Bridgepoint Group plc (BPT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Bridgepoint Group's plc's 2024 Full Year Results. The presentation will commence shortly. [Operator Instructions] Please note that this call is being live streamed to a webcast for a wide audience and will be recorded. [Operator Instructions] I would now like to hand the call over to Raoul Hughes, CEO, to open the presentation.

Good morning, everyone, and welcome to Bridgepoint's 2024 Full Year Results. I'm Raoul, Bridgepoint's Chief Executive, and I'm delighted to be joined with me in the room this morning by Ruth Prior, our CFO. I'm going to kick off this morning with a high-level snapshot of our performance before talking in a bit more detail about the broader positioning of our business. Ruth will then talk you through our financial performance and revised guidance in detail before we open to Q&A. I expect we'll probably be chatting for about half an hour. I thought I'd start with a key message to take away today. Bridgepoint continues to perform strongly, and we are increasingly confident in the outlook for 2025 and perhaps more importantly, carrying this into the longer term. We are a more diversified and scaled group following the closing of the ECP transaction with a correspondingly higher quality of earnings. Importantly, we expect to make further progress on our diversification journey over the next few years as part of our medium-term strategy to grow to $200 billion of AUM. I'll talk more about this a bit later. But first, let me turn directly to performance. In 2024, we maintained our deployment pace while retaining necessary investment discipline with our funds continuing to perform across the board. We returned a record amount of capital, some EUR 8.5 billion to our fund investors, no mean feat given the broader market trends. And we made strong progress towards our fundraising target of EUR 20 billion by the end of '26. And that's why we're now raising the expectation to EUR 24 billion today. To that end, our SMID Cap Private Equity strategy will shortly close BDC V at its hard cap of EUR 2.8 billion against a cover number of EUR 2 billion, perhaps more a knockout performance than a new extrapolatable trend, but an impressive demonstration nonetheless of investor interest in the Bridgepoint brand. Overall, we're in a position where the core drivers of long-term value are in place, which has given us increased confidence about our growth ambitions. Turning to further detail on performance. Consistent with previous presentations, we're showing our '24 numbers, including a full 12-month contribution from ECP. We've hopefully colored it blue for clarity. Our private equity and credit businesses continue to grow and perform strongly. And of course, the inclusion of ECP drove a step change in scale compared to '23. AUM grew by 4% organically and stepped up by 69%, including ECP. Management fee and other income grew 14%, following successful flagship fundraises for Bridgepoint Europe and ECP as well as increased invested capital in credit. FRE grew by 16%. EBITDA increased by 7% organically and almost doubled to GBP 292 million when ECP is included. Now I'm really pleased to say that despite '24 consensus EBITDA increasing by 19% during the course of last year, each of these measures is ahead of current consensus as well by further single-digit percentages, AUM by 9% and importantly, FRE and EBITDA by 5% and 3%, respectively. That's the headline financials, but perhaps more importantly from a go-forward perspective is the fact that the enlarged group is now more diversified. This applies to the type and geographic location of fund investors, and it also applies to the diversity of investment strategies by vertical and geography. But excitingly, there is more to come, further increase in sovereign wealth capital and indeed private wealth or the building out of geographies in which our verticals operate, either side of the Atlantic and also perhaps further east. On fundraising, 2024 was a strong year with the completion of 2 flagships and a very successful fundraise for BDC. In total, we raised EUR 8 billion with EUR 6 billion counting towards the new increased target we've announced today of raising EUR 24 billion for next cycle funds by the end of '26. BDC V was notable for being raised quickly in a difficult market and became fee paying in the second half of '24. BDL IV has already had a first close at 50% of the cover number. And we have also closed our sixth, seventh. And as of last week, we've priced our eighth CLO, which brings total CLO AUM to over EUR 3 billion. This year, we've launched fundraising for ECP's next flagship fund and also be raising a core plus evergreen product that would initially attract the institution in capital. Indeed, a EUR 1 billion anchor investor agreed to join this week before subsequently entering the wealth channel. In credit, we will continue to fundraise for BDL IV, start to fundraise and invest BCO V and expect to price at least one further CLO. Diversifying sources of capital beyond the institutional LP investor base is a key opportunity, and we expect to hold an initial launch of our wealth product, which will be called generations in the first half of this year. As a reminder, this will be an open-ended evergreen private equity vehicle that will deliver our flagship strategies to individual investors. From a distribution perspective, we're going to focus on the established and regulated banks. This includes both the global wealth platforms as well as the more regionally focused private banks. We believe we can achieve scale effectively, leverage our existing IR team and ensure that we place our brand alongside equally trusted partners. Finally, next year, 2026, is expected to see BE VIII become fee-paying from midyear with fundraising expected to complete in 2027, plus raising yet another further 2 CLOs. So I'd like to move on to spend a moment to chat about strategy. Our medium-term target is to grow to around $200 billion of AUM organically and through M&A over the next 5 to 6 years. As you no doubt heard me say before, I do feel AUM is a bit of a lazy proxy, and I'm focused as indeed is Ruth on growing revenues and profits. Indeed, I don't think all AUM is equal. As a value-added alternative asset manager, I would hope that our AUM drives higher fees per dollar than some of our competitors. As we look to grow, there are 3 things that we'll be looking to achieve. Firstly, we expect the existing footprint to continue to grow as we diligently incrementally build the size of our current series of funds, ensuring we raise the right amount of capital for each product in each cycle, but also by diversifying our fund offerings within existing investment strategies. building on our strong positions in private equity, credit and infrastructure. As I alluded to at the CMD in October, we are confident that this can deliver growth of around GBP 50 billion of AUM. Secondly, we look to accelerate this growth with targeted bolt-on complementary M&A and team lifts. These will be in areas where we can gain additional expertise and exposure. New products within credit and sector-specific expertise in private equity could be examples of this type of expansion. Thirdly, we want to continue to build the business through platform-enhancing acquisitions. The additions of Bridgepoint Credit and ECP have been a success, integrated appropriately and have contributed materially to the group. We will look at similarly transformative M&A in the future. Acquisitions enable us to enter new asset classes and geographies at scale, enhance our market presence with greater AUM, increase the diversity of our income stream as well as bringing additional expertise and new investors to the platform. It would accelerate the growth of the group, unlock opportunities to create material value for shareholders. Such opportunities could be in additional verticals like real estate and/or new geographies where our existing verticals have less presence, be it Asia, Europe, or indeed the United States. Such transactions are though binary and clearly dependent on culture, but I would be confident that over a 5- to 6-year period, Bridgepoint will be able to deliver circa GBP 50 billion of AUM growth this way while materially enhancing the quality of our earnings. Now I'd like to move on and talk to you through a couple of slides on each of our 3 existing verticals to bring out why we feel they are all really well positioned within their markets. And given the current excitement about all things electricity, let me start with added-value infrastructure. ECP is well-positioned in both electricity and sustainability. Now there's been a lot of talk about AI and the impact on electricity demand. But in addition to this, the U.S. electricity investment market is set to benefit from the need for new generation capacity to replace coal-fired and older nuclear plants as well as from demand growth from the re-onshoring of manufacturing, the electrification of transportation, the development of crypto markets and obviously, the construction of AI data centers. The strategic partnership with KKR to invest in data centers is a powerful endorsement of ECP's expertise in a complex and regulated market where navigating the permitting and grid connections needed to bring new generation for AI data centers online is a valuable and very rare skill set. Now I wanted to spend a moment on Calpine as an example of ECP's ability to buy well, optimize operations, and then sell well. While technically not a 2024 event and is still subject to regulatory approvals, the sale to Constellation Energy is a great example of the kind of transaction that ECP does really well. It was ECP's largest-ever investment back in 2017 and will result in our largest-ever exit and indeed, one of our industry's largest-ever exits. On completion, the consideration will be split between cash and Constellation shares, retaining exposure to the U.S. electricity generation sector until the shares are sold. The timing of the sale announcement has the added benefit of delivering material returns to fund investors ahead of the ECP VI fundraising, which is always a good thing. Now turning to our credit business. We have continued momentum in a key fundraising year for the strategy across direct lending, credit opportunities, and CLOs. BDL III continues to perform well, with direct lending net leverage currently at 5.8x EBITDA. Importantly, by maintaining good interest cover at 1.9x and low loan-to-value at 35%, there is plenty of cash and equity value buffer if needed. The portfolio is well diversified across our target sectors and geography, collectively meaning that we have a low level of what we call watch list credits, and fingers crossed, I'll expect to be able to continue to report that the strategy has 0 realized losses going forward. A quick word now also on our CLO business, which has been a real success story for the firm. We launched the strategy organically in 2020 and continue to print 2 CLOs each year, the most recent being CLO 8, which, as I said, was priced last week. But I also wanted to highlight a really impressive event earlier this year, which further demonstrated the success of the strategy with the upsizing and refinancing of CLO 4. The size has increased from EUR 320 million to EUR 450 million against a backdrop of strong demand from new and existing investors. Additionally, the reinvestment period is extended to 2029 and the cost of capital lowered to market-leading levels, a demonstration of the low risk of the portfolio, and I'd like to say, quality of the manager. As a result, we will be able to charge fees for longer and our equity return will be enhanced. Now finally, turning to private equity. It's worth recapping how we drive returns in private equity through a combination of selecting assets which meet our gatekeeping criteria and then creating value while in our ownership. In addition to our focus on specific niches, we look for companies operating in Europe, which have high revenue visibility, high EBITDA margins, and strong cash conversion. We then look to create value through various combinations of driving international expansion, taking a national champion and expanding it across Europe and/or into the U.S. to build more global revenue streams, buy and build programs, especially in fragmented markets, and helping companies move up to the next level in terms of operational excellence or sometimes repositioning a company to address new opportunities. Having bought well and added value, we're then able to sell well often to U.S. businesses and generate attractive returns for our investors. On the subject of the U.S., there's a lot of talk about tariffs recently. As you'd expect, we've done some analysis on the potential impact of tariffs on our equity portfolio. And I'm pleased to report that we'd expect any impact to be relatively limited given the general structure of our portfolio operations in the United States. The United States is an important end market for us, but our portfolio sales generally don't come from imports and our portfolio companies with the most material sales, the 2 of them really, Meristem, which is in agtech, and Balt in medtech, both have domestic U.S. production facilities. We are stock pickers rather than macro-market investors. We continue to benefit from investing in select niches with high-growth sectors in Europe. While European GDP has lagged other regions for many, many years, the overall market growth in our 4 chosen sectors is well ahead of the European GDP growth at between 6% and 11%, and the growth in the specific niches we invest in within each of these sectors is higher still at between 12% and 38%, with an average in the low 20s. These growth niches underpin the returns which we were able to achieve in the middle market as demonstrated by the realized returns for each sector. Now a case study. Vitamin Well is a great example of how we create value. We first invested in 2016, following an off-market process by our BDC team in Stockholm, and it reinvested via our flagship in 2021. It started as a successful functional food and beverage business in the Nordic region. The capital we invested over the last 8 years supported geographic expansion across Europe and then into the U.S., which grew to account for around 30% of group revenues last year. We also supported new product development and category expansion to increase the addressable market. And lastly, we reinforced the management team significantly and helped implement new structures, systems, and processes to support and sustain the company's growth. Since we first invested, the business has seen revenue increase by a factor of 14. And as you can see from the slide, following the sale of a controlling interest last year, we've been able to deliver an extraordinary return of capital to our investors. So putting it all together, ECP is a leading investor in North America across energy transition, electrification, and decarbonization with significant tailwinds remaining in those sectors following the change of administration in the United States. In credit, we have a strong European platform. Our portfolio metrics remain favorable, and our funds remain on track to deliver target returns for fund investors. Our private equity business occupies an in-demand part of the market due to us investing in growing middle-market companies in select niches, which have a track record of delivering consistently strong performance through cycles. And with all that, I'll hand you over to Ruth.

Good morning. I will take you through our financial performance in 2024 and then update you on guidance for '25. I'll present underlying results for the group as a whole, assuming ECP have been in the group for 12 months as well as show you the organic performance of the business without its inclusion. Including the impact of both organic growth and the contribution from ECP, EBITDA almost doubled in 2024, increasing by 96% and EBITDA margin increased by 8 percentage points to 54%, the first time it has exceeded 50%. This is a great sign of the increasing strength and trajectory of the group. Successful fundraising from the previous cycle has locked in near-term FRE and driven organic FRE growth of 16%. And following a year of record capital returns to fund investors across all strategies, we are upgrading our guidance for fundraising in the current cycle and now expect to raise EUR 24 billion starting from mid-'24 to the end of '26. My summary for '24 is the combination with ECP has increased our scale and diversification and increased our quality of earnings. And combined with our strength across deployments, exits and fund performance gives us confidence to increase our fundraising guidance. Assets under management now stand at $75.6 billion. Over the last 12 months, we have raised a total of EUR 5.7 billion across BE VII, BDC V, Direct Lending III, Credit Opportunities IV and CLO 6 and 7 as well as delivering EUR 4.6 billion of divestments. Valuation gains in our funds added a further EUR 3.2 billion. Consequently, including ECP, AUM finished 80% ahead of the prior year, noting that the difference between the growth percentages in dollars and in euros is due to FX. Turning to fee-paying AUM. In the last year, we raised EUR 3.4 billion and deployed EUR 2.3 billion of new fee-paying capital across our credit strategies. Set against this, reductions in fee-paying assets from the sale of investments and return of capital totaled EUR 3.6 billion. Again, including ECP's EUR 10.6 billion of fee-paying capital, fee-paying AUM increased by 49% to EUR 38.7 billion. Putting our 2024 performance into our longer-term track record shows continuous improvement with an EBITDA CAGR of 38% since 2018. The EBITDA margin has increased from 30% to 54%, well on track to meet the target of 55% to 60%, which we set at the CMD last year. So a compelling and strong few years that we will continue to build on. Moving to the specifics of 2024 deployment exits and fund performance. We've enjoyed strong deployment across all investment strategies last year. BE VII has committed 64% of its capital across 13 investments, 11 of these have been off-market or bilateral processes, drawing on our network of sector teams and local offices to identify and convert opportunities. Recent investments include Esker, a leading global provider of AI-powered automation solutions for offices of the CFO based in Lyon. Schuberg Philis, a managed IT service provider for mission-critical applications across large organizations based in the Netherlands; and SAMY Alliance, a social-first digital marketing group based in Madrid, where having taken a minority position in '23, we have now become the majority shareholder. BDC V is already 11% deployed, having bought 2 platform companies with the take private of Eckoh, a global provider of customer engagement data security solutions and Argon, a global consultancy focused on industrialization and supply chain excellence. In infrastructure, ECP V is now 66% deployed with ECP VI expected to become fee paying in mid-'25 once ECP V is over 75% deployed. Bridgepoint Credit has continued to deploy well with GBP 1.9 billion deployed across direct lending, credit opportunities and CLOs. And lastly, with BDL III now 88% committed, fundraising has started for BDL IV . As well as strong deployment, we have returned funds to our investors well. '24 was a record year for capital returns, better even than 2019 and 2022, the previous high watermarks. Private equity and credit combined returned EUR 4.7 billion to fund investors, while ECP returned EUR 3.8 billion for a total of EUR 8.5 billion. These material returns of capital clearly position us well as we embark on the next cycle of fundraisings in BE and ECP. Notable exits in the year included Kyriba, Care UK, Vitamin Well, and Oris Dental, plus the agreement to exit Calpine, which continues with dividends until a full exit. And to note, the Dorna and Calpine transactions remain subject to regulatory approval and are not included in these figures. Dorna would add a further EUR 1 billion and Calpine $1.4 billion. And as we reach the end of the first quarter, we have good visibility over the exit pipeline for 2025. Ultimately, fund performance underpins our business model. Across our 3 verticals, funds continue to perform strongly. All of our flagship funds are in the top quartile on a range of measures. Valuation uplifts in our funds were trading driven with 83% of unrealized valuation multiples either flat or reduced over that period, which really does underscore the strength of the earnings performance within our portfolio. Thinking about valuation, it is also worth remembering that historically, a 35% step-up in value has been achieved at an actual exit. And in 2024, the values achieved were 29% higher than the latest fund values. And as Raoul has outlined, we are well placed to continue this performance in 2025. Our management fees are stable. They're contracted locked-in revenues and our current portfolio has an average fee of 1.17%, charged on funds with an average life of over 9 years. And we currently have visibility of about 85% of fee income in 2025 from funds that we've already raised. Total management fees and other income increased by 14% organically and 52% year-on-year, if you include ECP. I've just talked about exits, record capital returns and strong fund performance, and this translated into a 150% increase in PRE. Having said that, organic PRE declined slightly year-on-year, given that some transactions agreed in 2024 had not closed by year-end. But PRE as a percentage of total income at 26% was slightly better than our guidance of circa 25%. Looking ahead, there is a material increase in PRE to come over the next cycle, driven by an increasing share of carry coming to the PLC and a greater quantum of co-investment in our newer funds. As an example, has carry for BE VI is 7% and for BE VII is 23% and fund sizes are increasing. So you're getting a higher percentage of a larger number. These charts show that between 2018 and 2024, we invested GBP 0.7 billion into co-investment in the funds outlined, recognized GBP 0.4 billion of gains in the P&L and received GBP 0.6 billion in cash distributions. From this year to 2031 and assuming the funds, which we've already raised and which are listed on the right-hand side, achieve their market, their target returns, the equivalent figures would be a further GBP 0.2 billion of co-investment, another GBP 1.2 billion recognized in the P&L and a further GBP 1.8 billion received in cash on top of the cash already received. Now capital allocation for us is relatively straightforward. To recap what we said at the CMD, we support organic growth. We co-invest in funds. M&A is on the agenda, and then there are capital distributions. In the chart on the right-hand side, you can see how our progressive dividend policy has resulted in a growing dividend per share each year. And in the table below, you can see the aggregate amount of capital returned to shareholders by the dividends as well as via the share buybacks in '23 and '24. When the current program expires at the end of the month, we are not proposing to extend it. Today, we feel that the balance between attractive growth opportunities for that capital versus buybacks has swung back to the former. And finally, let me talk you through guidance, including the upgrade to our expectations for fundraising. Last year, we guided that EUR 20 billion of funds would be raised by the end of 2026 for the next cycle funds. Today, we have increased that number, and our expectation is now that we will raise EUR 24 billion by the end of 2026. That will be split roughly evenly between strategies with perhaps a little less in credit than private equity and infrastructure. While we expect BE VIII to become fee-paying in mid-'26, we expect fundraising for it to continue into 2027. So the full amount will not count towards the EUR 24 billion target. To support that growth, continued investment in the platform capabilities necessary for growth will result in expenses growing at a high single-digit percentage each year. We continue to expect PRE to be circa 25% of total income across 2025 and 2026. And as always, this is a matter of timing, and there are exits which may fall into Q4 of this year or Q1 next year, notably Calpine as well as the timing of carry recognition of BE VI. In 2025, as in previous years, we currently expect PRE to be weighted approximately 2/3 to the second half. We expect our EBITDA margin to be in the range of 52% to 55% in '25 and '26 before increasing to 55% to 60%, in line with industry peers by the time we reach $200 billion of AUM. And with that, let me hand you back to Raoul before taking Q&A.

Fantastic. Thank you very much, Ruth. So to conclude, we've heard that we are a more diversified and scaled group following the closing of the ECP transaction. Bridgepoint Group performed really strongly in '24, delivering financial results ahead of market expectations. It was a strong year across deployment and fund performance. And importantly, we saw record capital returns ahead of the next cycle of fundraising, which has allowed us to increase our fundraising target today. And we're confident in delivering on the organic and inorganic opportunities to realize our growth ambitions. So overall, we find ourselves in a position where the core drivers of long-term value are all positive, and we are increasingly confident in our ability to increase AUM to over $200 billion over the next few years. And with that, I'll now hand you back to Sophie, who can talk you through the process of asking questions. Thank you very much.

[Operator Instructions] We will take our first question from Angeliki Bairaktari from JPMorgan.

Good morning and thank you for taking my questions. Just a few questions from me, please. Firstly, in terms of the credit fee-paying AUM, those grew a little bit slower than I expected. Can you talk about the deployment and realization dynamics you are seeing at the moment and in credit? And second question, thank you very much for the color on the evergreen products, both on the ECP product and also the Bridgepoint product you are planning to launch. Can you remind us what will be the management fee margin that you will be earning on this ECP evergreen and also your evergreen? And last question with regards to the EBITDA margin guidance now at 52% to 55% for 2025, 2026. You still guide for high single-digit growth in expenses per annum. Consensus seems to assume around 6% higher costs and flattish revenues for 2025. So I was wondering if you can give us some color, is the upside for the margin expected to come from higher management fees or higher performance fees this year? Thank you.

Okay. Thank you very much. Ruth, do you want to…

Shall I take the last one first?

You want to take last one first.

So the EBITDA margin is being driven, Angeliki, by better FRE and PRE. And actually, the costs are guided to high single digit because we need to invest in growth.

Evergreen's in reverse order. Evergreen products, I would think you're probably being reasonably conservative and assume circa 100 basis points sort of thing average across the piece. I think some will -- I suspect the generations will be a bit higher. And I would imagine the core plus infrastructure evergreen will end up being a little bit lower. But broadly, that's a reasonable sort of proxy. I mean they are new products for us. And so this will evolve as we build the capital within them. Credit, credit fee-paying AUM?

So I think consensus probably wasn't quite where it needed to be because actually, we think credit is doing remarkably well at the moment, as you discussed.

So I mean credit, I mean, I think they are deploying reasonable amounts of capital across the products end. And as you'd expect, there's [indiscernible] from a wider market perspective, the credit deployment and redemptions is really a function of market activity. You stand here in sort of Q1 '25. I think our feeling is that there is greater levels of market activity. We're certainly looking at our equity perspective, we're definitely finding more opportunities to deploy capital than we were 18 months ago. And I think there is a sense that the market is opening up a bit. Is the deal activity at anything like the levels it was a few years ago? Not yet, no. And I think that will be reflected in the nature of the credit business.

And if I may just follow up... So on the evergreen products, can you clarify if any fundraising is part of the EUR 24 billion '24, '26 guidance?

So the evergreen in ECP, yes, it's part of it. And for generations, no, it's not.

Okay. And on the credit deployment and realizations, I'm asking the questions because what we have seen is that the broadly syndicated loan market is actually taking some market share from direct lending players over the past year. So I was wondering if that's something you're seeing or in the middle market, you're a little bit more insulated from this trend.

Well, it's not a noticeable trend that we've seen in our business and our deployment within our credit team. Angeliki, we just sort of -- we're one market participant and all we look at is where our origination platform is generating opportunities for us. It's quite hard to sort of look at it from a total market perspective.

Our next question comes from Nicholas Herman with Citi.

Three questions from me, please. So firstly, does the guidance on fundraising through the cycle include the continuation fund and SMA opportunities that you referenced? Or is that upside? And I guess, are these ECP-specific? Or is that also private equity as well? Secondly, on the KKR partnership, at the CMD, obviously, you didn't want to quantify that opportunity on the partnership as you said, it was quite hard to quantify, and the partnership had not yet been announced. That's obviously understandable. I guess with the benefit now of several months to work through that, do you have better visibility on how that partnership could shape out in the future? And then finally, just on ECP VI, you referenced, I think, a covenant number of $5 billion. That's only investor comments, a 14% uplift versus Fund V. When you're building that fund and engaging with investors, can you just talk about appetite? And I guess, what leads you to such a small uplift in light of clearly strong strategy performance and strong exits like Calpine? And so presumably, you would see upside to that. And I guess as part of that, when would you expect to have a view on the ability to set a hard cap?

So we try and answer all 3 of them together. Because I think they all sort of come together really the 3. So let me kick off, and then Ruth will sort of will come in. I think the way we'd like people to think about fundraising is we have a sort of a whole raft of fundraising opportunities across the verticals and the products within the verticals. And we sit down and we think about how much capital are we aiming to try and raise for different strategies at different times over the investment cycle. Add it all up and think some of that will happen, some of it won't happen, some of it will be delayed, some of it we have to bring forward. When you look at it in the round, what sort of number do well, of us ultimately because we're sitting here, but the whole business feel willing to say publicly is a number we're going to achieve. And when we did that exercise, we felt that the opportunities to raise capital across the platform gave us real confidence in saying to you guys today that EUR 24 billion is a good number as opposed to the EUR 20 billion we were guided in the past based upon where we feel we are today. If you try and break up the EUR 24 billion, and as Ruth said in her presentation, we broadly think of it as roughly equal across the 3 verticals, although probably in reality, the credit fundraisings and the scale of our credit business versus the others will be slightly lower than the other 2. And that's the sort of guidance we want to give you in terms of the fundraising rather than what is a specific number in any specific fund is probably the way to look at it. So what do we feel as a team within the business, are we confident in telling you guys we will deliver for next-generation funds in that time frame. Now what we're defining is capital that we will raise for next-generation funds in '24, '25, and '26. At some point during the course of probably the next year, we will move that forward to '27 and other time frames. But that's the sort of time frame we're talking about. And it includes funds that we raise for the current vintages. And those will either be the flagships and the core funds in our spaces or indeed SMAs and things alongside of it. And one thing I think there is evidence, particularly in the credit world, but I think it is coming towards private equity anyway, is the old model of just raising a flagship fund and then raising another one is changing and people will be raising different types of funds that will co-invest alongside each other through an investment sort of period. So we're trying to guide you away from being too specific about where the capital sits in either a flagship fund or an SMA or something alongside it and think about it in its totality. It's the number that we are forecasting to raise during that period. If you think about the timing of the next flagship equity fund, BE VIII, our expectation, as we said, is that we will start raising that fund probably after the summer. We've started the pre-marketing. There's a lot of people going around the world talking to initial conversations with investors about appetites and thinking and whatever as we shape the strategy. But we will be launching that probably after the summer. We'd anticipate it moves into fee-paying mode from sort of halfway through next year. But the reality of a fundraising cycle is that we will not finish that fundraising until 2027. And so a proportion of that fund will sit outside the EUR 24 billion that we're talking about today because it won't be raised in the time frame.

And then sort of your question specifically about ECP, and I think it was the KKR partnership co-invest and SMAs. I think at the moment, we would say that most of that is not in the '24. As Raoul just described, we're looking at an overall picture. And I would say that we are still looking at the opportunities there, and we will guide further as we think fit during the year or into next year. And then in terms of ECP VI, the cover number is $5 billion. Do you want to talk about cover numbers?

So the cover number, obviously, is a number that you put on the cover of a PPM. We're describing it as a cover number as opposed to how people might have interpreted these in the past as targets. And that's because we don't necessarily see the number that goes on the cover of a book as the target that we're aiming to raise. As we've said consistently over time, our intention is always to raise the right amount of capital for a fund through a fund cycle. And ultimately, how much you raise will depend obviously, it will depend upon the demand, but also depend on a sense of how well you feel you can deploy it through that period of time. And so a cover number, I would not ask you not to take as being a hard and fast view that we would have about how much capital will be raised. It's a number that happens to go on the book.

And as an example, BDC V had a cover number of EUR 2 billion, and we're just closing that at EUR 2.8 billion to give sort of an example.

Then other funds that you have a cover number, which is where you decide you're going to stop.

Yes, if Doug was here, he'd say that's the start of the conversation, the ECP.

That's very helpful. Just on ECP VI, as you said, the cover number should be -- sorry, the number you should be raising is kind of based on how much you think you can deploy. Clearly, ECP has said that it has lots of opportunities to deploy, which is also why it's going to be raising SMAs. So how should we go about framing that and then the split of SMAs versus the fund?

Well, I think as I said a moment ago, the SMAs and the KKR partnership are not part of our EUR 24 billion. Really, it's the evergreen ECP VI and a little bit of continuation fund. And we will start to give you more guidance around the other items later.

Our next question comes from Duncan Farr with Jefferies. The next question comes from Gregory Simpson with BNP Paribas.

Do you hear me okay?

Yes.

Perfect. All right. Yes, a few from my end. Firstly, a meaningful part of the consideration for Calpine is in Constellation Energy shares, which have been quite volatile. Can you provide some color around how Calpine is factored into the 25% PRE guidance, sensitivity there. Secondly, on BE VII, you deployed about 1/3 of the funds last year, and it's about 2/3 invested today. I guess would you see the scope for the mid-'26 activation of BE VIII to be conservative? Any kind of comments on the deployment outlook for BE. And then finally, just any comments on M&A. We have seen a bit of a pickup in deals in the industry this year. Is that still on the agenda for you?

Okay. Do you want to do the first one?

Yes. So Calpine, the simple answer is that Calpine will underpin PRE, our 25% guidance on PRE really over the next 2 to 3 years. That's the simple answer. I'll give you a little bit more color in that the Group is exposed to Calpine in 2 funds, so ECP IV and the Calpine Continuation Fund, and the carry percentages, I think, are 12% and 15%, respectively. The deal was GBP 4.5 billion of cash and the rest in GBP 50 million of shares of Constellation, and we can sell those shares June '26, 50%, and June 27, 50%. Clearly, it's still got to go through regulatory approval, which we think could take up to 12 months, which is why I was saying it's one of those items that could flip from Q4 to Q1 quite easily. So it's currently valued in our books clearly, and our policy is to discount carry by about 30% until we're much closer to an exit. So it's got some PRE impact in '24. It will have clearly some if we get regulatory approval in '25. And then clearly, if we sell shares in '26 and '27, it will have some more. And it will depend on the shares of Constellation, the share price of Constellation, which as we know, have oscillated since the agreement, I think it went up as far as 340-odd and down to 215. The view from an analyst who covers Constellation is that the share price should be somewhere between 250 and 350. I think for us, the best way for you to think about it, it is part of the 25% guidance, and we have the ability to decide when we sell the shares.

And maybe one other thing to add is that when we calibrate the 25% guidance, we've been reasonably conservative in our assumptions about what then happens to the Constellation share price in reaching that guidance is the way to look at it. But the shares will be held in the ECP fund. ECP will make a call post the lockup. I mean they are very liquid shares, but they will make a call about when do they feel as an investment committee because this is mainly a fund investment that we've got some exposure to, when is the right time to sell the shares based upon a view about the future of electricity generation in the United States. As you come back to what we said earlier in the discussion, there's a lot of positivity about where that sector in the U.S. is going to continue to go. So I'm not necessarily sure that the view that ECP will take will be to sell out the shares as soon as they could. We have to see. It's a very fair question to ask because unusually, for a business like us where you think about our investment activities are generally pretty well diversified. And it is one of the one of the features, if you look at a typical Bridgepoint equity fund, we're investing in 16 to 20 platform investments. So we tend not to be specifically exposed to any one particular exit or any one particular asset in the case of Constellation because of the scale of the investment, but most importantly because of the blowout returns and the absolute success of the returns, there is an element of concentration around that one asset that is unusual for us. So you're right to mention it. BE VII, I mean, we keep saying this. I mean the time at which BE VII transitions to BE VIII is a function of BE VII's investment pace. We have a tremendous origination team around Europe, constantly looking at opportunities. The pipeline in BE feels really good at the moment. We feel there is a good volume of opportunities that the team is looking at across Europe. We're stock pickers. We only buy what people want to sell to us. This is binary, much the same with M&A, which I'll come on to in a minute. It's the ability to keep on investing is binary. If you go through a period of winning a number of deals and investing quicker, it might be a bit quicker than we're saying, but I wouldn't want to bake that in. The most important thing for us is finding the right deal and doing the right deal and investing it really well. And the marginal month when you flip it over is of less relevance to us as a business. M&A. So we sort of spent quite a bit of time in October talking about M&A. What I guess, my headline today is that nothing materially has changed from when we were outlining this in October. I think the M&A that we will be looking to do falls into a couple of discrete buckets as I sort of tried to allude to earlier. There is the sort of infill smaller tuck-in opportunities within the existing verticals. Those are things that we are seeing all the time. There are a number of conversations ongoing. Will they lead to something or not, we'll see. But those are more modest individual transactions. Then there are more transformational M&A opportunities. And as I said earlier, sitting here in sort of March '25, I feel really confident that within that sort of 5- to 6-year window that we've set ourselves there will be opportunity for material M&A across the platform. We think we've got a great business. We think we've got a really well-positioned business. And we think it's also a very attractive platform for other market players within the alternative space to want to come and join. We think we've got quite as you keep on talking the sort of the added value middle market globally diversified platform that we've got, we think is a really interesting place for other sort of alternatives people to want to come and work in. And so I'm pretty confident at some point, we will deliver 1 or 2 transactions that will increase the sort of AUM by the sort of GBP 50 billion that we're talking about. Is that going to be '25, '26, '27? It depends on binary outcomes. We're very selective. There are lots of conversations going on all the time. I spend quite a bit of my time talking to lots of people around the world who are interested in or might be interested at some point in joining Bridgepoint. It's an ongoing dialogue. They're all fascinating dialogues and what was worth doing. It's finding the right one. I'm confident we will, which and where it will be, we'll see. Ultimately, and as we said this before as well, it comes down to culture. There are lots of really great firms that would fit neatly into this business. We want to find the firm at the right moment in time that culturally feels very much akin to the culture of the business as it is today. In an industry that's very people-dependent and people-dominated, we think we've got a really good culture that's very good at adapting and bringing people into it. Not me, it's others in the firm, but I think the EQT Credit business was a great addition to Bridgepoint. The team is all still here. They're running the wider credit platform. They absolutely feel like part of the furniture of the organization. And only sort of 7, 8 months in the ECP feels exactly the same. I mean the tremendous people. We get on very well. They just feel part of the leadership team. And I think that says a lot for the people in this business and the openness and the culture of the organization. I'm confident that we will find interesting businesses that want to join us who culturally will fit in. Okay. As our friend unmuted? Duncan... Duncan...

Not yet, but [indiscernible] Zoom webinar. We'll now address the questions submitted via the webcast page. I will now hand it over to Adam Key to read out the questions.

We do not have any questions on the webcast page.

Do we need to give Duncan another minute? No. Okay. In which case he's had his chance. Fantastic. Thank you very much, everybody, and we'll leave it there.