returns have been very strong. We're talking sort of 7% net IRR. So you make up your judgments, but for a good risk return, no default, large diversification, good European companies across different sectors, not too high leverage good returns. So private debt, big clients coming in with large -- large investments in terms of size. So we clearly see a bigger amount of LPs investments in our funds, which is a great thing. We see great traction for health care, health care-related products, health care companies, health care funds. So that is a trend which has not changed and quite rightly so because when you look at the performance of all our companies across the board in health care, from Venture to Growth to Mid Cap, they're growing very strongly. I mentioned also Cranial and -- in health care and DORC in the mid-large buyouts, strongly performing. And every product and funds related to energy transition in Green will be impact, Article 9 are very much looked for. So it's a few private funds is going very strongly as well because it's a good diversification and strong results. So I think it's more where it may take a bit more time, and we have to maybe anticipate some timing delay. It could be in the Buyers because Buyers was very crowded in '22. So we have to expect '22 and '23 to be maybe the horizon of some of the buyout fundraising. Thank you for your question, Christoph.

The next question comes in from the line of Alexandre Gerard calling from CIC.

Three on my side. My first question relates to your portfolio management. So you mentioned a good diversification of your portfolio. But besides that, do you intend to take any particular measures to protect your portfolio from any impact of the half economic crisis? Can we expect, for example, the next generation of your disposals? Can we expect from Eurazeo, the fact that maybe putting your investments on the hold on the second half of the year? Can we expect fewer investments? So that's my first question. Second question, it relates to the impact of inflation on your EBITDA. I mean your portfolio companies, have you maybe realize any sensitivity analysis to that risk? And also, the third question, sorry, is related to the retail segment that you mentioned, what way should the retail segment represent, let's say, in 5 to 7 years' time? And what are the pros and cons of being more exposed to that type of clientele? Are their assets more profitable? Are they more sticky?

Okay. It wasn't super easy to understand everything, Alexandre. But sorry, there's one that we didn't get. I think we got 1 and 2, maybe not 1 and 3, not 2. So I'll start with retail, which is your last question. So very strong momentum. Yes, it's very sticky, I mean it's not -- institutional is really sticky as well because they come in close funds. Now remember, we're not an asset management with open funds. So most of our relation with clients being retail or institutional would be very long term, like 7 to 10 years. That's the short they make when they come in. I think what's happening these days is that we have more products. We have built on 20 years of experience. We have more partners distributing our products, and we're offering very strong returns compared to a very volatile public market. So there's many reasons why retail comes to private equity and to us, in particular, being also a public company with full transparency, reputation and inspiring trust and ethics. Also, I think in terms of your question on is it the sector economics for us, exactly. Yes, there's no difference for us between retail money or institutional money. And finally, this specificity that we, as an asset manager, we are offering to return the exact same product at an entry investment, which is very affordable, very low, which could be EUR 3,000 to EUR 5,000, the exact same product than an institutional investors, which would put EUR 150 million in our institutional funds. And that structure of having that size retail money investing into the exact same product and the institutional funds, I think has shown great attraction. On your question about what are you doing in your portfolio? And how are you reacting to this volatile and uncertain environment? While we are very close to our portfolio company on many fronts, Alexandre, we're reviewing and it's been the case since the beginning of the year. So every financial -- every financing has been reviewed, timing, interest coverage, covenants, renegotiation when needed since probably early Feb. Then we reviewed across the board, every of our buyout company, mid-large and small to mid pricing power, pricing review of what can we do about pricing depending on what's happening in our supply chain, our raw material costs. But taking into consideration, you know our portfolio well. There's about 15 companies in Midland, about 15 companies is more to mid. You've known those companies. They have strong pricing power. The companies are categories either there. We think more than 90% of our companies are very much inflation-proof. They are passing on a price increase. We have very few companies which are asset-heavy. We like tech-enabled business services. But still, since early Feb, we have in a different way than what we need to in COVID, but we have come back very strongly end-to-end every portfolio companies to come all the way across every lever of operation, pricing, top line, supply chain and financing. So I think that answers your -- hopefully, your first question. And the second one, I didn't get, but maybe we can...

The inflation impact on the portfolio, which I think you already answered it. I mean we monitor all specific situations. But in aggregate, as Virginie mentioned in the presentation, the bulk of the portfolio is quite well positioned in the inflationary environment given either the leadership position, which allow for price increases or the fact that it is fairly asset-light and less dependent on prices -- input prices of use -- of this additional immune, and this is the situation we monitor for the companies, which would be more exposed. But overall, we consider that the bioportfolio particularly less exposed real estate infrastructure and natural hedges and the debt is a different story evolving in the floating rate environment. And this -- you already -- yes.

Maybe a final question on my side, if you can that will be well. On the fundraising side, for the full year, we expect fundraising that will be at least at the same level as last year, i.e., above EUR 5 billion?

We're not commenting on fundraising. We never did, and we're certainly not going to comment in such a volatile and uncertain environment. So everything that we could tell you we did. And the slide is giving you a lot of highlights and explanation. If you just go back to the slide -- but we won't comment -- there's a few questions online as well that we won't sort of answer how much do you expect fundraising for '22, '23, David Cerdan. Unlikely that we give you any forecast, same thing on dry powder. I know you're dying to know it, but it would be quite unusual as we never did it, that we would, in that environment, share any sort of forecast. There's a question on growth strategy. We understand multiples are now more conservative. How is this evolving recently in the market, last fundraising from private companies. I thought we sort of covered that, but you should assume that every of our growth companies are now valued in line consistently with market as it stands now. And yet there have been -- and I think we well communicated on a very recent one. There has been some transaction recently which shows that it's not just one market trend where you -- people -- investors think that every growth company is down 25% like NASDAQ. I mean look at ContentSquare. I mean they just raised $600 million on a $5.6 billion post-money valuation, which was way higher than what we had in our NAV at the end of December, and this is new money coming in, new investor. So it's a real market check, not just rehab. So it's a mix. And I think what we have today in our net asset value, absolutely reflect the best update and knowledge that we can share with you guys as to the growth portfolio.

We've got a question coming through from the line of Mourad Lahmidi calling from BNP Paribas.

So I have a follow-up on -- can you maybe refresh our memories on the way you mark your portfolio companies? Because to my recollection, you take into account 5 years historical multiples and the last 12 months' earnings. And if you look at the market today, most of the companies are trading below 5-year historical multiples. So maybe you can help us on that.

Sure. Let's start with the buyout to which you refer, I think. Depending upon the portfolio, we would use 1 year or 5 years average. So typically, for small-sized companies, we use 5 years. For larger size company, we use 1 year average. We apply it to, as you said, in a vast majority of cases through last 12 months multiple. And then we do, of course, apply some judgment to it. Some judgment as to the positioning of the company relative to peers. Sometimes there are no exact peers or we consider that given the size of the market position of the company, it deserve a discount or premium to market multiples. But more importantly, as I said, we also check that the implicit multiple that we get, that we apply to the valuation is not disconnected from what we see, we spot multiples usually in 1 month average. And again, at the end of H1, the very vast majority of the portfolio was valued on the basis of multiples that in the end, at or below spot multiples. That's for buyer. We mentioned before the Growth portfolio. The Growth portfolio, typically, this is the way the industry does. We're using the last mark stemming from the most recent round of funding for our company. To the extent, of course, that it is material enough, an amount that is significant enough relative to premium valuation. But here again, from -- with our cautious approach, we applied some judgment and we cross-check what the type of the valuation we have, particularly for companies for which there was not a recent round. We cross-check with market multiples. And that's translate into this 25% in aggregate discount that Virginie alluded to. I think we have one last question from Patrick Jousseaume.

The final question comes in from the line of Patrick Jousseaume from Societe Generale.

Can you hear me?

Yes, very well, Patrick.

Okay. Perfect. So a lot of my questions were already responded, but I have two additional. First of all, regarding the contribution of the investment activity, I understand that capital gains will be recorded in H2 this year were better than H1, but minus EUR 161 million in H1. And second, regarding the buffer coming back to Vita. I just wanted to check that the EUR 800 million are all on portfolio excluding growth. Or is it only the EUR 230 million of H1? And still on the buffer, do you intend to commit it on a quarterly basis on a, let's say, half year release?

Okay. So I mean, your first question...

The loss in the investment company.

Yes.

So I mean, it helps from two facts. I mean, logically, you have a plus in the asset management. You have a plus in the contribution of companies. And then the third layer, which is investment companies. I mean usually, the big plus stems from net capital gains. So as you don't have net capital gains here, you have, on the one hand, a negative coming from the cost that are located in the investment company. You know that we allocate the cost of the asset management company that are linked to its activity, but we keep some cost in the investment company, and including some transaction costs related to balance sheet investment. And then you have some mark-to-market variation. As I think, we've been explaining in the past years, that's related to minority stakes. So in this case, you have the valuation of the minority stakes held by ING Global which would go through the P&L when they are marked down, and this was the case, they have been marked up in the previous quarters, some of them the stakes have been mundane there. So that's fundamentally what happens...

And Patrick, you're just basically meeting had we been able to close and there were some regulatory sort of delay had we been able to close Reden on the 30th of June and Orolia, you would add back to that EUR 161 million negative, which is essentially about management fees paid to the asset management company. And investment-related expenses, which is related to our activity, you add back EUR 530, which is about the capital gain that we would have had, which we had, of course, but just a few days later. And then you would find approximately a very similar investment company results for H1 '22 compared to '21. So that's really it.

And now to your question on buffer, you're right, Patrick, the way you think -- you should think about it is we have EUR 217 million related to largely the Growth company. We wrote it back in a sense because we adjusted the value of the portfolio directly line by line. And then we opted for EUR 500 million related to non-growth companies at the bottom, the net amount, EUR 500 million less EUR 217 is an increase of EUR 233, but they're not relating to the same bucket. So we clearly have a EUR 500 million, but the net -- the difference is, as you said, EUR 233. We don't do and that was the last part of your question. We don't do published NAV each and every quarter. So next time, you should see the NAV adjusted computed full year will be the full year results. But of course, we will monitor the valuation of our company through the year. I mean remember that we have some LP reportings to do. And anyway, we do a daily, not derivation, but daily monitoring of our participation.

So Patrick, I mean, I know it's not completely single. But you have nearly EUR 300 million of markdown in the gross portfolio of which EUR 260 was sort of anticipated -- not anticipated, but accounted for at the bottom of the NAV in December, so about EUR 380 and an other EUR 500 million as we largely discussed contingency buffer at the bottom, which excludes growth companies and could be a positive going forward if we don't need it. So I hope it's clear.

That was the final question in the queue. So I shall hand the call back across to yourselves for any concluding remarks.

Thank you very much. Have a great day, and a lovely summer. We'll see you soon.

Thank you. Bye-bye.

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