Tikehau Capital (TKO) Earnings Call Transcript & Summary

[Interpreted] Good morning, ladies and gentlemen, and welcome to the presentation of the half year results of Tikehau Capital in the presence of Antoine Flamarion, the Co-Founder of the group; and Henri Marcoux, Deputy CEO. You have the floor. Thank you very much.

[Interpreted] Good morning, everyone, and welcome to this presentation of the H1 2020 results of Tikehau Capital. Let's start with the key figures of this half year. As we told you at the end of July, we have EUR 25.7 billion in assets under management, up 9.8% over the last 12 months, stable compared to the end of 2019 in spite of an unprecedented complex times in terms of uncertainty. We raised EUR 1.1 billion for our asset management business over the 6, first, months of the year, carried by the dynamic business of real assets and private equity. Fee-paying assets under management are with EUR 20.3 billion, up 17% over the last 12 months and up 12 -- 2% over the half year, mostly with fundraising on private equity and real estate and deployments in private debt and real assets. The income from AUM is up at EUR 88.3 million, up 16% over the 1 year. The management fees average is still up at 94 basis points compared to 84 basis points at end June 2019. Operating income for our asset management business, NOPAM is up almost 40% at EUR 28.6 million, thanks to growth in our income, combined with strict control of operating costs with the margin of 32.4% compared to a 27% 1 year earlier. As to our direct investment business, this was impacted by the volatile market into the half year. Operating income is a loss of EUR 290.3 million because of adjustments in the fair value of some of our assets, especially those listed and costs, related to those financial instruments that we introduced in the half year to run -- to manage our risk. The net income stands at minus 24 -- EUR 240.9 million. Including financial income and taxes, the group has a differentiating asset, especially in the present context, which is a sound balance sheet. At end June 2020, we had EUR 2.8 billion in equity and EUR 900 million in cash and EUR 500 million in undrawn credit lines. And we have also cash in asset management. In a few years -- a few days ago, our efforts were recognized by the ratings as one of the best asset management companies in a nonfinancial rating. And we started the second half of the year dynamically adding EUR 1.6 billion in assets under management in July, along with certain key successes, which we will address later on, and in particular, in a context of COVID, where, of course, business has deteriorated across the board. With that success and other initiatives that we will be starting in H2, our objective is to reach at least EUR 27.5 billion in assets under management at the end of the year, keeping our CMS business on equal, sorry. We move on to Slide 7. You can see here the development of our main numbers. Over the last 12 months, assets under management are up 9.8% to EUR 25.7 billion, mostly with our AUM, our asset management business. As we told you, the scope of asset management was below EUR 9 billion when we started off, EUR 8.6 billion. Fee-paying assets under management are up significantly at plus 16.7%, and that is what will make a big difference in increasing our income in years to come. You have to keep in mind that these fee-paying assets are mostly in closed-ended funds on long durations, which means that we have excellent visibility on future cash generation, but we will get into the details of that. But for H1, we have EUR 150 million mandate from evergreen, and that extends the duration of our funds and, therefore, of our income -- of our revenue. The key item I would like to emphasize at the bottom left corner on the slide is the group in operating income in our asset management business, up 39.5% over the past 12 months, which confirms that our development strategy is profitable for the group. And finally, the net income attributable to the group stands at minus EUR 240 million. It reflects the complex market, the complex and volatile context that we had in H1, which has, of course, a negative impact on our direct investment business as well as the cost of financial instruments used as part of our risk management instruments. We move on to Slide 8. And on that slide, you can see how far we've come since the IPO. You have 6 indicators that we monitor, and we always look at them carefully. 3 years after the IPO, Tikehau Capital improved its profile on all its key figures. You can see that we have EUR 25.7 billion in assets under management, 2x -- 2.6x more than at the time of the IPO. And you may remember that in our guidance during the IPO, we were looking -- we were hoping for EUR 20 billion only in 2020. International developments has worked well for us because we multiply by 3.7 the share of international investors. That stands now EUR 7.8 billion, and initially, we only had EUR 2 billion when we had the IPO. On management fee rate is up 23 basis points since the end of 2016, at 94 basis points. And this is important because in asset management, people believe that as a rule, management fees are low. In traditional asset management, this is true. But in alternative asset management, this is not the case. And what we've seen over the past 3 years, we have significantly increased that rate. Our NOPAM is up 39.5% over the past 12 months at EUR 28.6 million. You may remember that at the -- when we started off in 2016, it was only EUR 3.5 million. We have improved our infrastructure, and we have kept costs under control around the world. But I mean, although we had expanded our coverage, we have 570 people working in 11 offices around the world. Initially, we only have 5 offices at the time of the IPO. So to sum up, we've made headways since the IPO. We are more dynamic. Our strategy is bearing fruit. We are delivering on our commitments, and we're doing everything to continue this momentum, thanks to our very motivated teams, but also we have partners around the world. Let's move on to Slide #9. As we like to say, we operate in what is known as a people business. Our main asset is our human capital. We keep beefing up our teams with people that are experts in each asset class in each territory, and we take great importance to diversification in terms of human capital. We have as many as 27 nationalities with an average experience of 14 years. And what is unique in this industry, we keep lining up the interest of the various stakeholders with capital with 44% held by Tikehau's management. This key component is -- will guarantee selectivity and discipline in asset management. And this is -- this trust has been proven by our clients and investors ever since we started off. We also have strong governance. And recently, we were rewarded, as I just mentioned, by the extra-financial rating agency, Vigeo. And we are one of the best companies in Europe in terms of governance in this industry. We have a Supervisory Board with 50% of the members independent. And we completed our platform with an International Advisory Board created in 2019, which brings together complementary and diversified profiles, which enables us to have an international network of experts. The regulatory exchanges that we have with IAB, International Advisory Board, during the lockdown has enabled us to monitor in real-time the developments of the COVID crisis and propose customized solutions to our customers and have adaptive solutions for our own workers, for our own people. We had 2 people from Singapore, 2 people from Japan. We had 1 Filipino and the secretary of the group, Ayala. And as you know that the COVID crisis started off in Asia. Very early on, we had good vision of what was going on. And we have to remain humble in this crisis, of course, but we had a good idea of what was going on, and that enabled us to remain very effective, keep our eyes on the ball. And that's why we were able to have a very good fundraising business in the first half year. We've raised significant funds at a time where [ run ] across the board, business was very, very slow indeed. Let's move on to Slide #10. In terms of ESG, Tikehau was a pioneer of it since its inception. We didn't emphasize this as many -- as much as other players in the field, but we were pioneers as asset managers and as investors of performance horizon is the long term. And when we commit to generate sustainable performance, we cannot dissociate financial criteria from extra-financial criteria, and that is why the ESG issues are at the heart of our process and our fundamental analysis. 100% of our investment opportunities, of course, we have an ESG teams. But in each of our 4 businesses, business areas, each investor has to apply an ESG, ESG criteria. So whenever in investment application arrives, we look at these ESG criteria. So as to the straight on the line, we have developed strategies with a positive impact on climate change. We have -- we are keeping on that track, and we have innovated. In fact, the energy transition business, we have a good example with Alex [indiscernible] in Singapore, where we were looking at the health care business. But this ESG approach was rewarded at mid-September by one of the main extra-financial rating agencies, which gave us a rate of 66 out of 100. Those committee with that rating system know that this is an outstanding score, which shows our commitment to ESG. And also for the second year running, we got an A+ rating for PRI, from the UN PRI for our strategy and governance module. And in 2020, we were also ranked #2 out of 246 asset management and asset depositories by the extra-financial agency, Sustainalytics. So very proud of our ESG approach, and we will continue to pursue efforts to generate sustainable and profitable growth. And of course, ESG is not something that we have to cope with. ESG is at the very heart of our drive, and we are actually being proactive. We generate positive investments. It's not just a matter of having a sort of a plain ESG performance. We want to have a positive performance. Slide #11, to conclude on this first part, I would like to emphasize these 4 indicators that are our main commitments. Number one, EUR 35 billion, this is total AUM by 2022. Profitability, operating profit should be above EUR 100 million, and that is what will make a determination of our market value. Looking at the multiples of other alternative asset management companies, when we introduced the company when we had the IPO, we were standing at EUR 3.5 million in asset management in profits. And so we are reasserting this objective of above EUR 100 million by 2022. We are investing in our own funds. This is what we have -- what is known as having skin in the game. Not only that, it generates more finer granularity because we -- well, we have anywhere between 65% and 75% of our own funds invested by our own balance sheet, our own funds. And we are looking at a return on capital of about 10% to 15%, again, looking at the funds, our own funds invested by the group. Moving on to the following slide, Slide #13. In operating terms, we have been proactive in all our business areas. In private debt, in the absence of any flagship fundraising on the first -- on H1, we focus mostly on our institutional customers and retail customers. We raised upwards of EUR 40 million. That's part of the second closing through the initiatives, started with a private bank in Italy called Fideuram. For those of you who remember, we had a partnership with Fideuram, which is a sort of fund of funds, Tikehau fund of funds, that is marketed in Fideuram private business. It's an Italian bank, and we had already raised EUR 400 million at the end of 2019. So the idea is to have retail investors. That trend is being confirmed, and you will see that, that also applies to private equity later on. Regarding real assets, at the beginning of 2020, we finalized the raising about discretionary fund for our value-added strategy. That's the first such fund. EUR 560 million is pretty good for the first such fund. Sofidy, which is our management for investment and savings products, had a good performance. We also beefed up our stake in IREIT, which is a listed company in Singapore, focusing on the European property business, mostly in Germany with the corporate and state clients. And so we increased our stake from 16.6% to 29.2%. We took advantage of the breakdown in markets in March to strengthen our stake. That was a good business because we got about SGD 49 per share. Now it's back up to $70 per share. After the acquisition of Star America Infrastructure Partners that was finalized in July, we decided to rename our asset class from real estate to real assets. And so -- well, you have to recognize that because we include infrastructure and property, this is a tricky business. The cost of infrastructure is high, so you have to be cautious. But each territory has its own momentum. And the American infrastructure market, for those of you familiar with it, especially small infrastructure, that business, that market is not doing very well. And so all this -- the stimulus plans are there to help. And so we believe that we're in a good position to take advantage of the American aspect of infrastructure. The upscaling of the private equity business has continued over the 6, first, months of the year with sustained fundraising, especially with successful second-generation funds for special situations of PE fund for the energy transition continued its fundraising and is now eligible for the Tibi label. And that should enable us to raise even more funds, to collect even more funds. And as I mentioned earlier on, we started, in the spring, a long-term investment fund on the ELTIF format with the Banca March in Spain. It's a private bank that enable us to collect as much as EUR 60 million only in our energy transition funds. So two birds in one stone, a, we raise funds; but also, we speed up the private equity business. And then our CMS, Capital Market Strategy, that was particularly resilient in H1. I'll give you one example. As you know, we had 5 funds. The biggest funds was called Tikehau [ 1K ], had net positive collection of EUR 200 million, whereas it's mostly shares in it. And whereas the performance, yes, it was minus [ EUR 0.7 billion ]. That is negative, but compared to the other equity business, it's pretty, pretty good. Let's move on to Slide 14. On group-wise, our assets under management stand at EUR 25.7 billion, up 10% since end June 2019. The asset management business itself has assets up more than 30% over the past 12 months at EUR 24 billion, which is unique in this business. It is -- it should be pointed out that we raised EUR 1.1 billion over the 6, first, months of the year for the asset management business, and we have continued on that trend. I should like to thank the Tikehau teams that were extremely motivated and very active, enabled us to achieve that extremely satisfactory performance. Let's move on to Slide 15 on the granularity of fundraising. If you look at the 2-pie charts at the bottom of the slide, at the time of the IPO, we stood at EUR 8.6 billion on 3 business areas in asset management. Now we have EUR 24 billion, and we multiply it by 2.5. Our collection in fundraising and asset management, we have 4 business areas. And it should be pointed out that in H1, we collected mostly in real assets and private equity. So we strengthened the -- well, the diversification. We have a finer granularity, but that also meant that we were able to improve our income in terms of basis points. In terms of profitability, real assets and private equity, enjoy good management fees. It should be also -- for growth to continue, it has to be profitable. And as we improve the business mix in asset classes, this means that we can improve short-term profitability but also long-term profitability. Let's move on to Slide 16. What is true for our asset classes is also true in terms of customers and their psychologies and territories. At the end of June 2020, 32% of assets under management for that business are international investors, twice as many at the end 2015. When you develop a company in various countries, well, you have to reexplain your brand, your know-how, your DNA every time. And we have to say that we're pretty pleased with our international development. We have a number of achievements in Asia, in Europe now. But also the North American market is very promising, indeed. After all, it is the largest such market, the U.S. and Canada, and a few successes also in Canada and in the U.S. already. Let's move on to Slide #17. For an alternative asset manager such as Tikehau, what is essential is to be able to, of course, to raise funds, but it is just as important to invest this capital properly, this funds properly, and deploy funds in a disciplined fashion. At the end of June 2020, we deployed upwards of EUR 800 million within our closed-ended funds, which is significantly down compared with the H1 2019. We've mentioned this several times, but we are very vigilant on these upside-down elements. You look at the number of deals on the table, those that we signed a letter of confidentiality and the one that we actually closed. We're very selective indeed. And this is why we have such robust performances across our funds, and we keep raising significant funds. And that trend, if anything, has accelerated in H1 because, of course, in the context of COVID, we had to be extremely cautious indeed, and we slowed down investment. All in all, we financed as many as 108 companies and/or assets, so private equity, private debt and real assets. So you have -- for 108 companies, we have a very fine granularity. On Slide 18. This tells -- you have this upside-down pyramids. So you start -- you can see that screened as many as 177 deals in private debt and ended up with 9 firm offers. And in the end, we closed only 8 deals. So what you can see on this slide is that not only did we reduce the size of investments, a number of the sites, but also we're very selective. If you look at real estate now or real assets, we closed a large number of small operations with Sofidy. And there were no real estate investment in H1. And the amount invested in real assets stands at about EUR 115 million, which is rather modest in view of -- well, how much dry powder we have in real estate, but we -- well, there were effects of COVID in real estate. We have to be careful. It's too early days to know exactly what the effects will be, and we'll be able to address this during the Q&A. Let's move on to Slide #19 and look at private debt. H1 was rather untypical. In many respects, the European companies and economies were badly hit by the lockdown brought about by government. During that period, we played our role as a committed and active investor to support these companies and advise them in private debt. In particular, we have a close dialogue with the companies in our portfolio. We supported them on several levels. And in particular, we -- in some cases, we help them obtain state guaranteed loans. Well, there may not be that many of them. But if you look at our portfolio, this is significant. But we had no defaults in the beginning of the year 2020. Now there were cases where we had talks and try to adjust some reimbursement timetables but no defaults, and the idea was to help companies keep their cash position. At the end of the day, if you look at TDL IV, which is our flagship private debt portfolio, the average leverage of companies remain modest, about 4x net debt on EBITDA, well below the European average. Let's move on to Slide #20. A few words about our private equity approach, which is a differentiating approach in many respects. Number one, our core business consists of providing growth capital or growth equity to help growing companies achieve additional equity to finance or expanding. We don't conduct a majority of those. We stand by companies, entrepreneurs and founders as partners over and beyond financial aspects. So we are indeed active investors. And what we hope is that our companies in our portfolios can take advantage of the growth and depth of Tikehau Capital's platform, and companies can take advantage of our 11 offices around the world plus our International Advisory Board for their international development. And so this is what all our companies can have as part of our service. Our private equity approach is based on strong themes and beliefs. For instance, the belief that economic stimulus must involve new equity, new funds for companies. And so the idea, so you have these state guaranteed loans so very well, but companies need equity being their own funds. And that's a whole business of particularly private equity business. And companies should be the first actors in the energy transition. For a number of years, we've introduced a number of initiatives with our general purpose growth capital, with energy transitions and other goals. This is nothing new for us, but at Tikehau, we keep innovating and we are doers. We're not just -- this is not just theoretical. This is an illustration, on Slide 21, a few examples of the way in which we support the companies in our portfolio. We have what are known as the 5 pillars of value creation. For GreenYellow, which is a very dynamic companies, it offers innovative solutions to achieve energy savings. So we work with Bouygues Immobilier because GreenYellow initially installed solar panels in supermarkets. And now thanks to that, they had a contract with a number of real estate portfolio, especially in Spain and Italy. Nexteam and another private equity partner which specializes in complex mechanics, we improved their operational performance, and we supported them in accelerating the digitalization of its processes. And so since Tikehau is investing funds to develop companies, what we try and do is to play our role as share -- as active shareholder, print our own entrepreneurial DNA to these companies. And it's a win-win deal as far as that is concerned. Let me just say one word about -- in the following slide. And I think for the first time, some of you will be discovering this for the first time. We have 2 slides, and we move on to Slide 22 on initiative entitled TKS, Tikehau-SPRIM. As we mentioned this, we want to create not compete. Tikehau is very much involved in alternative asset management and is an innovator in terms of company development. But let's look at that partnership that we have with SPRIM. SPRIM is an international expert in medical and health care advice. It has as many as 450 customers serving pharma, med tech. We have 600 colleagues and experts there. So this is a partnership with a company in the health care business. In March 2018, we announced the initial closing called TKS I, which was looking at venture capital in med tech and life science companies. The first vintage was very successful. And now we are in the process of marketing the second-generation of the sales same fund. The first fund, we had EUR 56 million in it. So -- and that reflects Tikehau's strategy. We start things in nursery because EUR 56 million is not a lot. But as you can see in the following slide, on Slide 23, we invested in a number of companies, ObvioHealth and Fibronostics, Vanteres. These are highly innovative companies, and I'll give you an example on ObvioHealth. ObvioHealth is digital health care company, digital apps, to monitor a number of diseases. And in COVID, ObvioHealth was one of the first companies allowed by the American FDA to monitor patients with COVID or post-COVID patients. And in parallel, IQVIA, which has EUR 30 billion in market capitalization has a stake in ObvioHealth and has offices around the world. Now because of the COVID crisis, a number of investors think, "Oh, we have to invest in health, in health care, what should we do? Where should we go?" Well, we started an initiative in health care as early as 2018. We raised initial funds. We raised the second fund, and we have dedicated teams. And now we are stepping up this health care business. And likewise, with the energy transition, everybody wants to engage in energy transition. And we started more than 2 years ago, our partnership with the Italian energy transition. Tikehau will continue innovating, and we will be now producing new profitability for the group and growth opportunity. I would like to give the floor to Henri Marcoux, who will tell you about the financial performance.

[Interpreted] Thank you, Antoine, and good morning, everyone. I'm on Page 25. Let's look at the key figures for the first half of 2020. On the top of the slide in dark blue, you've got what's related to the asset management scope. The first driver of our model, you can see that business generated EUR 88.3 million in revenues for the first half or an increase -- a big increase of slightly more than 16% compared to the same half year last year. Thanks to a cost reduction policy, we were able to limit the increase in our operating cost to 7.7%. So they now stand at EUR 59.7 million for the first half. Consequently, operating income from asset management is posted at EUR 28.6 million, a growth of a bit more -- a bit less than 40% or an operating margin of 32.4%, which was at a level of 27% for H1 '19. This growth proves how relevant our model is and how able we are to generate steady growth, profitable growth in asset management. At the center of the page, in the gray part, you've got the figures related to our investment activities, which were impacted by the volatile market context that we experienced in the first 6 months. Thus, given the negative change in fair value for some assets, revenue from investment activities were minus EUR 77.2 million. After including operating costs, the operating result from the portfolio was minus EUR 124.5 million. Well, given the complex context in the first half that we went through, we've decided at the beginning -- we've decided the beginning of Q2, given the exceptional circumstances that we were going through with all the uncertainties, we decided to implement some financial instruments as part of our risk management policy in order to protect our portfolio from an important market reversal. These financial instruments generated a cost, minus EUR 165 million over the 6 months. So after including these effects, the operating income from investment activities was a total of minus EUR 290 million. At the bottom of the P&L, you've got the financial income, negative income of minus EUR 19 million, an improvement compared to 2019, especially with a lesser impact compared to the previous year of the fair value adjustment of our interest rate hedges on our syndicated bank loan. Taxes were proceed of EUR 41 million, mostly related to deferred taxes and the capitalization of tax deficits. After including financial income and tax credits, the net income group share was minus EUR 240 million at the end of June. Regarding our AUM, we've talked about it earlier. In order to measure performance in our business lines, we group assets within 2 scopes of business. First of all, the first one on the left-hand side of 27, where you can see the AUM for asset management, EUR 24 million distributed into 4 asset classes that you all know, that you heard from -- that you heard about from Antoine. Private debt, real assets, capital market strategies and private equity, for each of these asset classes, you can see the split of AUM between what was entrusted to us by our investor clients, the blue part; and the amounts committed from our balance sheet, Tikehau Capital, which is in orange. Thus, at the end of June 2020, a total of 2.2 billion EUR were committed from Tikehau's balance sheet and invested in our own strategies, which is fully in line with our policy of aligned interests with those of our investor clients. And you can see that the amount is equitably split between all of our strategies. Assets under management and investments are listed in gray on the right at EUR 1.7 billion at the end of June. This part matches with the direct investments from the Tikehau portfolio outside what is invested in its own funds as well as the group's cash. Then here, we've given you details about the change in AUM in our asset management scope by separating the share of AUM coming from investor clients, third parties and what's committed from the balance sheet. You can see that with a total commitment of EUR 2.2 billion or EUR 400 million more than a year ago, Tikehau has investments also from third-party investors for EUR 21.8 billion, so EUR 2.4 billion more than a year ago. This shows the multiplier effect of Tikehau balance sheet commitments in its own balance sheet and its own funds and also the trust shown to us by our kind investors because of these aligned interests. We'll remind you once again that this is a key aspect that we care particularly about and which is a differentiator in our model. We wish via our balance sheet commitments and our own strategies to create conditions for a clear alignment of interest between the balance sheet of the group on the one hand; and on the other hand, the investments made by our clients. This is a central approach which has remained the same since the IPO. It's also unique in the establishment of a trust-based relationship for the long term with our investor clients. On the right-hand side of the slide, you can see that out of EUR 2.2 billion committed from the balance sheet, EUR 1.5 million were already drawn from our funds, so invested in this in a fairly balanced way between all 4 asset classes. As we said earlier in previous conference calls, we want to actively carry on investing in our own strategies because that helps us guarantee the launch and marketing of our vehicles, thanks to this multiplier effect, also to create an alignment of interest that's clear with our investors and also get -- leverage the yield of these vehicles, which generates a recurrent source of income for which matters a lot for our P&L. Now let's look at the analysis of our AUM on Page 29. Here, we have split it into 3 categories: AUM that generates fees, future fee-paying AUM and non-fee-paying AUM. So fee-paying AUM grew faster than total AUM for the group, which is a relatively positive indicator, now standing at EUR 20.3 billion at the end of June 2020, with an increase of 17% compared to June '19, which was mostly driven by steady inflows in capital investments as well, private equity and real estate also combined with steady growth in our funds in private debt and real estate. As I was mentioning, we also benefited from EUR 2.7 billion in AUM that will generate fees in the future. This is a reflection of our debt -- private debt strategies and partially of our real estate strategies, especially via the TREO funds, that Antoine talked about earlier, where the management fees are paid based on the capital deployed and not the capital committed by investors. This is important to understand because these EUR 2.7 billion will be converted into income as the funds are deployed. And so it's not yet reflected into our P&L. We're talking about EUR 20 million to EUR 25 million extra in management fees that will reach our P&L because of that. You also know that we usually look at the duration of the AUM. As you can see on Page 30, we've just noted that the share of fee-generating AUM is 85% of total AUM for asset management, so 3 percentage points more than in June 2019. And the level has remained steady versus December 2019. Please note that with -- that excluding open-ended funds within Capital Market Strategies, our funds are mostly closed ended for long durations. For Sofidy funds, well, you can't really talk about closed-ended funds, but the average holding duration is higher than 12 years. Therefore, we have products that are very sticky, very long. So our clients are committed for the long-term with us. If you look more precisely at the closed-ended funds, you'll see that over 80 -- 98% of fee-paying AUM has a duration higher than 3 years, which gives Tikehau very good visibility of our fee-generating ability, which is key in our business model. Now regarding more precisely the income -- the revenues from the first half of 2020, you'll see that revenues grew by over 16% over the last 12 months. This strong growth should be compared with the growth in AUM, that base fees that I explained a minute ago. So revenues from asset management made up of management fees for the first half to the tune of EUR 87.1 million. Regarding carried interest and performance fees, well, their contribution to income was EUR 1.2 million for the half year, and the carried interest is coming from our private equity business. Note also that regarding revenues, we have good diversification. Antoine talked about diversification in our AUM in the last 3 years since the IPO. But you can also see at the bottom right of the slide, that over the last 3 years, we've also had very good diversification in our revenues, which is very good if you want to grasp the risk within Tikehau. And you can see that private equity and real assets account, respectively, for 15% and 42% of revenues, which is, once again, fully in line with the rebalancing of the product mix towards higher-yielding strategies. One of the indicators that we put in place after the IPO in 2017 is important because it measures the ratio between revenues and AUM. For the 12 months ending 30th June, the average fee rate was 94 basis points, which is a strong increase, over 10 basis points more than June 2019. And if you compare that -- compare revenues to AUM, that shows how relevant our model is, and that shows that the product mix has become more diversified with higher-paying strategies since the IPO. So revenues related to performance fees account for 5 basis points over the half year. Keep in mind that most of the funds developed by the group are young, and our model does not depend on generation of carried interest in the short term. And in this respect, we are certainly less mature than our peers. And so we have a lot of growth potential for our revenues and profitability in the future. Now regarding more precisely carried interest, every 6 months, we give you an update on the AUM eligible to carried interest, and you'll see that the AUM eligible to carried interest keeps increasing. It's now EUR 9 billion at the end of June 2020, so over 4% growth, plus 20% for the last 12 months. And this growth is higher than the growth in AUM overall for the group. The carried interest is triggered on fund maturity as soon as a target yield rate, a [indiscernible] rate is reached. Our ability to generate revenues will, of course, depend on our ability to invest the funds that we are interested with and generate performance. And that's what we've been able to do for 16 years since the creation of Tikehau. I'll also remind you that the listed company Tikehau Capital, as part of its alignment of interest concepts, will receive 53% of carried interest on all of the closed-ended funds for the group. And now the flip side of all that, revenues and the key elements that I mentioned a minute ago, of course, all that results into the operating income from asset management. You can see that there's been significant growth, almost 40% for H1 '19 compared to H1 '20 -- H1 '20 versus H1 '19, over 3x more than what we generated 2 years ago. That's related to the growth in revenues from the asset management scope but also allied to very good control over operating costs for the first half. The change in operating margin, as you can see from -- operating margin from asset management, as you can see on the right, shows how relevant Tikehau's model is in asset management, even during crisis, major crisis as the one we had in the first half, and also proves how able the group is to maintain profitable and lasting growth. We've mentioned it time and time again, we wanted to remind you that our platform is leveraging more and more effects of scale. It's now more scalable. And so our revenues can grow more than our costs. For instance, we haven't yet reached the full capacity for a certain number of business lines, but revenues are growing very favorably compared to our level of business, and that's very clear to see in the figures of H1. Now let's look at a review of our investment activities on Page 36. Revenues from investment activities stood at minus EUR 77.2 million for the first 6 months. You can separate 3 components in these revenues. The first effect is that of unrealized fair value changes. That's in the light blue on the slide. So minus EUR 143 million for these effects. This is the fair value adjustment of underlying assets that are within the portfolio, minus EUR 143 million for the first half with 2 noteworthy effects. First, the effect of the Eurazeo line, minus EUR 61 million and also minus EUR 24 million for our listed real estate company that we have in the portfolio, Selectirente. And since then, the share price has gone back up. The second effect is that of realized fair value changes. So the underlying assets have been divested from the investment portfolio. There, we leveraged a fairly chaotic first half to make a number of arbitrages within the portfolio. And that translated into revenues of EUR 23.8 million. That's the dark blue part on the slide, in the center of the slide, so a number of disposals of assets that helped us leverage major revenues. And so the third effect, which is also high, is the orange part on the slide, EUR 42.3 million for dividends, coupons and as well as payouts received by Tikehau because of these investments in funds, which is a slight decrease compared to H1 '19. We had EUR 49 million. The decrease is because of the absence of dividends for the 2 listed lines that we have on the balance sheet, Eurazeo and DWS. Please note one major thing. These EUR 42 million, these revenues remained high. It's mostly made up of revenues related to holdings in Tikehau funds. It's important. We talked about the line interest. We talked about investing from the balance sheet into our funds. Well, with that, we can have steady recurring income, even growing income for the first half. Please note also that the realized effects, so the orange and dark blue parts on the slide, increased compared to June '19. Thus, revenues from investment activities, as I said earlier, were mostly impacted by changes in fair value from unrealized investments in the first half. So those decreases could be reversed in the future. I'd also like to draw your attention to the right-hand side of the slide, the split of revenues between the first and the second quarter that you can see on the screen, whereas fair -- unrealized fair value changes were highly negative in the first quarter because of the extremely volatile market context, talking about minus 204 -- minus EUR 287.5 million. This turned into a positive in Q2 with EUR 147 million. Regarding the financial instruments that are here to hedge the listed assets, they were put in place at the beginning of Q2 when the markets were not very favorable and as the global economy was facing major systemic risk. And so that offset the positive market impact of the second quarter. So now let's review the balance sheet. I'm on Page 38. As you can see, our balance sheet structure remains robust, which is an essential asset in a deeply changing environment, especially with such an uncertain and volatile market context as we experienced in the first half and that we are still experiencing. On the asset side, you can see mostly our investment portfolio standing at EUR 2.4 billion. I'll get back to it in a minute. Our consolidated cash, it's a bit less than EUR 900 million and a certain number of aspects with, in particular, the goodwill. Our equity is still high at EUR 2.8 billion, and financial debt is stable at EUR 1 billion. We also have EUR 500 million in undrawn credit lines, and our gearing ratio is still under control at 36%. Let me remind you that Fitch had given Tikehau its first financial rating in January 2019, with an investment-grade BBB- level, and this rating was confirmed this year in January. As we mentioned earlier, we are going to carry on harnessing our balance sheet for the development of our business, in particular, by investing more in our own strategies and also by using external growth operations. Our investment portfolio of EUR 2.4 billion is, of course, a major component to be analyzed within our balance sheet. This portfolio is still as granular with 210 underlying assets for a total of EUR 2.4 billion at the end of June 2020. Moreover, as we said earlier, we carried on investing in our own strategies. Therefore, the share of investments from Tikehau balance sheet in its own funds is now 65% versus 49% just a year ago. This is fully in line with our goal to raise the exposure of Tikehau's balance sheet in its own funds to 65% to 75% by '22. With the complex market context that we've had since the first of January, we've also had some important rotation in our assets. Therefore, in April, we increased our stake in IREIT, a listed real estate company in Singapore, focusing on the European property market. As Antoine said, we raised our stake from 16.6% to 29.2%. We also leveraged market conditions to disposal of 64% of our share in DWS, helping us generate some proceeds of EUR 110 million. And as we said in January, well, more recently, we got the reimbursement of the EUR 115 million loan that was given in early 2018 to Conforama. This loan was partly financed from our balance sheet and also by -- financed by some of the funds -- managed by our subsidiaries. More precisely, here, we've put together a focus on Page 40 on the granularity of the EUR 2.4 billion in investments carried by the balance sheet. You can see here the split between the direct assets, EUR 823 million and investments made through our funds. At the bottom of the chart, you can also see strong diversification between all 4 asset classes when it comes to investments within our balance sheet. Let me remind you that the direct investment component is relatively well balanced between listed and non-listed investments. Now I'll throw it back over to Antoine for the outlook.

[Interpreted] Thank you, Henri. On Slide 42. Over the last 16 years, ever since the company was created, we've built up a global resilient platform, especially given the current context. It's even a bit more visible. First of all, we've built up a platform with a very robust balance sheet. As Henri reminded you of, it's fairly rare to have a robust balance sheet with a lot of equity in asset management. We have EUR 2.8 billion in equity -- shareholders' equity. As Henri reminded you, we have EUR 900 million in cash and undrawn credit lines of EUR 500 million, so that we can leverage selective external growth as we did in the past, or we can even launch new initiatives. [Technical Difficulty] [Interpreted] The line broke up for a minute. We have great granularity in all the subjects. We have the next private debt flagship, TDL V. The previous fund had EUR 2.1 billion in AUM, TDL IV. And we had EUR 600 million in TDL III. We also have the energy transition fund, T2, TGE II. This is a second private equity fund, but we are also launching a number of initiatives like PDS, private debt secondaries. We hired an associate from StepStone to develop this practice in New York. And as you probably know, StepStone is listed on the U.S. market. It's a consultant and alternative management with a market cap that's roughly the same as our own market capitalization, with the same metrics in terms of profitability from asset management, but they only have EUR 100 million in shareholders' equity when we have EUR 2.8 billion. So we are convinced that we are undervalued now after tonight. We have also become stronger in our current asset management platforms, in particular, whether they are listed or not. On the listed side, Henri talked about IREIT or Selectirente. We have 2 listed real estate companies that held up very well because of the current turbulence, not just in terms of share price, but also in terms of collection of rents. So we'll carry on developing these platforms. We're integrating Star infrastructure that we are going to help grow. For those of you who remember, we announced in July, we talked about it. We won the request for proposals from big European aeronautics companies, Airbus, Thales, Dassault and Safran. We bought ACE that managed EUR 300 million at the time. Just a year ago, we're adding a fund that already has EUR 630 million in it. That shows how able we are to integrate new platforms and grow them in a fairly significant way. And the acquisition price of ACE for this company that manages EUR 300 million is extremely moderate. Now moving on to Slide 44, you can see the pipeline of realized acquisitions and integrations, which are some fairly different animals. And so if you look at -- apart from the acquisition of Sofidy that we bought for a bit more than EUR 100 million, most of the acquisitions were fairly moderate and earnings-enhancing in terms of shareholders' equity. Now maybe if I can drop off with Slide 45. The year 2020 is not an easy year by any stretch of the imagination. There's an unprecedented sanitary crisis, and we need to remain humble because no one knows whether the health crisis is over, with some very different effects depending on the sectors and geographies. So it's a relatively complex year. We believe that the group's got the right strategy, and we're not slowing down. Quite the opposite. Our inflows in the first half and January show it. Our ability to innovate and be ahead of the pack on various issues like the energy transition, health care, cybersecurity, all that is very well illustrated. We've decided to communicate a bit more and to promote the successes that we initiated in terms of ESG and governance, so you'll see now a bit more communication about these topics, although we think that we've always been pioneers. And all of it, the ratings that we got from the various market players confirm that quite well. In the short term, of course, there will remain some uncertainties in health terms, political, social or monetary terms as well. We are still very, very vigilant. All of our employees at Tikehau are vigilant, and they're positioned to manage the capital that we are interested with, to seize opportunities, to value the assets that we've invested in and to carry on investing. We are still very confident about our AUM goals by year-end but also regarding our guidance for 2022. The group's got many, many assets, and we are well armed to face the cycle, whatever the cycle is. And so we're now in marching order in order to deliver on our goals by 2022, and we are happy to confirm these objectives. Thank you so much for your time. We are a bit over time. It's now 37 minutes past 9, and let's have a Q&A session.

[Interpreted] [Operator Instructions] Question #1 comes from Nicolas Payen from Kepler Cheuvreux.

[Interpreted] I have three questions. Number one, the hedge -- the cost of the hedging instruments, can you give us to date or an update to say whether there will be additional costs with a positive or negative outcome? Then on IREIT, you said that you were able to manage all your acquisitions, but you believe that you were to acquiring your American partner. Are you happy with that? Or are there other verticals where Tikehau would like to strengthen its position? And question number three is on -- well, you gave some guidance on assets under management, EUR 27.5 billion. But if you compare this with your AUMs at end June and the net inflows in July, we're at EUR 27.3 billion. Well, you have capital markets with a negative market effects. Maybe that's the reason. But I'm a bit surprised to see that it's very little between the two. Why is it, well, we have a number of funds that are, in fact, raising funds instead of shedding them?

[Interpreted] Yes. Well, thank you for these three questions. The hedging costs are detailed in our half-year document, and so this is now available online. We decided to hedge the entire listed portfolio, Eurazeo, DWS, 2 listed property companies, SAS and IREIT. And in our Capital Markets Strategies funds, we -- and plus loans, all this has been hedged. And we still have it, but we believe that there will be turbulence ahead. Henri pointed out, we are long on assets. We have EUR 2.4 billion assets -- of our own assets invested, and we have kept that hedging instrument. The question number two, the setup that we have in terms of verticals is that, have we completed that? Of course, the answer is no, because if you look -- well, there are many asset classes, themes and geographies around, but we have to be very careful indeed because when we acquire something, we try to keep the client price down as low as possible when we look -- well, private debt is something we look very carefully at because when we look around the world, Asia, North America, per industry or by territory, we added infrastructure. But we went -- that was a modest acquisition. We purchased a platform with EUR 600 million in assets. So that's not huge, but there may be other verticals who might create some. The health care vertical is the case in point. For France, this is something we had in nursery. We will have a health vertical like we had an energy transition vertical. It's too early, too soon to tell. But our business plan is flexible enough. We do not -- we're not saying that we will stick to this or that business or asset class. We will add something if we think that may improve our profile that gives us additional expertise. We are well equipped with our 5 verticals. Sorry, it's a bit -- it's a lengthy answer, but there's no perfect answer. We're looking -- if -- I mean, we're happy to diversify if we can. But all initiatives, either in external growth or in organic growth, has to reach a significant critical mass. Otherwise, it's just a distraction as it were. On the question number three, on the AUM, EUR 27.5 billion, you have to remember that in H1, we had EUR 500 million in distributed dividends. And of course, if you don't raise funds, then you return capital to investors. Well, then, of course, mechanically, AUMs will go down. So there's a distribution effect there. We also invested EUR 300 million in our own assets into our own funds. And there shouldn't be a double-crunching. So we are being cautious here, maybe overcautious, I don't know, but very -- or will very much depend on the market and what happens around the world. That's one example that we often quote for English-speaking partners. And when we look at most of the big insurance companies, the pension funds or the English financial institutions, well, at the beginning of 2021, they -- with the Brexit, they were -- may not be in a good position to raise funds. And so it will very much depend on what happens outside France. And we have been very conservative on our guidance so far.

[Interpreted] The next question comes from Arnaud Giblat from Exane.

[Interpreted] Two questions. On your targets for 2022, EUR 35 billion in AUM compared to EUR 27.5 billion in 2020, you -- in this presentation, you're looking at a step-up fundraising by 2022. How should one look at this? Are you expecting a flagship fundraising? I mean, will that be the main driver of fundraising? Can you give us details on these future flagship fundraising? And question number two, can you comment on the talks you're having with your clients on demand for alternative asset management in March, April and May? The peers have been saying that business was down, that people were -- there was less appetite to risk. Now we hear there's -- upside to risk is coming back. Is that your assessment as well?

[Interpreted] Thank you, Arnaud, for these two questions. On AUM, well, from EUR 27.5 billion to EUR 35 billion, our expectation -- well, there are a number of flagships, and where we are forging ahead is private debt. We have a -- private debt program will definitely be part of the flagship. And so, TDL V will -- should generate a significant amount in fund raising. But we also have larger funds when we raise funds. I mean, in energy transition, it was EUR 600 million; the first closing of our aeronautic with the 4 manufactures, EUR 630 million; and plus new initiatives. And so, I mean, these are maybe modest, but the health fund which is one fund reopening another one. So we're looking again at great diversity, fine granularity in the products, which, of course, might make it a bit more difficult for you to see. But it means that the performance risk is lower because if you connect funds on the 10 or 12 funds, well, it's best to have a couple of flagships. We do have these lined up, that we will see whether there will be more sub assets within that. Looking at CMS. We are looking at positive fundraising, and CMS are our targets. So we have -- daily cash capital can come in our funds. We have been positive since the beginning of the year, which is rather unusual because on the cash market, the funds have been going down, and the equity funds collected a few hundred million euros. And we're just above EUR 1 billion, EUR 1.2 billion, and we should be collecting funds there. So a long answer to say, I mean, there's still granularity in our funds, which makes it a bit more difficult for you to have -- to make forecast. But we do have a TDL V as a flagship and an energy transition and aeronautics, that we are looking at new flagships as it were. On alternative demand, demand for alternative asset management, there are consecutive movements. Number one, we have found -- well, the structural movement of interest rates, I mean, they are negative or very low interest rates in North America. That is something of an incentive for asset managers or for investors or pension funds, but private banks as well and retail banking as well. I mean, the life insurance in France hasn't been collecting much because -- and so they look at other account units in private assets. And so we're looking at alternative assets with higher yield and that are more [ decor-related ], and so that lasting and positive trend. The biggest investor in alternative assets is the Japanese post office, EUR 8 billion, and it's has a huge savings rate in Japan. And well, they're looking for alternative assets. So there's this trend which is a strong trend. With COVID, there were 2 negative effects, and some people have been realizing this. A number of pension funds and sovereign funds had their prudential ratios strongly deteriorate. Pension fund has an asset portfolio with day 100, and they were hit directly by the collapse in the equity market, and the mortgage bank is a case in point. The mortgage bank is a case in point. They have to reallocate their assets, and that was particularly true in certain American institutions. If you look at the foundations of American schools, since schools have closed down, they are collecting much less by way of funds, and so they will be investing much less in growth in traditional and alternative asset management. That's one negative trend, is that if you look at the big investors, all of them find themselves, well, in rather different situation when in terms -- when it comes to fundraising. And so we can see that fundraising have come to a halt. And then other negative aspect is the financial industry tends to be somewhat sleepy, and that is the reason why we exist at all. And in the COVID -- in the context of COVID, we have found that if you have an insurance company that has no investment policy, and they can have a -- you have a -- meeting with you in a month's time, well, you might have to wait a long time before they start investing. So there's a long trend for alternative asset management. Right now, there's a slowdown in the short term, but our own fundraising activity -- well, we haven't suffered that much from this trend. We -- our entrepreneurs, we are the only alternative asset managing company that is run by entrepreneurs. And I think Blackstone have created -- I think with Partners Group, they are run now by managers, talented managers. But we are fortunate to have the 2 founders that are running the show, have an entrepreneurial G&A. And we -- and they are using their talents to raise funds where funds can be found. The more cautious and the more conservative players in terms -- that are diversified in terms of geography and business, [indiscernible] or Banca March, and these are growth factors. Or Homunity is our real estate platform of crowdfunding, where we have 22,000 small investors. So we have several channels to raise funds. So it's true, there was a slowdown. It's picking up again, but it's too early to tell whether the structural trend is back on the rise. I don't know if, Arnaud, this is a satisfactory answer.

[Interpreted] No, no. That was crystal clear. But I do have a follow-up question. Could you tell us comment on the pipeline of acquisitions that you're contemplating?

[Interpreted] It's true that we're looking at a number of possible targets. The trend now is that the price of alternative management assets is quite high. I mean, just look at the metrics and the listing of capital [ is down ] from last night. It just gives you -- the closing last night was 38x the price of our own share. And so it means that many alternative asset management companies that we may wish to purchase are expensive. The only exception is when they are small, which was the case for ACE, only EUR 300 million; or Star infrastructure that was EUR 600 million. But we're looking at small companies that can have either an additional asset cost or an additional geography. We're not present in Germany, so we'll be looking at more possibilities in Germany. But we have a big pipeline, but there is nothing -- no major target now. The main criterion is the acquisition cost.