Tikehau Capital (TKO) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to the Tikehau Capital Full Year 2021 Results Conference Call. Today, I am pleased to present Antoine Flamarion and Mathieu Chabran, Co-Founders; and Henri Marcoux, Deputy CEO. Gentlemen, the floor is yours.

Thank you so much. Good evening, everyone. Thank you very much for joining us on the Tikehau Capital 2021 Results Presentation. I'm Mathieu Chabran, Co-Founder of Tikehau, and I'm dialing from New York today. I'm joined for this earnings call by my partners and Tikehau Capital Founder, Antoine Flamarion. He's in Milan tonight and Henri Marcoux, Deputy CEO of Tikehau in Paris. I'd like to start the presentation on Slide 3 with a quick snapshot of the key figures for 2021. Tikehau delivered a double-digit growth from top to bottom line over this period, which demonstrates once again the relevance of our business model. On the operating side, we've been very active on our key fundamentals. First, fund deployment, which jumped to EUR 5.5 billion, while remaining highly selective. Second, realization within our funds, which amounted to EUR 1.5 billion. And finally, a record fundraising at EUR 6.4 billion, which is 50% more than our average fundraising for the past few years. This high level of client demand reflects the confidence from our clients as well as our capacity to generate performance for them. As a consequence, our AuM grew by 20% to EUR 34.3 billion at the end of December 2021. And this is very close to the EUR 35 billion we were aiming to achieve a year from now. In terms of financials, 2021 was also a very positive year. Profitability within our asset management grew sharply with our FRE reaching EUR 95 million. Again, we are ahead of our expectations since our 2022 target was to exceed EUR 100 million. And here, we are reaping the fruits from our profitable growth model. Our portfolio delivered very strong returns in 2021, driven by an active portfolio rotation as well as the increasing contribution from Tikehau funds. Finally, as a result, net income reached EUR 319 million increasing significantly versus 2020. This allows us to propose the distribution of a dividend of EUR 1 per share, which is comprised by EUR 0.60 of reference dividend plus the EUR 0.40 special dividend to reflect the strong value creation in 2021. Moving on to Slide 4. You can see here our main KPIs for 2021 and the tremendous progress we have made since our IPO in early 2017. I will not comment in details each chart. I think it's self-explanatory. What we need to remember is that you can take virtually any KPIs from our asset management business. And you will see that we delivered a double-digit CAGR on top line items and even triple digits on our profit. So let me dwell one moment on 3 of these KPIs. Let's start with the average management fee rate, which measures the quality of our revenue generation. It continued to increase in 2021, reaching 102 basis points or 1.02%, reflecting the very favorable evolution of our business mix. Another important metric is our fee-related earnings, or FRE, which measures the interesting profitability of our asset management business. We delivered close to EUR 95 million of FRE in 2021, which is a 35% year-on-year growth and a solid 100% CAGR since IPO. It means -- I mean, if I may say that on average, since our IPO, we doubled our FRE every year. Finally, a word on our equity base, which is strong at EUR 3 billion. Our model relies on a strong balance sheet in order to sponsor asset management strategies and align our interest with our clients. We think that this is a critical asset, especially in the current environment. Turning now to Page 5. A few words, obviously, about the current context. Needless to say that we are closely monitoring how the current geopolitical situation unfolds. I would first like to highlight that across all our business units, there are no portfolio companies domiciled in Ukraine or Russia. Also, the portfolio company's exposure to revenue generated from those countries has been carefully reviewed in details and is extremely limited. Now going forward, our take is that the current geopolitical crisis is set to clearly accelerate some of the megatrends on which we have built growing exposure and expertise over the recent years. To highlight a few and give you a few examples. I can think of the investments in energy transition, but also in cybersecurity, which would increase sharply. Also an increased surge for supply chain resilience from corporates through some reentering and obviously, some digitalization. There will also be clearly growing needs for special financing and hybrid capital. And finally, volatility may trigger opportunities in private assets, secondary as well as liquid credit and equities. Again, we rely on a strong balance sheet with EUR 3 billion of shareholders' equity and EUR 1.1 billion of cash at the end of December. This allows us to navigate the current context with confidence. As of December 31, 2021, we also had dry powder of EUR 6.2 billion within our funds, and that enabled us to save investment opportunity that could be provided by this market dislocations. So let me hand over now to Antoine for an operating review.

Thank you, Mathieu. Good evening, everyone. I am Antoine Flamarion, Co-Founder of Tikehau Capital. I would like to spend a couple of minutes on our achievements of the year. Turning on to Page 8 now. First, as Mathieu alluded to in his introduction, we have been delivering on all key items of our model. We are keeping a strong level of investment discipline, and even if we look at a much larger number of investment opportunities, we remain highly selective and do not compromise on quality. This selectivity is critical and stands at the basis of strong performance generation within our fund, which in turn, translate into higher client demand and, therefore, an acceleration in fundraising. As you can see, 2021 is a textbook case on how our model effectively works. Turning now to Page 9. During our H1 result presentation, we told you that 2021 was set to be a solid year in terms of investment from our closed-end fund. Indeed, we have deployed a total of EUR 5.5 billion, which represents an 83% upside to the average amount deployed per year during the past 3 years. Private debt has led deployment during 2021, in particular, within our direct lending business, where we are seeing a very attractive deal flow. Let me highlight that this is actually very positive for our revenue generation since we are mainly charging fees on invested capital for this strategy. I will get back to that in a minute. We have been very active in deployment while maintaining a strong focus on ESG as well as a high level of selectivity and discipline across the board. This is evidenced by an average selectivity rate across our business line of 97%, which remains at high level, even so we are looking at more and more investment opportunities. Last but not least, the level of dry powder at end of December stands at EUR 6.2 billion, stable versus 31st December 2021, showing that we have been able to accelerate both fundraising and investments. Turning to the next page to illustrate a few landmark transaction, which are a good example of our sourcing capacities. First, we bought a 40% stake in Egis through our PE Energy Transition Fund. Egis creates and operate smart infrastructure and buildings capable of responding to the climate emergency and the major challenges of our time by enabling more balanced, sustainable and resilient regional developments. Tikehau Capital will support Egis expansion, which is primarily focused on the international market and aims at positioning Egis as a top global 10 engineering companies by doubling its revenue within 5 years. An example on the real estate side, on the real asset side, IREIT Global, our Singapore-based REIT has acquired a 27 property portfolio in France, led to [indiscernible] with a 10-year initial lease. This is IREIT's first transaction on the French market. Of note, Tikehau Capital has invested EUR 22 million in IREIT Global, under the 27 capital raise on July 21 to finance that acquisition. We also completed our first investment in Portugal through our European value-added strategy. In June 2021, we invested in a 4,000 unit residential portfolio at an average EUR 800 per square meter. Through this transaction, we were able to provide clients with co-investment opportunities, allowing them to complete their allocations. Lastly, an example in direct lending. We arranged a new financing for Prodware, a European leader in addition, consulting, integration and hosting of IT management solution. We have a strong relationship with the company, which we already financed between 2014 and 2018. Moving now to Slide 11 to discuss a KPI that we would like to highlight, which is the level of realization we have been making within our funds. We maintained a healthy pace of realization in 2021 with EUR 1.5 billion realized during the year, which is slightly higher than the amount recorded in 2020. Private debt accounted for 70% of that amount, which is not surprising since our direct lending strategy is one of our most advanced flagship strategies. Of note, realization within our real estate activity have doubled year-on-year thanks to both our U.S. infra strategy as well as our corporate European sale and leaseback funds which have entered an active realization phase. Finally, we recently announced that our Pan-European growth equity fund TGE II made its second disposal through the sale of Assiteca, the largest independent Italian insurance broker. To illustrate that, under our ownership, Assiteca delivered on multiple fronts, first of all, the consolidation strategy within 5 acquisitions, followed by healthy revenue and profit growth. Furthermore, the company has proven to be extremely resilient during the pandemic, achieving a positive 5% organic growth each year. As a shareholder, we've been instrumental in helping them implement their digital transformation plan as well as the hiring of new key top manager. As a consequence, the EUR 25 million investing in that company back in 2019 has generated a strong 2.6x multiple and a 45% IRR. Again, this is a new accomplishment in our track record in terms of investment performance and active ownership within our private equity strategy. Turning to the next slide. Performance metrics within selected funds across our strategies. As we always say, we are first and foremost investor. And as such, investment performance is at the heart of our model. This is essential to maintain a healthy flow of client demand, but also it allows us to generate growing returns for our balance sheet. As an example, and I will not comment all the fun you have here, the performance of the Vintage 3 and 4 of our flagship direct lending strategy is supporting the current fundraising of TDL V with gross IRR on existing transaction that stand above 10%. Our special opportunity fund, TSO II, which has surpassed expectations in terms of fundraising has been performing extremely well. In private equity, we post a solid multiple for TGES, our secondary fund in which we have contributed assets from the balance sheet. On the real asset side, you can also see that Star I, our infrastructure program is on track to deliver solid return in a fast-growing U.S. market. And that has been reflected in the strengthened raising for Fund II, which reached a final size of EUR 700 million, which is a 132% increase versus Fund I. In real estate, the 2 sale and leaseback fund, in which we are managing assets from utility provider EDF has kept a healthy pace of realization in 2021, and generate compelling performance. It is important that we communicate more on this topic because, once again, performance is critical for both future fundraising and Tikehau portfolio performance. Today's performance is definitively tomorrow fundraising. Turning now on slide -- to Slide 13. In our industry, selective deployment generates strong performance, which in turn support fundraising. 2021 has been a clear demonstration that we are delivering on all fronts. Our fundraising performance was very solid in 2021, and it has been achieved across the group entire asset management platform. We attracted total net inflows of EUR 6.4 billion, which is 53% more than what we have been generating on average over the past 3 years. We are clearly on an acceleration trend. Private debt accounted for 50% of 2021 net new money, driven by the firm flagship strategy in direct lending as well as its new launch impact lending fund and secondary private debt fund. Real assets represented circa 25% of 2021 client demand, while capital market strategies and private equity accounted for approximately 15% and 10% of the total. The strong client demand once more validate the relevance of the Tikehau Capital model, which -- with high alignment of interest and constant innovation at its core. Turning now to Slide 14, and I will be brief. The strong momentum of 2021 is a reflection of how we steer the company with scaling innovation and institutionalization as a key part of our growth model. First, our flagship strategies are scaling up rapidly as evidence our fifth vintage of direct lending fund, which is still raising capital as well as the successful closing for our second vintage of U.S. infra strategy and the second vintage of our Special Situation Fund. During 2021, we also demonstrated our ability to innovate successfully and expand our product offering. For example, we launched our first secondary private debt strategy, and we expected our CLO franchise in North America with the successful launch and closing in Q4 of the first U.S. CLO. We have also successfully closed our cybersecurity fund with commitments exceeding our EUR 150 million initial target. Finally, leveraging on our expertise, platform and track record, we have been affirming our position as partner of choice for European government in providing financing to the real economy, and support the post-COVID recovery with material successes recorded in France, Spain and Belgium. Mathieu will now talk about our client base. Back to you, Mathieu.

Thank you, Antoine. I'm now moving on to Page 15. So Tikehau Capital is increasingly global, and I can assure you that we are witnessing this progress every day. We've built now a permanent presence in 12 countries, and there will be more to come. This local presence as we've had the opportunity to tell you many times, is key for 2 reasons. I mean, first, for the origination of investment opportunities for investment strategies. But also it is a critical tool when it comes to gaining new clients and capturing the growing share of capital that global investors seek to allocate to alternative and private assets. As such, we continue to internationalize our client base with AuM from international clients now reaching EUR 12 billion. This is a 29.3% increase year-on-year, growing faster than asset management AuM. In terms of flow, you can see that more than 50% of our fundraising came from non-French IPs. As that since IPO, our international AuM has been growing almost twice as fast as AuM for the group. So clearly, we are delivering on this front as well, and we'll keep a strong fundraising momentum in all our geographies. I'm now on Page 16, looking at our client base breakdown. First, we have a very solid and growing institutional LP base. And as I just discussed, this client base is increasingly international and our LP base keeps expanding across the globe. In 2021, we have enhanced our product range for private investors, which offers significant growth potential. So as an example, 2 unit-linked products have been successfully launched in France, 1 in private debt, the other one in private equity. And both attracted a total of more than EUR 200 million of commitment at the end of December, so just a few months after we had launched. These initiatives, together with the growth at Sofidy as well as our listed REITs and obviously, our crowdfunding platforms are putting the group in a strong position to capture the growing demand from private investors to access alternative assets. In September 2021, we also launched a private wealth solution group aiming at enhancing direct access to our funds for family offices and high net worth individuals globally. This is a new step forward in addressing a growing client category, which is becoming increasingly sophisticated and willing to raise its exposure to alternative assets. And this initiative complements the existing intermediated private clients coverage that we had been developing at Tikehau through private banks, IFAs, in France, and unit-linked insurance contract. In other words, we are building an infrastructure, which puts us in a very favorable position to tackle the growing demand from private investors to access private markets. Moving on now to our investment portfolio, which has delivered very solid performance in 2021. So I'm now on Page 18. And as you can see, our portfolio is as granular as ever with 229 underlying assets, representing a total of EUR 2.7 billion. In 2020, we kept on investing in our own asset management strategies in line with our alignment of interest approach. And as such, at the end of last year, 75% of our portfolio was invested in our own funds compared to 66% at the end of 2020 and 61% at the end of 2018. So I would like to highlight that we have already reached the upper end of our targeted allocation target, which was to have between 65% to 75% of our portfolio invested in our own funds by 2022. So we've been repeatedly saying that our alignment of interest is unique. Management is the #1 shoulder of Tikehau, and Tikehau invest its equity primarily in its own funds. So that at the end of the day, management, shareholders and LP are fully aligned, and this is a unique feature in our industry. Looking now on Slide 19 at portfolio movements during the year. They are reflective of Tikehau Capital allocation policy and serve our growth strategy. EUR 700 million of investments were carried out over the full year, mainly directed to our own asset management strategies alongside our clients. EUR 600 million of exits were realized, reflecting the active and value-creating rotation of our investment portfolio with, in particular, the disposal of a number of 15 investments. EUR 200 million of positive fair value changes, reflecting the value appreciation across portfolio assets, mainly driven by the performance of Tikehau Capital funds as well as listed investments. Going forward, we will continue to use our balance sheet, which remains a key differentiating factor and enabler of growth to strengthen our platform by launching new families of products and vehicles. And as such, we also maintain a high level of interest with our shareholders and our investors clients. Henri Marcoux will now go through the main 2021 financial highlights.

Thank you, Mathieu. Good evening, everyone, and thanks for attending this call. Let me start maybe by a quick word on our fee-paying AuM, Page 21 of the presentation. Fee-paying AuM, as you know, are a key indicator to monitor when it comes to revenue generation for our asset management business. They have increased by 22% year-over-year, reaching EUR 28.4 billion at end December 21. This solid growth has been driven actually by record inflows during the year combined with a sustained pace of deployment across our strategy, notably on private debt strategies for which management fees are charged on invested capital. It is worth noting as well that our fee-paying base has been growing faster than the overall asset management AuM since 2016, generating a CAGR of 36% per annum over the period. As a consequence, 86% of our asset management AuM are fee generating, which is actually steadily improving since 2016. If we focus now on our closed-end strategies, 96% of AuM have duration of about 3 years, providing us a strong visibility on revenue generation since our solution are actually sticky with clients committed along with us over the long term. Turning to Page 22, which shows actually the evolution of our management fees rate since 2017. While I guess this chart is actually self-explanatory, at end December '21, the average management fee rate stood at 102 basis points, which was up 10 basis points compared to end 2020, and up 31 basis points compared to 2017. This increase reflects actually the accretive evolution of the group business mix towards private equity and real assets, which charge management fees above the current group average. Such evolution has been driven by the ongoing fundraising momentum for Sofidy with the growing contribution from subscription fees that are actually generated in line with the Sofidy fundraising. In addition, the management fee rate improvement has benefited from the positive contribution of late management fees linked to the strong fundraising of our private equity energy transition fund, which closed in Q1 '21. We are quite satisfied with the way our management fee rate is actually progressing year after year. Not only are we increasing the fee-paying nature of our AuM, but we are also compounding that with our capacity to improve the average fee margin, which actually translates very positively on our revenue generation. Turning now at our asset management revenue, Page 22. You can see here the consequences of what I just described. In '21, management fees and other revenues increased to EUR 264 million, driven by fee-paying AuM growth, which I just detailed previously. Those revenues with a high level of visibility going forward, increased by an impressive 33% year-over-year, and they represented 93% of total asset management revenue. Thus, we are delivering a high growth rate in highly qualitative revenues. A word maybe on performance-related revenue. They contributed EUR 19 million to asset management revenue, which is the 3x the level of performance-related revenues generated the year before in 2020. This growth was notably driven by the outstanding performance of our funds. Performance-related revenues still have a limited contribution to our asset management revenues given, I would say, the relative use of our funds as well as the cautious approach we have in recognizing carried interest in our financial statement. And maybe I'll come back to that in a minute. Moving to the next slide, Page 24. Let's have a look now at our asset management profitability of fee-related earnings, which is a key metric to assess the scalability of our platform, has increased to EUR 95 million, representing a 35% growth year-over-year. We actually achieved 95% of the 2022 fee-related earnings target we had released back in 2019, a year in advance. So we are clearly reaping, I would say, the benefits of a strong operating leverage with revenue growing faster than our expenses. In addition, maybe, and as previously indicated, performance-related earnings, which are equal to our performance-related revenues have been multiplied by 3 in '21 compared to the previous year. So all in all, I would say that this positive elements are explaining how we did manage to increase the operating profit of our asset management activity by 49% in 2021, reaching EUR 114 million and representing an operating margin of 40% for the year. Presently, you are on Page 25, the evolution of our fee-related earnings and asset management EBIT margin. Again, I think that this slide is pretty self-explanatory. FRE margin stood at 36% and operating margin at 40% at the end of December '21. This clearly actually validates the relevance of our model and reflects the powerful operating leverage that underpins Tikehau Capital growth model. I will be moving to the next slide, Page 26. On top of our operating leverage in fee-related earnings, performance fees and carried interests are representing a key earnings generation engine for Tikehau capital in the coming years. AuM eligible to carried interest keeps on growing at a higher pace, reaching EUR 14 billion at end of December '21, showing a 25% increase year-on-year. And therefore, growing faster than asset management even. That means that actually we are raising capital in priorities in strategies eligible to carry interest, which is a strong revenue and profit engine. On the total AuM eligible to carry interest, EUR 9.2 billion were already invested and EUR 5.5 billion generated above the order rate, which is actually up 80% versus the figures of 2020. As I mentioned earlier, our revenue generation in asset management is today more geared towards management fees, given that our large funds are quite still young. We are, therefore, expecting to start generating more material performance-related revenues when our flagship funds will mature. Please also keep in mind that we have a pretty cautious approach when it comes to recognizing performance fees. We already mentioned that, but we only book them when we have a certain -- when we are certain that we are actually going to realize them. As such, we are not exposed, I would say, to any clawback risk or negative performance fee into our P&L. And finally, I think that I already mentioned that before, but we have a very shareholder-friendly approach in terms of allocation of carried interest and performance fees. Please remember that 100% of our performance fees and 53% of the carried interest are allocated to the listed company available for the shareholders. I will be moving to Page 27 to address our portfolio performance. Total portfolio revenue amounted to EUR 387 million in '21, which is actually 4.6x the level of 2020. What is important to notice here is actually that Tikehau Capital funds have strongly contributed EUR 156 million to those revenues which is actually 2.7x that we recorded the year before in 2020. Such increase is obviously a testimony of the solid performance generated by our funds. We highlighted on this page actually in orange, the level of return of yield generated by our portfolio over the last 3 years. In '21, given the solid performance of our portfolio, gross return, which is actually calculated by dividing portfolio revenue by the average portfolio fair value between '20 and '21, reached 15%. This level actually compared to 13% in 2019 and 4% in 2020. Now turning to our realized portfolio revenue, which are on Page 28. The realized portfolio revenue amounted to EUR 243 million in 2021, which is actually, once again, 1.8x the level of 2020. The growth in realized revenue can -- was actually mainly driven by the sharp increase in realized capital gain represented in blue on the chart. We reached EUR 133 million compared to EUR 37 million in 2020. This increase was mainly driven by the disposal of our investment in several listed assets. And as such, I think that in 2021, we demonstrated once again our ability to actively rotate our portfolio while generating strong returns. Dividend, coupon and distribution, which are actually represented in orange on that page, grew by 8% year-on-year, reaching EUR 105 million. Maybe important to add also that on the right side of the chart, you have the breakdown of realized revenue between Tikehau Capital funds and other ecosystem and direct investment. I'd like to highlight maybe that the contribution from Tikehau Capital funds to those revenue stood strongly at EUR 79 million for the year '21. So overall, the realized cash component of our portfolio revenues has been steadily increasing since 2019 which is as well, obviously, extremely positive. We are now moving to our profit and loss for the year '21, which is Page 29. The main takeaways for the year are actually the following: the 50% growth in our asset management EBIT, reaching EUR 114 million. Second, the strong evolution of our investment portfolio standing at EUR 387 million. Maybe important point to be note is as well, the EUR 55 million decrease in our corporate expenses when looking at the year 2020 published figures, that strong decrease actually corresponds to the positive effects of the reorganization that we -- and simplification that we announced back in May '21. To be mentioned as well, the EUR 12 million decrease in financial interest resulting from our active debt management policy. And finally, for the year, the net result group share, which has reached an outstanding EUR 319 million, driven by the very positive performance of both our asset management business and our investment activity. You do have on Slide #30, the key figures of our robust balance sheet. We did mention that previously, but our model is supported by strong financial means with EUR 3 billion of equity, EUR 1.1 billion of cash available and EUR 725 million of undrawn revolving credit facility. As you know, ESG is at the heart of our DNA, whether in terms of investment, but also at the level of our group financing. As such, following the issuance of our inaugural sustainable bond in March '21 and more recently the pricing of our inaugural sustainable USPP, we will have 63% of our debt linked to ESG criteria, which is a significant and massive evolution versus previous year. But we think that's actually the only way to go further. I will be moving to Page 31 with an important subject, which is actually the proposed shareholder distribution. The excellent results we generated in 2021 enables us to propose to the next general meeting the payment of a dividend of EUR 1, including a reference dividend of EUR 0.60 and a special dividend of EUR 0.40. The EUR 0.60 reference dividend represents actually a 20% increase compared to 2020 distribution level. Most importantly, it represents 92% of our asset management EBIT, which is actually a level in line with the guidance we had provided last year to distribute at least 80% of this metric to our shareholder. The EUR 0.40 special dividend is linked to the strong value creation resulting from the active rotation of our investment portfolio in 2021. Obviously, such level of distribution illustrates, I would say, once again, the strong alignment of interest of our business model. That's it on my side. Mathieu, maybe over to you for concluding remarks.

Thanks, Henri. And before concluding, I would like to take the opportunity to thank and congratulate all the Tikehau team for the contribution. And after this financial review and this extremely solid year, we wanted to give all credit to them. But if you -- let me wrap up on Page 33. Clearly, 2021 is another year of over delivery for Tikehau. We already achieved 98% of our 2022 AuM target and 95% of our 2022 FRE target. So even though the current economic context generates many uncertainties, we firmly believe that we have built the right setup and that we can navigate uncertain times with confidence. So thank you all for joining us today. I mean we look forward to seeing you, hopefully, in 3-dimensions, if I may say, in London on March 22 for our Capital Market Day. That will be the first since May 2019. During which we will outline the key drivers supporting of our next phase of profitable growth. And with that, let me open up the floor for questions.

[Operator Instructions] And the first question comes from the line of Tom Mills from Jefferies.

Just had a couple of questions, please. Firstly, could you just give us an idea how perhaps your client conversations are evolving year-to-date with respect to fundraising, obviously, just with the market context in mind? And perhaps how that is different across your various client channels? And then secondly, could you talk a little bit about how the deployments that you're making into your own funds and how that's been shifting higher has helped you accelerate sort of increasing scale in our third-party AuM? And obviously, you now got kind of EUR 2 billion invested there. So how do you see those benefits compounding over time?

Thank you for your question. One thing we try to build when it comes to clients and fundraising, as you all know, we built a strong infrastructure. We are now in 13 countries. And so what we've been trying to do is raising in various geographies with various client type, ranging from -- Mathieu mentioned the initiative on private wealth. As you noticed, we had 3 strong initiatives with retail, unit-linked and also our digital platform dedicated to real estate community. So we cover small clients to sovereign wealth fund in various geographies. And so we try to diversify this pool of clients, number one. Number two, obviously, with the war in Ukraine, probably a lot of clients will assess their portfolio. But we think that because of the diversity of our clients and our capacity to innovate, and I think we mentioned briefly that, but we raised in 2018 the largest, for instance, energy transition fund. We are subsequently raising one in the U.S. and probably the second vintage at year end in Europe. So we think our products are very attractive for clients and investors around the world. We mentioned also cybersecurity fund closing above the target. So we try to offer to clients really innovation and product they need. So it's too early to say if there will be a shift in client demand. But what we can tell you is that we raised more than 50% in 2021 in comparison with '18, '19 and '20, and we will continue to expect some strong growth. And we put the infrastructure, we continue to have the drive, the energy, the entrepreneurial -- the entrepreneurialship and also specific innovative products. So we feel confident for now. Obviously, all that could evolve.

Maybe, Tom, on the deployment, could you just make sure I understand so we can address. Could you just repeat your question on deployment, number 2, please?

Yes, of course. Just Obviously, you've now got EUR 2 billion of your capital invested in your own funds. I'm just wondering, could you talk a bit about how you're perhaps seeding new strategies there? And how you might expect those to ramp up over time? I guess you've already touched on some of the new kind of initiatives, if you will.

Yes. No, no, sure, sure. Exactly. And what is important is keep in mind is more than seeding because we're invested for the life of the fund. So it's not just being used as a warm-up for a new strategy and what's the taken off you, we take out. We want to benefit from the compounding effect that the strategies that the various private strategies can benefit from. So that we can effectively have the equity base of the balance sheet compounding at the internal rate of returns of the underlying fund plus obviously benefiting from the management fees and the current interest.

And on top of that, maybe, Tom, the contribution of those investments being made by the balance sheet in our fund has clearly increased strongly in our results for '21. So you have both effects. On the one hand, benefiting the asset management and on the other hand, benefiting actually our investment revenues.

The next question comes from the line of Arnaud Giblat from BNP.

I've got a few questions. Firstly, could you give us perhaps an outlook in terms of how your fund performance has been going year-to-date? What sort of marks could we be expecting for Q1? Any update there would be useful. Also, I was wondering how your thoughts had it all with regards to hedging any balance sheet exposure you might have given the market volatility? And as well, how are things looking on the CLO front, given the current market environment, does the appetite remain there? All the markets were functioning well? I was just curious about what could be happening there.

Thank you for your question. I think we've been managing the firm for 17 years in a very defensive mood. We went already through the global financial crisis, the sovereign crisis, the pandemic and now the Russian war. When you look at our figures, we have the largest ever amount of cash on the balance sheet, EUR 1.1 billion, which compared to EUR 800 million last year. Plus a EUR 725 million credit facility, which is almost EUR 1.8 billion, and EUR 1.8 billion of cash or cash equivalent is fairly big for this industry. It's even the market cap of some of the large asset managers in the world, traditional, for instance. So we decided that first, and I think I mentioned that initially, we decided to dispose the bulk of our listed investments. So DWS, Eurazeo and our UCIT fund back 6 months ago. So we consider that to manage potential downside risk, we'd rather have cash on balance sheet. So there is no particular hedging on our portfolio, and we don't really need to do that. And as a consequence, that's probably why, as of yesterday evening, our stock price was in negative territory, but minus 3% as of yesterday evening. And that's compared to minus 35% to 45% for all the other listed alternative manager in Europe. So we feel fairly defensive on the balance sheet, on the way our portfolio is diversified with limited leverage and gearing. So we feel fairly comfortable in the current environment. Mathieu, you want to answer on the CLO?

Yes, maybe I can elaborate on CLOs, Arnaud. So what we saw, let's say, pre -- the past let's say, 7 days, okay? So what we saw, if I'm only focusing on the raising interest rates and the fear of inflation, what we saw that any variable fixed income instruments and floating rate based and obviously, leverage loans are by design floating rate fixed income instrument. The appetite remains strong. That's for the underlying assets. Now the CLO, which is effectively a repackaging of leverage loan to be securitized through the CLO issuance has also remained -- there's still an appetite there because people could access, if you will, "a levered play" to the fixed income market without being subject to the interest rate risk where people effectively are forecasting, which is our assumptions, an increase in interest rates. So that's to address the inflation fear and increase in interest rates. Obviously, adding the past 10 days in a week now in terms of the uncertainty around the macro. I mean, to my knowledge, but I will I will check with my colleagues here. The market has remained relatively calm on the primary issuance side, as the high yield market has been, and so we will monitor that. I mean the key challenge for CLO as you know very well, Arnaud, is the senior piece and the AAA and finding interested buyers to pick up a premium through the structured nature of the instrument and getting -- and that's very much why the people are very excited, if I may say, by this AAA-rated instrument. And then the equity, which is obviously the levered piece. As you know, in Europe, there's still the retention rules, which force any manager to retain 5% of any given deals. And remember that putting 5% of any given deal, if you take an equity piece, 50% of the equity piece, its tenure of a management fee that you put down here. And in the U.S. where you don't have the retention rules, but which is a great way to differentiate yourselves by taking down and aligning interest, which we have done on the first deal that we issued in December. We are currently ramping here in the U.S. our second deal, and that's a key differentiating factor.

Maybe Arnaud to come back on your points on the performance of our funds for Q1. I would say that the performance of our fund is reflecting the performance of our portfolio company. And then we are doing valuation exercise on a quarterly basis based on the performance of our portfolio company. And so far, we don't have within our portfolio, any incident to report vis-a-vis their businesses, either in real estate, equity or debt. And on top of that, maybe to come back on the overall -- on the Page 5 that we presented today during the presentation, we tend to think that actually the current context could potentially accelerate the megatrends on which Tikehau Capital is clearly positioned, such as energy transition, cybersecurity, special financing and hybrid capital. So we are rather positive on that.

And maybe -- I'm adding 2 comments, first of all, on portfolio. The way we've been marketing our portfolio has been very conservative, and we see that each time we exit companies or investment, which is very often higher than the mark and the mark are obviously defined by European standard. That's my first comment. Two, we are carrying limited leverage in our portfolio, a part of the CLO by design we have leveraged. But for instance, our private equity is mainly minority private equity. So we don't do control where players have a lot of leverage. So we feel like we are fairly confident on our portfolio. And maybe on your CLO question, probably everybody noticed that Carlyle just announced a very large acquisition in the CLO business this morning, New York time. So that tells that there is a strong appetite for the sale of business in general.

The next question comes from the line of Mandeep Jagpal from RBC Capital Markets.

Two for me, please. The first one is on asset management margin. The FRE margin for the asset management increased by 1 percentage point to 36%, I think. And as the asset manager division would to scale up its revenue, but the cost also went up by comparable percentage. So how should we think about the future investment required to continue to develop the asset management platform? That's the first question. And the second one is on the investment portfolio. You reached the top end of your 2022 guidance range for the investment portfolio of 75% by the end of last year in terms of funds. So this is moving into a position of high alignment of interest. So how should we expect this proportion to change from here? Are you happy to stay within the current range? Or should we expect to shift upward in the range going forward?

Thanks, Mandeep. Maybe on your first question, if you remember well, effectively for the year or for the year '21, our operating costs have gone up by 31%. If you remember well, in 2020, in the context of the COVID, we had announced a hiring freeze and definitely the -- our operating cost for the year 2020 had increased by only 10%. So we have restarted, I would say, to invest into our platform by opening new offices, notably in Germany that we announced last year. So operating costs have been increasing at a higher pace compared to 2020. Nevertheless, they have been increasing at a lower pace than our revenue, enabling us actually to increase our FRE margin and moreover, our EBIT margin, which is standing at 40%. We do expect over the coming years to increase year after year, I would say, our fee-related earnings margin as we will be investing into the platform. But obviously, operating costs will increase at a lower pace than our revenue. On your second question, I would say on portfolio allocation effectively, that's -- the trend we had set up back in 2019 was to have a portfolio exposed to funds by 75%, which we have achieved a year in advance. You can clearly see the, I would say, the positive effect of those investments as our investment revenue are clearly benefiting from the strong investments in all the fronts that we have made. So clearly, once again, performance of the fund is benefiting the results. We do not intend to modify significantly such allocation in the short term or medium term.

The next question comes from the line of Nicolas Payen from Kepler Cheuvreux.

Just a brief follow-up to be honest. The first one is coming back on Mandeep question on the FRE margin. If I look actually at the last 3 semesters, the FRE margin is on trend -- downward trends. So I wanted to just check with you that you just because of the catch-up effect on investment that Henri just mentioned. That's the first question. And then on the second question, without unveiling anything, of course, regarding the 22nd of March. Should we expect any big change of strategy or any new verticals that you might launch? Or what would you want to improve, if you had to improve anything regarding those results?

Maybe on your first question, effectively, we do have -- I don't think having a look at semester-by-semester is the proper way to actually do that because you do have some effects going on. If you take a look at H2 last year, our fee-related margin was standing at 38%, H1 this year, 37%. H2 '21, 36%. Overall, this should be actually looked year after year. And what we can see is, obviously, from 2019, we were standing at 30.1%, 2020, 35.3%. '21, 36%. Once again, you do have effectively the effect of the freezing of the progression of our operating cost in 2020. And on top of that, you do have some effect of late management fees on private equity fund. You do have, for example, that effects in something H2 '20 for something roughly impacting like EUR 6 million. You do have a similar effect in H1 '21 for EUR 4 million. So if we were to restate, I would say those effects, it's a bit difficult to handle. So -- and we tend to have from a regular basis each year this kind of late management fees. So I don't think it's -- should have a look maybe proper way on a yearly basis rather than from a semester view.

And answering your question on CMD, which is occurring on the 22nd of March in London with a few events around that. So we expect you -- all of you to be there. I think we're going to continue to develop our strategy and I don't want to spoil anything -- anyone before that. But we're going to first discuss the industry that you all know and the tailwind, which are fairly amazing in this industry. We're going to discuss, briefly touch -- based on the client strategy because we think that what we initiated a few years ago with retail is a good example whereby you can really grow your client customer base. We'll discuss, obviously, innovation because we build a very strong innovative platform, and that's why I think in 17 years, we managed to raise from scratch EUR 34 billion. So we're going to touch base on innovation and then potentially as you pointed, new vertical on new products, so that's something we'll discuss. And also, I think we're going to discuss structure because in this industry, everything is open, and you all probably saw the Brookfield comment a few weeks ago. So 2022 will be fairly open in terms of discussion. I hope it answer your question.

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

Yes, two questions from my side, please. Firstly, we have seen the average fee rate improving quite meaningfully in 2021. So do you consider this new level as sustainable and there might be further scope for improvement in 2022? Or was 2021 rather an exceptionally strong year due to the catch-up fees in private equity that you mentioned? And then secondly, looking at the current political crisis, have you already seen any market dislocations that have actually led to investments by your funds or the balance sheet?

Thanks, Christoph. Well, as you may have noticed, we have actually never provided any guidance, I would say, on the management fee rate because effectively it can vary with mixed effect within our REM. We -- since IPO, we've always position ourselves from a strategic point of view with higher private equity, higher level of AuM from real estate, and thus improving significantly year-after-year such level of management fee rate. We will not provide any further guidance on that. We think that a level around 100 bps should be maintained in the coming years, but we are not expecting -- we will not guide you on a further increase in the coming years. .

And on the second part, Christoph, if your question is, if I understood correctly, have we been deploying the balance sheet through direct investment on opportunity that may have been provided by the recent market dislocation? The answer is no.

And the same is true for your funds, I assume?

The funds are doing -- I mean the funds are not trying to turn the market. I mean I'm talking about the private market fund, Christoph. I mean they're not trying to -- they're not reacting to short-term movement. But what I could say, moving aside -- again, I'm trying to move away from the past few days and more in the broader scope of things in the context of the inflation and the increasing interest rates. As you know, in private credit, we are relatively immune for the reasons I mentioned earlier to Arnaud's question. And the fact that the direct lending is also floating rate. . The fact that the real estate is mainly sell and leaseback on long-term leases indexed to inflation. That our private equity portfolio, as Antoine was saying, is not buyout. So it's not highly levered controlled investment, but primarily minority equity growth and growth equity in the context of this recent situation, we might see more opportunities to deploy these strategies. And finally, obviously, the most relevant strategy in the context of high volatility as we've just experienced or a special opportunity, and I tried to elaborate on that earlier.

There are no further questions in the queue. So I will hand the call back to your host to close today's call.

Thank you very much, everybody, for your time, for your questions. We hope that everything is safe on this current unfortunate war environment. And we have to expect that, hopefully, it's coming to an end. So thanks again for your time, for your questions. We remain at your disposal. And to conclude the call, we'll tell you that we continue to be entrepreneurial in the alternative asset management space with the same drive, the same energy, the same innovation, and we look forward to discuss that with you in the coming weeks. Thank you very much.

Thanks. Take care. Bye-bye.

Thank you for joining today's call. You may now disconnect your lines.