Tikehau Capital (TKO) Earnings Call Transcript & Summary

Hello, everyone. Well, good evening or good morning for those joining us from the U.S. Thanks for joining our Tikehau H1 '24 earnings call. My name is Henri Marcoux, I'm Deputy CEO of Tikehau Capital. So, I will be joined today by Fred Giovansili, Deputy CEO; as well as Vincent Picot, our Group CFO; and Sébastien Cossu, Co-Head of Real Estate acquisition. We're happy to be with you here tonight and to go through Tikehau Capital progress and milestones for the first half of '24. Let me start maybe by a quick recap for H1 '24 highlights on Slide #5. In net sale, Tikehau Capital keeps delivering on its growth plan and the first 6 months of '24 have brought further evidence of that. I will start by fundraising, which has remained strong with a record of EUR 3.4 billion of net new money generated in the first half, that's actually a strong achievement in the current context. The diversity of our strategies, our strong credit platform, and of course, our strong performance has played out very positively in capturing client demand. We've also made some strong progress on the internalization of our franchise and continue to raise an increasing amount of capital from private investors through our various solutions. On the deployment side, I would say that we've been very active and selective. Active, first, because we have a strong origination platform that has allowed us to maintain a sound pace of deployment with an acceleration during the second quarter, selective because we have maintained a high level of discipline and selectivity across the board. On realizations, we have also been able to maintain a sound realization pace, and we have crystallized performance for our clients. On our financial, our underlying performance is robust with double-digit growth in management fee generation and disciplined cost management. Our results also include a cyclical impact linked to a high basis of comparison in '23 in upfront subscription fees for some of our real estate strategies and some unrealized mark-to-market effects on our listed REITs, but the underlying trend remained solid for the first semester. Let's move now on Slide #6 and focus on our sustainability, which is deeply embedded across our business model and investment approach. I wanted to share with you tonight some of our key achievements in the first half of this year. Firstly, we have continued to develop some new funds that include sustainability features in their legal documentation. We strongly believe that increased transparency regarding the sustainability characteristics promoted by our product is crucial. At end of June '24, AuM in SFDR Article 8 and 9, funds grew by 11%, reaching EUR 30 billion. To give you a few data points on the level of sustainability commitments within our portfolio at end of June '24, 40% of our portfolio companies in our key strategies have established a sustainability road map. Over the first half, close to 2/3 of new direct and corporate lending transactions have been carried out with an ESG ratchet mechanism attached to the transaction. In addition, we have continued to further strengthen our sustainability theme and impact platform. Our objective is really to increase the share of funds with robust decarbonization strategies in line with our 2025 net 0 commitment. At the end of June '24, the FIM Sustainability seen an impact platform comprised EUR 3.3 billion of AuM, specifically allocated to climate and to biodiversity to enable transition at scale, representing a 35% growth compared to a year ago. This puts us clearly on track to reach its target of exceeding EUR 5 billion by 2025. Finally, last comment, but our sustainability performance, as always, been recognized externally for the third year in a row, Sustainalytics, has identified our firm as a top-rated ESG performer in our sector. Additionally, we have received several sustainability awards across our private debt, private equity and real estate initiatives. I will now pass the mic to Fred Giovansili, Deputy CEO. Fred, the floor is yours.

Thank you. Hello, everybody, and happy to be here with you tonight this morning for you. So, I will start maybe looking at the top line figures in terms of fundraising momentum. As Henri alluded to, our strategies across the board attracted a total of EUR 3.4 billion net new money during the first half of 2024, which represents a record milestone for first half results. Worth mentioning also that we've seen an acceleration in Q2 this year with BRL 1.9 billion over this second quarter. We believe that such level of net new money represents a strong achievement despite some structural headwinds, and I'll come back to that in a couple of slides. It is also the reflection of the large and diversified platform we have in terms of investment platform, also an epitome to our proven track record as that play out positively. This always connects a platform with investment strategies that offer diverse risk-adjusted returns, allows us to meet investor demand across a variety of market conditions. In the first half of 2024, more specifically on our flagship strategies in private debt and private equity. We've made some good progress in the fund raising. In the context where fundraising is more back-end loaded, and I will mention that as well at a later stage. Overall, our public and private debt strategies accounted for more than 80% of net new money in H1. In addition to the strong momentum of our flexible farms, our CLO platform has been also very active across Europe and the U.S. with a pricing of 2 CLOs, and also the launch of a warehouse of 2 upcoming CLOs during the first half of this year. Last but not least, our capital market strategies have also recorded material inflows during the first 6 months of this year, essentially driven by our fixed income strategies, in particular, on short duration in dated funds. So as a result, we are quite pleased with this fundraising momentum across our various strategies. As I mentioned, is a record milestone for Tikehau and is also a reflection of our expertise and proven track records. Moving to the next slide, Slide 9. Just going through our 3 flagship strategies that are currently in the market. I will start with the European Direct Lending. We are making good progress on the fundraising of our 6th vintage with around EUR 2 billion to debt for the strategy. We are halfway, I would say, to our target of EUR 4 billion to EUR 5 billion. We are also halfway in the subscription periods. The amount raised, by the way, includes capital in the main commingle fund as well as SME, mandates and capital rest through a cycle like unit-linked product. The strategy is offering compelling performance with downside protection and is a pioneer of European direct lending. We've built a solid performance track record, which allows us to benefit from strong demand across the world. In private equity, we are currently fundraising our second vintage of our decarbonization strategy for which we are aiming for a size between EUR 2 billion to EUR 3 billion. At the end of June, we secured approximately EUR 800 million of commitment for the first closing and the pipeline looks promising as well. One important element of context here and the discussion we have with institutional LPs stating the piers for most of you. But usually, if they tend to commit once the investments or most of the investments are met, so they come less in the subscription period. So that's why it's mainly back-ended. So, we are happy with this EUR 800 million milestone. And we expect, once again, the demand to grow over time over the next coming months. In special situation, special opportunities, we are close to crossing the finish line on the third vintage of this strategy. Traction has been great, in particular, in the Middle East and internationally, globally, leveraging our strong track record in performance for this strategy. Looking at capital market on Page 10. So, moving to the next page. Just zooming in capital market strategies. As I alluded to, has been a strong contributor of our fundraising in H1 this year. We are ramping up the benefit of strong performance for these funds, our positioning as well as the massive distribution efforts we've made across our world sale team, especially in France, our home market, in Spain as well, where demand has been very high for our product and also a good start in Switzerland. The result is a material acceleration of net new money in H1 with more than BRL 600 million in 6 months across the capital market strategies. So, demand always has also been particularly high for dated funds where we've built a strong expertise. We have taken this range of funds from less than EUR 100 million of AuM at the end of 2018 to more than EUR 1.5 billion today, which is quite a significant milestone. H1 has always been solid for T&D strategy, which is investing in the short-direction segment of European credit, mainly investment grade. Moving on the Slide 11. Looking at our continued expansion of our international platform and client franchise. As you know, our strategic priorities, as we mentioned on previous calls, has been to keep diversifying our capital formation capabilities and also including engaging with a larger set of nondomestic clients. While we are happy to be strong in our home market, which is reflected in the figures we just discussed, we are even happier to measure the progress made in engaging with new clients across all continents. In H1 2024, approximately 75% of our third-party net M&A came from nondomestic clients. For the record, that was 60% in first half of 2024 last year. We are really accelerating internationally, and the various offices around the globe are solely ramping up, both in Europe and also beyond with several breakthroughs in South Korea, and Abu Dhabi in particular. Since the beginning of the year, we've added 2 new offices, 1 in Montreal and one in Hong Kong, which will allow us to force new connection and accelerate our growth locally and keep growing our international franchise. Looking at the graph, the geographical origin of the third-party inflows recorded in H1 is very well spread across different geographies. All asset classes and types and vehicles contribute to this diversification from CLOs to SMA, and Mendes to traditional closed-end funds. As a result, as of end of June 2024, 42% of our AuM come from international clients, which represent more than EUR 19 billion of AuM, up from EUR 12 billion at the end of 2021 and which is close to 10x more than at the time of the IPO. Looking at the international franchise in Asia, in particular, on Slide 12. I just want to make a short focus in Asia. As we mentioned in previous calls, it's quite a strategic growth region for us where we've recorded several milestones in the first half of 2024. In particular, if we start with Nikko Asset Management, it's been finalized a couple of weeks ago, and we're very excited by this perspective. So, Nikko and Tikehau Capital are very complementary. Nikko is one of the largest asset manager in the region with EUR 240 million of AuM invested mainly in public markets. They are bringing an extensive distribution and client engagement and established reputation and a waste of experience and market intelligence. On our side, on Tikehau side, we are bringing a wash of expertise and a robust track record in the price market sector, supported by our seasoned and experienced professional. This partnership has 3 components. First, Nikko will distribute our funds in Japan and across Asia, starting with European direct lending, private equity decarbonization and also private at secondaries. Second, we are also creating a JV in Singapore, which will develop Asia-focused private asset investment strategies. Finally, we are also cementing the strategic alliance with the capitalistic components to which Nikko Asset management will become a shareholder of Tikehau Capital. As I said, we are super excited by this partnership in this growth region. In terms of expansion in the region, we are also happy to share that the Hong Kong office is now open and active. And we announced at the occasion of the openings that we are partnering with Flow Capital, a Hong Kong-based private credit specializing in Asia Pacific real estate debt investments that will enable us to widen our network. Finally, we also announced earlier in the year that we are joining forces with Singapore best, UOB Kay Hian, one of the largest corporate investment banks in Southeast Asia to launch a new product credit strategy. As an adjustment strategic to our direct lending platform, this new product credit strategy seeks to provide financing to midsized corporates across Asia Pacific. As you see, we've been proactive in forging key alliance with strong partners to support and accelerate our expansion in Asia on top of very strong relationships that we already have with Temasek. On Page 13, focus on the democratization of private markets, a recurring team same in our industry. We believe that we -- in Europe, in particular, we have a pioneer position in democratizing alternative, which has contributed to diversifying our capital formation again this year. As discussed previously, we are mindful of asset liability management and have always been very focused on designing yielding strategy with low leverage so that we don't face a redemption risk in this kind of product. During the first half of 2024, more than 1/3 of net inflows came from private investor. The term private investor does not refer to a homogeneous set of client category, but more diversified franchise comprising family offices, high net worth individuals, but also massive plans. The capacity we have to tailor investment solutions to these clients by ourselves or alongside our partners is a clear competitive advantage. For example, the Unilin Private Defense in partnership with some large insurance companies in France represents one of the most successful product launch over the last 2 years with a total of over EUR 1 billion rest. In addition, our in-house digital platform, Opal Capital, which has recently launched a new fund of funds has attracted a total of EUR 130 million since inception in end 2022. This initiative added to other dedicated vehicles and product launch in Italy or Spain have contributed to growing the share of AuM coming from private investor to 30%, which represent close to EUR 14 billion. I will now pass the mic over to Henri to talk about the deployment and realization.

Thanks, Fred, for providing us a bit more insight on this H1 achievement. I will now move to Page 14 on capital deployment, H1 ‘24 that actually amounted to EUR 2.8 billion for closed-end funds with a clear acceleration in Q2. Our private debt platforms account for 75% of the total amount deployed by our closed-end funds in H1, driven mainly by our direct lending and our CEO strategies. That's actually a testament to our leadership position in the core mid-market direct lending, which allows us to have access to deep origination pipeline and to be highly selective in the context of scarcity experience in other mid-market financing sources. In Real Assets, we have remained very selective and opportunistic across our real estate core and value-add strategies. We'll get back in a minute with some examples of our capacity to dilatory source attractive investment opportunities even in the current context. Private equity deployments have been mainly driven by the first investment of our second vintage on decarbonization strategy with Vulcan, the engineering group, which is specialized in energy transition and life science. In addition, our special opportunity strategy have also been very active in fund deployment in H1. So, across the board, we have remained very selective when investing our funds with a selectivity rate of 99%, meaning that for what every 100 potential transaction we look at, we only execute one. Bear in mind that we have significant skin in the game through our balance sheet investments and that pushes us clearly to be rather focused on investment pipeline. Finally, last figure, but at the end of June '24, we had EUR 6.7 billion of dry powder, which actually means that our funds are clearly ample means to save attractive opportunities in the current dislocated environment. Switching to Page 15, we are now used to providing you a few data points on our portfolio and fund performance. You can see here that the selectivity and discipline in deployment effectively translates into asset quality and downside protection and that we remain very consistent with our approach. We've provided U.S. well in appendix some additional information on the composition of our asset base by asset by sector and by geography. A few data points here to be highlighted. Direct lending, we have not changed our discipline in terms of leverage. We do not compromise on documentation, which means passing on certain opportunities if that may be the case. We are able to originate a very large flow of mid-market opportunities, and we only focus on high-quality business as reflected in the figures that are displayed on that page. As far as private equity is concerned, our companies are growing their top line, their profitability at a fast pace. Here also, we remain very reasonable in the use of leverage. I remind you that we are not managing generalist LBO strategies. We invest in mid-market companies, affected high-growth verticals alongside vendors, entrepreneurs, families that are also conservative when it comes to the use of leverage. Looking at real estate, our portfolio are highly granular, more than 9,000 units across our platform. Financial occupancy remains strong, and we have a high-quality tenant base that effectively pay their rents. Finally, in real estate, our LTV remains low at approximately 26% growth across our platform. Maybe talking about real estate, I will now pass the mic to Sébastien Cossu, which is co-heading our real estate acquisition to provide you a few data points on some of our real estate transactions that took place in H1.

Thank you, Henri. Hello, everyone. Given the interest hike, the work for home, the increase of CapEx costs, the real estate transaction volumes is now close to 2009 levels, which is really low. We think that investing now in real estate is a twice a lifetime opportunity. The previous one was post-financial crisis in 2008 and the one before in the '90s. I will spend some time to describe 2 of recent transactions we carried out as real estate acquisitions in FICO Group. They illustrate very well our capacity to source sizable and compelling opportunities in the context I just described. Starting with the acquisition by Sofidy of one of the major shopping center in the Paris region, Cologne. We are talking about a 70,000-shopping center locating in northeast of Paris that attracts 11 million visits per year. It comprising 190 shops and restaurants and enjoy a 95% financial occupancy rate. As part of this acquisition, we have done forces with Klepierre, the European leader in managing shopping centers on a long-term capital, so for the earning 75% of the capital and operational partnership. The transaction volume is more than EUR 200 million and was structured in the form of a club deal at our initiatives in terms of several of our investment vehicle alongside with franchising. Thus, it shows the -- our ability to attract third-party capital and the success of fundraising initiatives with the right opportunity. We should also know that the low double-digit yield is really attractive. In line with Sofidy ambitious strategy to reduce the environmental impact of their assets, particular attention will be paid on the ESG aspect of that transaction with Oparino already benefiting from a Bremnes excellent certifies. This acquisition benefits from a green loan financial structure by Natixis. Moving on to the next slide. The Net transaction shows our ability to keep on sourcing off-market and proprietary opportunities in a French market that is suffering for minus 30% decrease of investment volume compared to 2023. Then end of June, Tikehau Capital has signed a binding agreement for the acquisition of our portfolio of 30 retail assets comprising hypermarket and supermarket premises located across France. Those assets spread over 300,000 square meters and our list to major national brands like Intermarché, Carrefour, Auchan and Casino. It also includes redevelopment and value-add potential. In terms of size, this transaction is greater than EUR 200 million also and is below construction cost. In line with Secure Capital ambitious has this strategy approach to our attention will be paid to the energy transition and the upgrade of the assets over time. To conclude, given the current real estate environment, we are convinced that the market is now full of similar opportunities that we would target on the short to midterm. If you have the right platform, the right team and the right network, there are many opportunities to site to our real estate strategies.

Thank you, Seb, for providing us those data points on those real estate transactions for the first semester. I would also like maybe to add that the Casino transaction has been done at a very compelling low teens cap rate, which is actually very remarkable in the current context. We may switch now on Page 18 to provide you a few data points on our realization for the first semester, which actually amounted to EUR 900 million. They have been driven by private debt strategies that accounted for 2/3 of the amount with several sizable refinancing that allows to crystallize solid performance for our help. In real estate, the realization mainly concerned our very granular residential portfolio, notably in Iberia, which we acquired in June 21. Our strategy has been to actually dispose of preselected lower-quality units while maintaining a high-quality and well-located lease portfolio with high concentration, which will facilitate actually the exit in the future. In private equity, we recently announced exclusive discussion with Safran with a view to sale of portfolio company Preligens, a global leader in artificial intelligence for aerospace and defense. This is actually the first exit of our cybersecurity strategy, B3. A couple of days ago, we also announced the disposal of Brown Europe, a specialist in a wire drawing of high-performance alloys for the aerospace industry to actually your USVM STS Metals. That's actually one of the stakes that was within our aerospace fund and an investment which was made in 2021. So, as you can see, we've been able to demonstrate that we are able to realize assets and generate strong performance returns for our clients even through actually a context, which is a bit tougher as we can see now over the last 18 months. That actually concludes our operating review. I will now pass the mic to Vincent Picot, our Group CFO. Vincent, the floor is yours for the financial review.

Thank you, Henri, and good evening, everyone. Let me start by a quick word on our keeping an evolution on Page 20. So fee-paying AuM reached EUR 37.2 billion at end June, up 12% compared to a year ago. This growth mainly reflects the dynamic fund raising for capital market strategies and our strategies as well as the sustained deployment momentum for our direct lending, CLOs and special opportunity strategies. Future flipping AuM, corresponding to AuM, which will generate management fees in the near term was stable at EUR 4.4 billion. Assuming an average management fee rate of around 1%, we are talking about future incremental revenues in the region of EUR 40 million per year. Overall, the health pay for growth in our fee-paying AuM on top of our future paying -- in base provides strong long-term visibility of management fee generation. Let's now focus on us on our management fees on Slide 21. Management fees and other revenues reached EUR 155.9 million in H1 2024; a stable level compared to a year ago. H1 2023 benefited from a high basis of comparison due to upfront subscription fees generated from growth inflows from some of our real estate strategies, in particular, Sofidy, which are presented in light blue on the chart you see on this page. Excluding the effect of this upfront subscription fees, net management fees grew 13% year-over-year, broadly in line with growth in our fee paying agree. This underlying growth illustrates the solid fundamentals of our business model. The weighted average management fee rate over the last 12 months stood at 88 bps compared to 97 bps a year ago. This evolution reflects the cyclical effects linked to fundraising in real estate that I just mentioned as well as the fundraising mix in the first half of '24 with more than raising on CLOs and CMS, which bear lower management fees than the current group average that benefit from strong operating leverage. I would conclude by reminding you that our high-generating strategies, like private equity have not yet fully contributed in 2024 and that it will contribute positively to our management fee mix going forward as per rating progresses. Let's now have a look at our core fee-related earnings on Page 22. In H1 '24, we generated EUR 55.7 million of core FRE, representing a margin of 35.7%. The -- this 13% structural underlying growth in management fees, coupled with our disciplined approach in operating cost management despite inflationary pressures and opening of new offices or resulted in an underlying progression of our profitability. Yes, this was offset by a cyclical impact linked to lower from subscription fees generated by real estate strategies that I described a bit earlier. This effect should, however, ease going forward in H2 '24. A few data points now on performance-related earnings on Page 23, which are set to become a material profit driver in the years ahead, notably when third generation of flagship funds mature. At end June '24, AuM eligible to carried interest grew 13%, a percentage similar to the growth of asset management AuM at EUR 20.5 billion. AuM eligible to carried interest, currently invested and above other rates reached EUR 8.8 billion, up 90% compared to end June '23. In addition, at end March '24, we had EUR 200 million of unrealized performance-related revenues accrued within offense. This level is 2.5x higher than in December '21, illustrating the performance of our funds over this period. This amount is not yet accounted for in our P&L and will be recognized as funds approach maturity and crystallize their performance. I would also like to remind you that our shareholders are the main beneficiaries of performances as reflected in how they are located and as per our dividend policy. Moving now to our investment portfolio on Page 20. Our balance sheet investment portfolio reached EUR 4 billion at the end of June '24. This compares to EUR 3.9 billion at end December 23. Over the first half, we invested close to EUR 400 million, mainly into our asset management strategies, in particular CLOs and P strategies. We performed approximately EUR 200 million of realizations, including return of capital, mainly from our special opportunities and privileged strategies. And we also had negative changes in fair value linked to our listed rates, offset by positive FX effects. As a result of our continued investments in our own strategies, 77% of our investment portfolio is invested in our asset management solutions, therefore, strongly aligning interest with our clients. Let me also add, as displayed in the right box, that our funds is pretty well balanced across our private market strategies. Our private equity, private debt and real asset strategies, each represent close to 1/3 of total investments in our strategies. Moving on to Slide 25 on portfolio revenue generation. In H1 '24, our investment portfolio generated EUR 78 million of revenues. Realized revenues were 16% year-over-year to EUR 95 million, representing the bulk of total revenues. This growth was driven by a 14% growth in dividends, Cooper and Distribution, mainly coming from our private debt and real estate strategies. Overall, Tikehau strategies contributed EUR 81 million to realize revenues, which yield a 13% growth compared to a year ago. Unrealized revenues on their side stood at minus EUR 17 million and included EUR 35 million of net positive fair value changes from our private equity strategies and ecosystem investments, offset by EUR 52 million of negative market effects on our listed rents. On our 2 listed rents, IREIT in Singapore and Select IREIT in France, we have built over time of resilience and granular portfolio assets while being conservative in the use of leverage with an average LTV of 37%. Unrealized mark-to-market effects clearly do not reflect the underlying portfolio business. Let's wrap up now by looking at our profit and loss statements on Page 26. I already commented management solution and seriously, the world of performance-related earnings, which grew to EUR 5 million, mainly driven by performance fees linked to our dated funds Tikehau 27 within our CMS fixed income business unit. Further down the P&L, financial expenses increased to EUR 21 million due to higher financial interest following the EUR 300 million sustainable bond issuance in September '23 and the EUR 220 million drawdown of our RCF in the first half. Overall, net results group share reached EUR 58 million over the first half. And excluding the effect of noncash elements, net results would be slightly up year-over-year. Before I hand it back to Henri and Fred, some key elements on our balance sheet on Page 28. Our model is supported by strong financial means with EUR 3.1 billion of equity and short-term financial resources of EUR 800 million. Our financial debt increased to EUR 1.7 billion at end June '24, following the drawdown on our RCF I just mentioned. Gearing ratio reached 54%. In Q2 this year, S&P Ratings and Fitch both confirmed our investment-grade credit rating with a stable outlook, thus confirming the strength of both our business model and financial structure. Finally, as you know, sustainability is at the very heart of our DNA, whether in terms of investment, but also at the level of group financing. ESG-linked debts remained stable and accounting for 78% of our total debt compared to 0 at end December 2020. That concludes my financial review. Thank you for your attention. I will now pass the mic back to Fred and Henri for the outlook.

Thanks, Vincent, for those highlights on our H1 financials. Maybe switching now on the outlook, Page 29. So before maybe jumping into the detail, a quick word on the evolution of our AuM reporting going forward to better reflect our credit platform and expertise. So, from now on, starting Q3 notably, the AuM for our special opportunity strategies will be reported in a new credit business unit. Until now, this strategy was historically reported in the private equity segment. This change actually reflects the fact that our special ops strategy is, in fact, mainly credit-driven, rail building on a diversified portfolio of flexible capital, opportunistic real estate credit and tactical liquid credit instruments. As such, it's really complementary to our other strategies. On the other hand, from how the AuM reported within our key business will be pure private equity, which makes greater sense and provides greater consistency. So as a consequence, the EUR 1.4 billion of AuM for our special up strategy at end of June '24 will be transferred to this new credit business line, as you can see here on the slide. And we will obviously provide you in the coming months, the comparable historical quarterly data under this new reporting financial framework. Fred, maybe on Page 30.

Sure. Just a slight tackles the market environment and how Tikehau navigates such dynamics. Maybe just on the -- a few words on structural growth seems I won't go through each of them as all of you are very aware of it. But in a nutshell, I think it's fair to say that LPs remain broadly committed to pipe markets with increased allocation, especially to private debt, while allocating in favor of large fund manager. In terms of headwinds, despite the market recovery in the denominator over the last 12 months, numerator effect persisted in the first half of the year as the lack of exits and rebounding valuation drove NAV higher. So how do we navigate such market and again such backdrop. So, first of all, as I mentioned before, we offer a range of investment capabilities that would meet client demand across diversity of market conditions. Second, our global platform with boots on the ground in key markets, we can tap into a diverse set of investment opportunities and also investor base. Third, our innovative and differentiating approach in the democratization of right markets, open up new avenues for a wider range of investors to benefit from such alternative asset class, and this is just starting. Fourth, our companying balance sheet remains a strategic weapon, providing stability and flexibility. We can definitely support the growth of our asset management strategies and seize acquisition opportunities as they arise. Last but not least, our strong corporate culture and honor mindset, drive our commitment to excellence and long-term success. This focus definitely ensures that we remain aligned with our investor interest and dedicated to sustainable growth. Since element together underline and embodies our resilience and strategic advantage in navigating both growth opportunities and market challenges. I'll hand it over to Henri for a short on our outlook in terms of KPI.

Thanks, Fred. We're definitely jumping to Page 31 and to conclude maybe on this first semester results. First of all, for the remaining H2 for the rest of '24, we are anticipating an acceleration of fundraising and revenue generation for the second semester. On fund raising. First, in line with H1, we still anticipate good traction for our capital market strategies and healthy CLO issuance for the coming months. Second, we are confident in the pipeline of our flagship funds, in particular, direct lending and decarbonization. We see a healthy pipeline of fundraising there, which should start to materialize in H2. Now there can always be some cutoff effects and we've always been very clear on that with decisions spilling over the next quarter of semester. But this is just calendar effects or phasing effects. And we usually provide an AuM guidance at end of September AuM release. Maybe a few additional points on revenues and profit. First, the comparison basis linked to these prescription fees will be eased in H2 '24. Secondly, our underlying revenue generation should accelerate in H2. This is obviously linked to the fundraising, but there is no linearity given that some strategies charge fees on invested capital, like direct lending and some others have catch-up fees that can generate lumpiness in the management fee generation. Coupled with disciplined cost management, the acceleration in management fee generation would result in core FRE acceleration as well in H2 and underlying margin expansion. Our core FRE generation in '24 will definitely be skewed towards H2. In terms of midterm outlook, we remain confident in our capacity to reach our midterm targets by 2026, which are reminded on that page. Well, I think we've actually gone until the end of our presentation. That actually concludes our presentation. And maybe Operator, you can open the floor for a Q&A session.

This is the conference operator. [Operator Instructions]. The first question is from Nicholas Herman with Citi.

Yes. A couple on my side, please. First, on fundraising, thank you for the guidance and expected to pick up in fundraising in H2. Just curious, can you just talk about the flow pipeline, I guess, particularly across your Middle East and Asia clients? And as part of the Nikko partnership, will that be contributing as well in the second half? And what kind of contribution are you expecting this year next year. I become interested in terms of expectations there. Secondly, real estate another quarter of net outflows. Just curious, what kind of visibility and redemptions do you have? And how are you thinking about the expected time to recover demand for in sovereignty? Third question, costs which were flat year-on-year. Just curious, are we still thinking about -- are we expecting therefore a big step-up in H2 kind of commensurate revenues and therefore, what we should be sort thinking about if a 10% percent plus annual cost inflation per annum. And then actually, I could sneak in a peaky fourth one, please. On performance fees. Thank you for the disclosure on the EUR 200 million of better performance fees. Just curious, can you talk about the pipeline for realizations and how much of that EUR 200 million you expect to recognize over the next 2, 3 years, please?

Nicholas, it's Fred. Thanks for your question. I will start maybe just on your Nikko Asset Management question and hand it over to Henri and Vincent to answer all the questions. So, in terms of contribution of this partnership for fundraising in H2, look, I think we expect a gradual ramp-up of the distribution of our product. But it's fair to say also that the process will take time. We have secured common meetings. So, we've had active engagement with our IPs over the last couple of months or weeks. And we've been working together on a few leads in our pipeline. So, in this context, I would say that we hope the partnership to contribute for full year '24 AuM. But it's also fair to say that it's still too early to have a precise view on this. Bearing in mind that the client demand in Asia is pretty strong, especially when you look at the price market allocation compared to the GDP. So, there is definitely a very strong appetite, active engagement. So, we're hopeful that it will materialize in the near future. But as you also very aware, our IP are not quarterly focused. So, we don't really know if it's going to be in Q4 or in Q1 next year. But definitely good traction, good engagement level at tech.

Thanks, Fred. Well, maybe, Nicholas, thanks for your question on real estate. So, what we can see is effectively for Q2, slightly small negative net outflows for Sofidy. As you know, the mechanism and notable exit mechanism is very constrained, which means that we cannot have more notably on CP, you cannot have more exits than inflows. What we can see is clearly, I think what we've seen is the worst was really -- the worst period for that was really November, December '23. We've seen a kind of recovery in that business over the first half. And clearly, I think that things are getting smoother on that area. We still have a little -- I think a little bit more than EUR 100 million of exits which are not being served so far. So that's what we can say so far with a market where you have more than EUR 2.3 billion unserved at the end of June '24. So, I think the worst is clearly behind us. It took place in Q4 '23. We can see a recovery in that market. And notably, I think that the strong pace of investments, the new opportunities we've been able to save in terms of the notably the deal described by Sebastien are key differentiating factors, which we are able to show to our LP and to demonstrate that even in a tougher environment, it may be the good time actually to invest in real estate, and then with double-digit returns, you can now invest in real estate and say a good investment opportunity. You had a question number three on cost evolution in H2. Well, difficult to answer precisely on to that question. As you can see in H1 compared to H1 '23, our costs have remained stable, which means that we've been able to raise inflation effect. Inflation stands between 4% to 5%. And despite that and despite the increase of our footprint, we've been able to maintain cost flat. That clearly means that we need to make -- we are making some adjustments, some here and there. Increasing our efficiency as well, and our processes in the current unman brands, and we are very cautious on our cost evolution, and we are anticipating effectively that as we've done in H1, despite the inflation pressure, we will be very cautious on cost. Your fourth question was related to performance fees. Well, we are effectively that the second time in a row that we are disclosing the amount of underlying performances that are embedded within the NAV of our funds. Difficult so far to effectively provide you some data points on that will depend obviously on the exits that will take place within the funds, notably some private debt, notably private equity and real estate for the coming quarters. What we can say is that on a short-term basis, TDL III vintage will actually -- should effectively generate in the coming quarters some significant revenue and actually performance fees.

The next question is from Arnaud Palliez with CIC Market Solutions.

Yes. I have 3 questions, actually. The first one is regarding your positive outlook for deployment and realization in H2. I would like to have more details about what you can see from the current pipeline, and especially on the realization side, what can we expect? And can we expect also that this realization will be translated into some performance fees or carried interest? That's the first question. The second one is regarding private debt. What is your current assessment of the underlying risk on this private debt market? And do you consider that we are going to see some tougher regulations that could slow down the development of this business. And finally, the last question is more a question of detail, but your midterm target on fee-related earnings of more than EUR 250 million. Is it according to your definition of -- the new definition of work core FRE? Or is it still the regular FRE, I could say?

Thank you, Arnaud. Well, jumping maybe and taking your first question on realization. So, realization, what we can tell is that actually H2 '23 was standing at EUR 1.7 billion. So, we still have a high comparison be for the second semester of '24. Maybe driving you through asset class, we have clearly a healthy pipeline, notably on private debt, notably on private equity, where we've been not so active during the first semester. And the 2 exits that I was mentioning previously, one for cybersecurity fund and the other one for the aerospace and defense funds will be accounted actually in the second semester. So, on private equity, clearly, we have some realization in the pipeline. Obviously, so once again, we have this calendar effects and some closing may take place on January 4. People deal-wise, they are not focused on this quarterly closing. But once again, a healthy pipeline of realization, private debt and private equity. Now to come back to your question on carried interest. As far as private equity is concerned, none of this realization will trigger any carried interest as those are actually -- we are not up until the end of these fonts. Remind you that carry interest, we have a very conservative approach in the way we are booking those revenues, and we are waiting the end of the life of the fund to make sure we don't have any claw back mechanism that would negatively affect our profit and loss. So thus far as private equity is concerned. Maybe on private debt, as I mentioned, obviously, some of these exits will trigger some per fee generation, notably for TL CTO Direct Lending #3 vintage. Maybe Fred, do you want to talk to us about private debt?