Eurazeo SE (RF) Earnings Call Transcript & Summary

Good morning to all. Thanks for joining this call. Christophe and I are pleased to welcome you to Eurazeo's 2023 Annual Results Presentation. Our presentation will be in 3 parts. First, I will share with you the financial and non-financial highlights for the year. Second, Christophe will focus on fundraising, commercial dynamic and asset rotation. Third and last, I will detail our financial results. We'll then be available to take questions. Let me start with the highlights of the year. It has been a year since Christophe and I were appointed as co-CEOs of Eurazeo by the Supervisory Board. Together with Sophie and Olivier, members of the Executive Board and the whole team at Eurazeo, we have been focused on, especially 3 things: defining our midterm strategy, laying the foundation for future growth and delivering on our 2023 growth targets. In a nutshell, 2023 was a year of transformation and growth. On strategy, we have a clear ambition. It is to become the leading alternative asset manager across the European Mid-market, Growth, and Impact segments. Our plan is based on 4 levers: focus our value proposition, accelerate the shift towards an asset-light business model, expand and scale up our client franchises, improve operational efficiency. We've been busy building robust foundations. We have reshaped the organization, merged our investment companies and launched important projects to strengthen our operations as well as our digital infrastructure. Last, we delivered on the targets we had set for 2023. Fundraising lands above guidance, FREs posted strong growth, shareholder return is up. On realizations, our performance is in line with a more muted market environment yet with a clear pickup in Q4. Let me turn to the key facts that summarize the financial performance for the year. First, asset management continues to grow at a healthy pace. Fundraising is up 21% relative to last year and around 20% above guidance in spite of a more difficult market. Fee-paying AUM are up plus 12%. Second, we delivered strong growth in operating margin. FREs are up 22% year-on-year. We increased our FRE margin by about 400 basis points. Third, we further proved the quality of our own balance sheet portfolio. The premium to last net asset value of the 5 exits we conducted in 2023 pertaining to the balance sheet stands at plus 23%. And whilst value creation is flat at plus 1% this year, value creation for the past 3 years including 2023, remains above target at 17%. Fourth and last, we continue to improve shareholder returns. We will propose to the general meeting at the AGM an ordinary dividend of EUR 2.42 per share, corresponding to a 10% increase versus last year. We have started to execute our new share buyback program of EUR 200 million, which is twice the amount of the previous program. In 2023, we also delivered our non-financial goals. As you know, we consider our ESG approach and our impact franchise as core to our business model and believe them to be competitive advantages to future growth. A few key facts. 96% of our active funds are now classified as Article 8 or Article 9 according to the Sustainable Finance Disclosure Regulation. This compares with 90% a year ago. Our share of Article 9 funds, which is the most demanding category, remains one of the highest in the industry at circa 10% of our AUM. We improved our Carbon Disclosure Project climate change rating to A, which puts Eurazeo in the top 2% among all reporting companies, and we maintain our overall excellent ratings across the board. Finally, we are accelerating on impact with 2 impact funds having successfully raised above our initial targets in 2023. As announced during our Capital Markets Day, we are in the process of launching a new impact funds. I now leave the floor to Christophe to comment on fundraising and asset rotation.

Thank you, William. Good morning, everyone. Thank you for being with us. Let me start with focus on our fundraising figures for the year. Eurazeo raised EUR 3.5 billion from clients this year, and this is above the guidance of EUR 3 billion that we committed to in November. As we have introduced, this represents a 21% increase year-on-year, excluding our own, to be compared with around minus 10% for the European market as a whole. This performance is very encouraging given a challenging environment for fundraising in 2023. No doubt this highlights the quality of our franchises as well as the relevance of Eurazeo's positioning as a European mid-market growth and impact-focused investment house. It is also broad-based. We managed to increase fundraising across all asset classes. Let me give you a few details. First, in buyout, we announced the successful first closing of Eurazeo Capital V, our new vintage in mid-large buyout. And we also continue to see good traction for our Eurazeo China Acceleration Fund, ECAF. We also face a good momentum in Secondaries -- in secondary transactions. Second, in venture, we posted a good performance in Digital and in Smart City which closed above its initial target. Third, private debt or private debt funds continued to record good inflows, thanks to the attractive risk reward profile for our clients. We are up 31% year-on-year in this asset class, thanks to our flagship in private lending and direct lending, Eurazeo Private Debt VI successfully closing above target. Finally, in real assets, our Sustainable Infrastructure Fund showed a strong fundraising. It is already above its initial target of EUR 500 million, which is remarkable for a first-time fund and it continues to raise, showing how impact can be a strong business driver. You will recall from our Capital Markets Day that we outlined our ambition to further expand our client franchise through the internationalization of our LP base, our institutional LP base and the development of our wealth channel. We made progress in both directions in 2023. As you can see, we raised EUR 2.6 billion of institutional money this year, out of which 69% came from international LPs. This is a significant jump compared to previous years. A few cases in point. A very large Asian bank for the first time took a large ticket in our private debt fund. And this was done for all the subsidiaries of this bank in the world. A nation life insurance company invested in our buyout program for the first time, and we've had our first successes in the U.S. with consultant firms for our Sustainable Infrastructure Fund. We continued also to grow our wealth franchise in 2023 with EUR 863 million collected over the year. Wealth represented 25% of our total fundraising. And at the end of this year, at the end of 2023, AUM from the Wealth segment amounted to EUR 4.3 billion, and this represents now 18% of our total third-party AUM. As we announced during our Capital Markets Day, we also invested in our capabilities to increase fundraising during 2023. We've made senior appointments in our sales team in key geographies such as the Nordics and the Middle East. In parallel, we continue to add regularly new distribution partners for our wealth franchise, and we are beginning to see traction on Moonfare and iCapital platforms. Let me turn to the pipeline of fundraising for 2024. As you can see, we have a solid and diversified slate of funds on the road both on the institutional side as well as on the Wealth segment. Eurazeo is on the road with 4 flagship funds with the expected final closing of EC V, Eurazeo Capital V our mid-large buyout fund, our fifth fund in secondaries, secondary transactions, our seventh vintage in private debt and our first vintage in gross equity. In addition, we also have smaller thematic fund in our range in Biotech, in asset-based debt, and we will finally close our Sustainable Infrastructure fund which was the first one this year. We will also be launching an Article 9 LBO fund. You will be hearing more details about that one in the course of the year, more specifically on the Wealth segment. I mentioned earlier that Eurazeo has a successful range of dedicated fund. As an example, Eurazeo's Evergreen Fund, EPV III, is a mix of private debt and secondary transaction. It should surpass EUR 2 billion in 2024, and my guess is that it will be in the first half of 2024. We are also fundraising through, as you can see, several figures fund across private adventure, growth, and secondaries. So let me now turn to deployments and realizations. As you know, 2023 was a low tide for M&A across the board. In an uncertain macro environment, M&A market for private equity contracted by 40% in 2023. According to Pitchbook, and this was particularly spectacular in the first half of the year, we have begun to see green shoots in the market since the summer and particularly as inflation has receded and interest rate levels have stabilized. There are now more people willing to trade. Funding is back, funding is available, and multiples tend to stabilize. And we are proud to say this is particularly true for the mid-market segment. Nevertheless, there is obviously higher selectivity by investors in this context. Against this backdrop, Eurazeo continued to deploy capital selectively in our preferred sectors across all asset categories. We deployed close to EUR 4 billion, which is 20% less in previous years -- than previous year. On the realization side, we decided to postpone some of our planned exit to the second part of 2023, and this was obviously done to benefit from better market conditions. With a pickup of activity in Q4, we were able to outperform the market in terms of exits. Overall, on the realization amount, including announced deals, we executed EUR 2.2 billion of exits in 2023, i.e., a 24% decrease relative to 2022. When it came to our deployment, we continue to be highly selective in 2023 in private equity and real assets. As you know, Eurazeo invests in category leaders, and we have continued to favor sectors with structural tailwinds like, Specialty Financial Services and BMS is a good example of that. Tech-enabled business services, NeoXam, for example. Healthcare and Energy transition, in particular with the rollout of our Sustainable Infrastructure Fund. Demand for direct lending has remained high in the segment covered by Eurazeo as we are gaining market share over banks, particularly. So we deployed EUR 1.5 billion in 2023. And we've been able to pass additional spreads on top of higher floating rates, and this has been done while containing the cost of risk or default rates and this activity remains close to 0. So we end the year with a significant firepower. We have EUR 7 billion of dry power, out of which EUR 4.6 billion from LPs. On the realization side, as said, we decided to postpone some of our plan exit to H2 when we clearly saw a pickup in activity in Q4 and we were able to announce by the end of the year, significant deals like DORC and Efeso to name a few. Overall, we were able to execute EUR 2.2 billion of exits, taking into account all the deals announced at the end of the year. Eurazeo exits were executed in good terms -- in very good terms, which reflects the quality of our portfolio as well as the benefits of being a focused mid-market player. So let me stress the 5 main deals we executed in buyout in 2023. As you can see, average cash-on-cash multiple was 2.8x and average IRR amounted to 33%. I will now hand over to William, who will present our financial results.

Thank you, Christophe. I will now take you through the financial results for the year. Let me start with the asset management activity. As a reminder, we sold our stake in Rhône capital in 2023, and the figures are all presented pro forma of Rhône. Overall, AUM growth and particularly fee-paying AUM growth, illustrates the dynamism of our asset management business. Total assets under management were up 9% in 2023, reaching EUR 35 billion with third-party AUM up 12%. Fee-paying AUM were up 12% at EUR 26 billion with third-party fee paying AUM particularly strong at plus 16%. Recurring revenues from Asset Management posted another year of solid growth. Management fees stood at EUR 398 million in 2023, up 9% from previous year on a comparable basis. Third-party management fees, excluding IMG, were up 8%. IMG fees were only slightly up in 2023. The slow growth pace for 2023 is primarily attributable to a lag effect of lower AUM levels at the end of 2022. Trend has materially improved ever since with IMG AUM up 12% in 2023 and positive inflows year-to-date. Balance sheet management fees were up 18%, which as we had said during our H1 call, and this has then been already disclosed, is largely due to the commitment made in our mid-large buyout funds. Fee-related earnings for the year of 2023 are strongly up. 2023 FREs amounted to EUR 138 million, up 22% from last year on a like-for-like basis. Our FRE margin improved by 380 basis points and reached 34.8%, which is close to the bottom end of our midterm target of 35% to 40%. This further progress in Eurazeo's operating leverage reflects our commitment to cost efficiency, which we continue to invest in our future growth, as Christophe mentioned earlier. Overall, the contribution of the asset management activity amounted to EUR 128 million in 2023. As said, recurring operating income is up strongly with FREs up 22% at EUR 138 million. Performance fees are down due to a lower level of realizations relative to last year, both for balance sheet and third party. Performance fees from third party are due to increase significantly in the next few years to represent up to 10% of our third-party revenues over the cycle, as we said during our Capital Markets Day. Let's now turn to the investment activity, starting with the value of our portfolio. As you know, since we report our accounts under the IFRS 10 norm, the main driver of the P&L of the investment activity is a portfolio change in fair value during the year, i.e., the value creation. As you can see, the net value of our portfolio was EUR 8.3 billion at the end of 2023, up 6% from last year, with scope contributing EUR 312 million or plus 4% and change in fair value contributing EUR 62 million or 1%. The per share value of the portfolio amounted to EUR 109.6 at the end of 2023, up 9% from 2022. Hence, the impact of our share buyback program was plus 3%. As you can see, buyout, real assets and private debt showed increase in fair value of respectively, plus 2%, plus 4% and plus 12%, whilst the growth portfolio was adjusted down by 6%. Value creation was positively impacted by the operating performance of the underlying portfolio as well as realizations completed above the last recorded net asset value. On the other hand, we adjusted multiples or discounts applied to some specific lines in the portfolio. Let me stress that value creation of any portfolio is not linear. Some years are stronger than others. Value creation in the portfolio has been 17% per annum over the last 3 years, including 2023, which is to be compared with our historical average of 12% that we reiterated as a target during our Capital Markets Day. As said, a key component of the value creation pertains to the growth of operating metrics of our underlying portfolio. As you know, we have a transformational value creation playbook, which we think is well adapted to higher for longer interest rate environment. Overall, 2023 was another illustration of the quality of the underlying assets in spite of a more challenging macro environment. In buyout, which represents 60% of the total value of the portfolio, revenues and EBITDA of the underlying companies were up, respectively, by 10% and 13%. Companies in our growth portfolios, which represent 23% of the total portfolio value, posted an aggregated revenue growth of 17%. In fact, the majority of portfolio companies posted a higher rate of revenue growth than this 17%, i.e., between 25% and 40% is only a few portfolio companies lagging. And last, in our real assets portfolio, which accounts for 12% of Eurazeo portfolio value, we had a strong year-on-year operational performance, as you can see. This performance reflects the specificities of our exposure in real assets. We are talking about operational real estates, and hospitality represent more than 50% of the total with a diversified geographic exposure. Another important element of value creation, as Christophe explained, is our ability to realize exits above NAV. That's been the case consistently over a long period. 2023 exits were all done on very good terms, this has been mentioned, with an average 2.8x cash-on-cash multiples, 33% IRR and an average NAV uplift of 23%. This compares to an average historical cash-on-cash multiple of 2.1x on realized transactions pertaining to the portfolio as well as a 25% historical uplift to latest NAV. Overall, closed and announced deals relating to the balance sheet amounted to around EUR 1 billion in 2023, which is about 13% of the previous year portfolio value. Looking forward, we expect a stronger stream of exits relative to 2023, which is consistent with our commitment to accelerate the shift towards a more asset-light business model. And we have a good and diversified pipeline of exits for 2024. Turning to the P&L of the investment activity. Overall contribution of the investment company was a negative EUR 91 million in 2023 with the following main drivers. Value creation contributed positively for EUR 106 million, of which EUR 62 million linked to the portfolio change in fair value, as I mentioned earlier and EUR 47 million related to other financial assets. Management fees paid to the asset management company amounted to EUR 122 million. They are deducted in the P&L of the investment company. In a nutshell, at group level, net results group share for 2023 stood at EUR 1.824 billion for the year with the following elements: first, the positive contribution of asset management at plus EUR 128 million; second, a negative contribution of the investment activity at EUR 91 million; and third, we registered, as you know, EUR 1.9 billion positive one-off impact stemming from the revaluation of the accounting value of the on-balance sheet portfolio in relation to the IFRS 10 norm application plus a EUR 70 million loss on our -- on the sale of our stake in Rhône. We are committed to increase return to our shareholders through dividends and share buybacks. As announced during our Capital Markets Day, we will propose at the next AGM an ordinary dividend of EUR 2.42 per share, which is a 10% decrease year-on-year. Investors who have been on the register for more than 2 years are eligible on top to a 10% loyalty bonus. In the coming years, our intention is to continue to increase our ordinary dividend. As regards share buybacks, we bought EUR 129 million of our own shares in 2023. And during the Capital Markets Day, we announced a EUR 200 million amount of share buyback in 2024 for cancellation that we started to execute at the beginning of the year. This is part of the execution of the EUR 1.5 billion share buyback program that we plan to execute over 4 years. To finish, one word on the financial structure. We have a robust balance sheet. We have a strong capital base with total equity of EUR 8.4 billion at the end of 2023. And we have a low gearing below 4%, taking account the closing of the disposal of Efeso which happened earlier this year and of DORC which should happen shortly. We also have ample financial flexibility, thanks to our revolving credit facility of EUR 1.5 billion maturing in 2026. Thank you for your attention. We can now open the Q&A session.

[Operator Instructions] We will take the first question over the phone from Nicolas Vaysselier from BNP Paribas.

I have 3 questions, please. The first one is on the outlook for realization. So like you, we are seeing a pickup in activity in the markets and things seem to be feeling more positive now. And you keep commenting on positive outlook on your side for 2024. I'd like to know if this is more H2-weighted or if some things could happen in H1? And which segment of your portfolio could be contributing? And as well, should you have some very sizable exits, the EUR 200 million of your buyback, could it be upside a bit this year? The second question would be on your portfolio return in H2. Could you guide us a little bit through the moving parts there, like how did your valuation multiples moved and the growth dynamics across the segments. I seem to remember that, for instance, consumer or indeed businesses have seen a bit of a slowdown this year. And final question is on fundraising. So you have a busy year ahead. I was working to know if you can give some elements of guidance for next year, could we see an acceleration versus the EUR 3.5 billion this year. And also if you could comment on the momentum across your secondaries and what's the expectation there?

So we'll -- I'll do the first 2 questions, and Christophe will take the third. On realization overall, as Christophe mentioned, we see a much better outlook. We are not the only one to say that. As your question pertains particularly to the realization on the balance sheet, there, we have a very clear pipeline and diversified pipeline, as I said. So it's not -- let's start with your question on the segments. It's not focused on a given strategy or a given segment. The one thing I would say that we are not dependent upon exits in the growth and venture segments to -- in 2024. I mean, we are realistic people. This is a business where we see potentially a better outlook. But clearly, the bulk of the exits that we contemplate for 2024 will be buyout assets, real assets as far as the balance sheet is concerned. We could have announcement as early as H1 for some of the assets, with other announcements will come rather in H2. And then the closing is always -- it's not a science. It depends upon who buys. If this is a strategic player, obviously, that takes more time given antitrust. So there would be a bit more cautious. But we have launched or in the process of launching processes. So we are obviously putting ourselves in a situation to have as much transaction announced pre Q4. As it relates to the share buyback, should we be very successful and exceed our plan? We -- as we said, we are committed to execute further share buyback above the EUR 200 million basic amount for each year, if we have a greater amount of realization. So the commitment is 1.5 on the 4 years, that we stick to and it depends obviously on the pace at which we realize assets. So yes, there is an optionality that should we be more successful than planned, we could speed up the share buyback program. Portfolio return. I think I commented already that there is a strong dynamic across the board in terms of operational metric, including in the part of the portfolio where we did the most adjustments, i. e. is the growth part. You're right to say that the more a company has a B2B model, the more sustainable multiples were, whether this is a tech growth company or whether this is, by the way, a buyout portfolio-related company. But this is really where we've made adjustments only on a few companies to your question on multiples. There are areas, sometimes it's multiple, sometimes it's cross checking with an additional methodology or cash flow methodology, where sometimes it's just increasing the discount on the last round, as you know, for growth when we think that the last round is a bit dated. So there's a lot of judgment going into that. As you know, it's a very thorough, line-by-line, bottom-up process, but there is obviously an element of judgment.

And you were right to link the different points in your question because you have seen during my presentation and during William's explanation that we are confident on realization. Market conditions have stabilized. This should lead to more realization. There is a close link between the environment of [ fundraising ] and the environment of fundraising because it's when investors see realization, see exits, see returns, cash flow -- positive cash flows from their portfolios, I'd say, reinvest. So nevertheless, we -- as it was introduced in my presentation, what have been the recipes in 2023 to resist to difficult fundraising environment? First, to keep, to maintain a good offering of different -- complete values, a diversified offering of products, this is maintained in 2024. And also, we have been investing significantly in our resources to increase our international footprint. And we are continuing to expand our wealth component -- or wealth penetration, if I may say. We are following the very good trends in the utilization which is called -- so [ utilization ] of the private equity industry. And so we tend to believe that the good recipes of 2023 should continue to produce good results in 2024. Yes, we are confident.

We will take the next question from the line of Arnaud Palliez from CIC Market Solutions.

Yes. I have 2 questions. The first one is regarding the management fees. I would like to know if there was some significant change in the percentage of these management fees in 2023. The more difficult environment for private equity, does that have an impact on the level of management fees? That's my first question. And the second one is regarding the penetration of the retail market. Can you be -- can you give us more details about the progress that we have made in last year in term of addressing these type of investors?

Thank you, Arnaud. I'll take the first question and Christophe will take the second. The management fees overall. I mean, the yield is a tad lower in aggregate on fee paying AUM in '23 versus '22. It's a bit more than 10 basis points. It remains high close to 125 or 127 basis points. Now what does explain this is not a downward revision of pricing with clients. That, we haven't seen. It is more linked to a mix effect. In fact, as you can see in 2023, we've been very strong in growing AUM pertaining to private debt and private debt has a lower yield than private equity. Now if you look at it dynamically, we'll continue to collect very strongly on private debt, as Christophe said. But we also had, particularly in Q4, a very strong private equity collection in Q4. So that mix effect should rebalance going forward.

And thank you, yes, utilization. We prefer to talk about wealth because it's not the lower end of retail, it's more the upper end of private individuals that are investing in private equity. This is a long-term trend in the private equity industry, and the way we capture this trend is, as you know, through to B2B2C business model. We talk to insurance companies, banks or independent brokers, but we don't talk to final private individuals. So the way we capture this trend is first by deepening our interaction with the existing counterparts, with the existing partnership we have. It takes time to train. It takes time to explain to the final private individual, what is an investment in private equity, in private debt, in infrastructure. So we are deepening, accelerating the partnership we already have. And also it's by hunting new relations, new distribution channels. You have seen that we have developed partnerships with Moonfare and iCapital. And also, we are benefiting from the fact that some of our largest counterparts today. They may be very strong players in France who have subsidiaries elsewhere in Europe or there may be subsidiaries in France or international insurer or banker. And we are obviously using this tool to and -- so there is -- it's a mix of farming and hunting.

It appears no further questions over the phone. I'll hand it back over to the host for the question from web. Thank you.

Yes, we do have a few questions from the web. So first, we have questions actually on the cost outlook from Alexandre Tissieres, of Bank of America and Alexandre Gerard, and I will take all of them together. The first one would be, how did you contain the costs of the asset management side? And what are the efficiency measures that you have taken or are taking? Then sort of the same question on the levers of the investment company costs. And then lastly, just on costs, the cost of financing which went from -- which is up from EUR 15 million to EUR 40 million, what are the drivers behind this rise?

Last question, can you repeat?

Last question is the cost of financing.

Okay. So it sounds like the very much related to the last part of the presentation, so I'll take those ones. You know the cost base of this company is about 75% related to salary mass. So how do you contain costs in a company such as Eurazeo is by containing your salary mass first and foremost, both price and volumes, if I may say so. And then, there are also some general expenses outside of -- non-related to people where you can renegotiate a few things, although in an inflationary context this is probably more difficult to do and it was more difficult to do. We've looked at pretty much everything from rent to outsource contract. And obviously, we've been very disciplined in hiring as well as on the remuneration side. Still, of course, and that's a very important element to stress, being mindful of the competitiveness of our compensation policy in the market. So there is no miracle. We've been very selective in the hiring. So we do invest in our future. As Christophe said, we hired some senior salesperson to help us expand our fundraising beyond France. We strengthened the wealth team. We continue to strengthen our client services, as we had said. But also we did complete some appointments on the investment side. You may have seen the appointment of Raluca Ragab as a senior MD in our Growth team based in London, and there were a few others. But globally, this is how you contain cost in the company. Going forward, we had said in the Capital Markets Day that beyond that discipline of investing in new resources in a very selective way, there are 3 levels more fundamental that which we are working on and some will deliver over time, and some will be associated to absorbing future volumes as opposed to reducing costs. One is exploiting better the synergies and the scale effect at group level. The second is having a rational, fully modern operations framework, concentrating on middle and back office. And we did merge all our operations and are in the midst of the transformation. And third is automate everything that can be automated including using Gen AI technologies when applicable. Cost of the investment company are impacted precisely by what I've just said. You see an increase in the cost of the investment company. Now if you look at the whole cost base of the group including investment company and asset management, they're still quite moderate at 5%, so consistent pretty much with the inflation of salaries on the European continent. What does explain a higher increase at the investment company level is the fact that precisely we invest in the transformation of operations and our digital roadmap as well as the strengthening of our control functions, as we had announced with Christophe back in the Capital Markets Day. Let me stress again that the cost pertaining to the investment company, they represent 9% of the total cost base of the company, which is the most conservative approach you can find among the so-called capital-heavy asset managers in the private markets in terms of allocation of asset management versus investment company. Cost of debt, you see a EUR 41 million amount. Usually, so what you have here, you have the cost of a bit of operational debt which is -- you would find that pretty much everywhere. There is always between the time you stream up the cash to your clients versus when you realize your assets. And it goes with a little remuneration that market practice that accounts for about half of the amount. And then 20, 20-plus pertains to the fact that we used our credit lines. The cost of this credit line is Euribor 3 bonds plus 45 basis points. So in a negative rate environment, there was 0 cost. In an rate environment where you had Euribor closer to 4% during the year, it's easy to compute the cost. But as you can see, we have structurally low gearing and a margin on our credit line that is consistent with strong investment-grade implicit rating.

Thank you. I have another question is on the GP acquisition pipeline. It's a question from Alexandre Gerard. Can you update us on the GP acquisition pipeline? Another shareholder talks about a rumor in the market. And a question also on, if we would pay in cash or through shares.

Listen, we will, together with Christophe, as you can imagine, hard to distribute that question. Because, as you would imagine, the 2 CEOs and the Executive Board, should there be any GP acquisition opportunity, we'll be altogether concentrated on -- so we will do the same answer that we had given to the Capital Markets Day. We're not talking about the pipeline nor considerations for any transaction. Should we have a transaction to announce, we would announce the transaction as a listed company has to do. What we had said is our plan works organically. And Christophe reiterated our confidence on the fundraising, the capacity -- the ability to grow AUM, the ability to grow asset management revenues, the drivers of which we had described, then we're happy to come back to. Same applies to increasing the margin through scale effect as well as good cost containment. Same applies to the asset rotation. That will help us reduce the balance sheet by 30% in 4 years as we had announced. Now we have a very strong balance sheet, as we said. It gives us an opportunity should there be consolidation -- valid consolidation options. We have evolved in a sector where there is consolidation for different reasons that I will not detail, but there are strong reasons. We see ourselves potentially should there be a valid opportunity as rather a consolidator. And the rationale for us would be that potentially could speed up the pace at which we shift the assets -- the business model towards an asset-light or we gain market share in certain verticals that are consistent with the overarching ambition of being the leader in mid-market Europe growth and impact. So don't expect us to talk about in any detail of a transaction. We will do that only if there is a transaction when appropriate. But you hear from me on your -- the last part of your question. We are a listed company so we have an equity currency. But also we have EUR 8.4 billion capital base, which is quite unique for a company of our kind. And remember the chart, the bar chart we had showed to you, EUR 4 billion excess capital, of which EUR 2.3 billion will come back to shareholders. That leaves a bit of room.

I have a few questions from Geoffroy Michalet from ODDO BHF. You actually answered some of them but I still have one. How do you see the economic growth of the portfolio companies in 2024? And I guess, the question is also on the value creation going forward.

Listen, we don't provide guidance on the underlying portfolio company growth. But what I can say is, two things. One, it's a very healthy portfolio, and the growth pattern that we've been able to show in the past years including 2023 in a more difficult macro environment, is there. And you should expect that it will continue across the board. We consider that 2023 was low tide for value creation. So I will not commit on anything for 2024. But you hear from me that if we do our realization as planned, there would be some good news potentially here on valuation if we continue on this path of positive transformation of the underlying portfolio, there are also reasons for value creation provided, of course, that the multiples in the market hold at least.

And maybe just to complete and to illustrate what William just said, the idea of concentrating Eurazeo on the mid-market companies in Europe is because we tend to believe that we are able to help this company to add value to accelerate. The case of DORC is quite illustrative. DORC is a hidden champion. It was -- we helped this company to increase its revenues from the U.S. and from Asia, which was a significant value creation. So again, our strategy is based on backing hidden champions that are able to outperform the general macroeconomic growth.

We have just 2 minutes left. I just had one question on the private debt side. Are you seeing signs of higher default rates?

Absolutely not. We have been able to maintain high margins to -- even if floating rates have been increasing. But we are not seeing any deterioration of an impressively good loss ratio on this portfolio. And the good news is that this market is deepening all over Europe. The deepness of this market is increasing. So we keep an incredibly selective investment process. So no, we don't see any change so far.

Thank you very much. That's the last question.

We'd like to thank you all. Have a great day.

Thank you.