Tikehau Capital SCA

PAR:TKO

Earnings Call Analysis

TKO Capital Shows Robust H1 2023 Growth

In the first half of 2023, TKO Capital demonstrated a strong performance with a disciplined and selective capital deployment of EUR 2.5 billion, despite a challenging macroeconomic environment. Private debt led exits from closed-end funds, totaling EUR 800 million, a 33% increase from the previous year, contributing to solid returns. Fee-related earnings grew by 20% reaching EUR 50 million with a 31% margin, and assets under management (AUM) expanded by 14% to nearly EUR 41 billion. In a strategic push to operate within a sustainable framework, TKO committed to aligning approximately 40% of its AUM to net-zero initiatives by 2050, reinforcing its position as a top ESG performer in its sector.

TKO Capital Opens the First Half of 2023 with Solid Performance and Strategic Growth

TKO Capital's journey into the first half of 2023 began with a strong performance in key operating metrics and an aggressive capital deployment strategy. During the H1 2023 Results Conference hosted by Co-Founder Mathieu Chabran and covered by executive Henri Marcoux, the company unveiled robust capital deployment of EUR 2.5 billion across closed-end funds, representing disciplined and selective capital allocation with a staggering 98% selectivity rate. Realizations resulted in 33% more exits compared to the prior year, totaling approximately EUR 800 million, with particularly impactful contributions from private debt sectors that yielded in-line or above-average returns.

Record-Breaking Fundraising and Geographical Expansion Fuel Future Growth

TKO Capital's fundraising momentum continued with an imposing EUR 3.3 billion raised in H1, a record for the company and an indication of its product range's relevance even amid global economic slow down. Furthermore, the company succeeded in global diversification, with the opening of a new office in Abu Dhabi, expanding the company's footprint to 15 geographies and resulting in more than EUR 15 billion of AUM from nondomestic investors. This expansion into high-growth markets is crucial for catering to sophisticated asset allocators, especially in the Middle East, and for building specific segregated mandate accounts (SMAs).

Asset Under Management and Revenue Growth with a Focus on Private Debt and ESG Commitments

TKO Capital's Assets Under Management (AUM) reached EUR 41 billion by end of June, growing by 14% over the last 12 months, while asset management revenues grew by 11% to EUR 160 million mainly due to long-term recurring management fees. The company also emphasizes its dedication to environmental, social, and governance (ESG) initiatives, committing to manage approximately 40% of AUM in line with achieving net-zero greenhouse emissions by 2050, and extends its impact through a EUR 3.5 billion AUM impact platform targeting key sustainability issues.

Robust Realization and Investment Strategy Yielding Above Average Returns

TKO has illustrated a solid track record of exits, such as the EuroGroup IPO in Italy and the stake sale in Eren, exceeding performance expectations with multiple of invested capital (MOIC) and internal rate of return (IRR) metrics well above industry averages. Additionally, the balanced disposal across different sectors like real estate and private equity, combined with continuous investor interest in private debt, underlines the company's capacity to accurately select and exit investments benefitting both clients and the firm's balance sheet.

Strategic and Selective International Positioning

The strategic expansion internationally has positioned TKO Capital uniquely in the asset management industry. The organization's multi-local platform serves as its key asset, enabling close and trusted relationships with clients globally. This approach is integral for sourcing investment opportunities and partnering with large financial institutions, a testament to the company's vision for building a trusted dialogue with global limited partners (LPs) and solidifying itself as a mainstay in the investment community.

Projected FRE Margin Growth and Disciplined Cost Management

TKO Capital maintains a strong focus on disciplined cost management, essential for maintaining profitability in an uncertain economic climate. The executive team has set a clear goal to reach a Fee-Related Earnings (FRE) margin in the mid-40s area by 2026, signaling a deliberate and robust growth strategy. The company's solid balance sheet and selective recruitment strategy will likely contribute to its FRE margin outperforming the increase in management fees, a positive sign for future profitability.

Financial Strategy: Management Fees Stability and Future Value-Add Product Focus

Despite a slight decline in management fee margins, the company's management has reaffirmed their target to maintain an average fee rate around 100 basis points. With the plan to increase the proportion of value-add products to one-third of their strategies, TKO Capital aims to ensure steady margins over the next 12 months and beyond. This strategic shift towards value-add strategies mirrors a broader industry trend and positions them well for future demand shifts.

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, welcome to the TKO Capital Half Year 2023 Results Conference Call. Today, I am pleased to present Mathieu Chabran, Co-Founder; Henri Marcoux; and Frederic Giovansili, Deputy CEO. Gentlemen, the floor is yours.

[Mathieu Chabran, executive]

Hello, everyone. Good evening or good morning for some of you. Thank you for joining us on our Tikehau H1 2023 Earnings Call. I'm Matt Chabran, TPO Capital, Co-founder. I'm happy to be here with you today to talk about Tikehau's progress and milestones for the first half of 2023. So before turning the mic to Henri and Fred and then obviously answer your questions, I would like to say a few words on our achievements during the first 6 months of the year. We are seeing signs everywhere that the TKO platform is getting stronger.

First, in our capacity to keep a sound pace of capital deployment. Despite the current macro context and thanks to our talented teams and multi-local platform, we maintain a very selective and disciplined underwriting. This has enabled us to generate differentiating downside protected and risk-adjusted investment solutions for our clients and for our balance sheet. Second, through the sustained fundraising momentum. Despite the broad slowdown across the industry, TKO is in a position to answer a wide variety of client needs by delivering strong performance across complementary asset classes. And this is the case across powerful investment feeds.

Our credit platform, by example, which by all means and given the current interest environment is a very appealing is a good example of these synergies. We have been pioneers in European direct lending and are now positioned as one of the key players in the space. We have also been able to successfully launch and scale some very differentiating adjacencies such as our private debt secondary funds, our tactical strategy solution or even our CLO businesses. We view our diversification as well as our key strengths. Our record fundraising and the progress we are making internationally, will come back to that, are a testament to this strategy.

And finally, we are convinced that there is tremendous value in operating with a strong balance sheet. Eminent capital is more critical than ever. It allows us to have a second to none skin in the game and guarantee a strong alignment of interest between management, shareholders and investors. As we are navigating a new market environment, it is crystal clear to us that the compounding effect of our capital allocation is a strategic hedge for TKO. There are still a lot of uncertainties ahead, but that's the nature of the game. And we are confident in the setup that we have built and that TKO will keep delivering strong value to all its stakeholders.

So with that, I will leave the floor to Henri and Fred, and we'll get back to you with the Q&A. Henri?

[Henri Marcoux, executive]

Thank you, Mathieu. Good afternoon to everyone. Let me start with by a quick review of the 3 main operating KPIs of our model on which we've been delivering strong results during that first semester. First, capital deployment across our closed-end funds, which amounted to EUR 2.5 billion in H1 '23. So a rather solid amount of capital deployed still very selectively since we actually discovered 98% of the opportunities within [indiscernible]. So strong momentum, yet very disciplined capital deployment. Second, realization or exit of closed-end funds generated around EUR 800 million of realization, which is actually 33% more than the first 6 months of last year. Private debt has been leading the pack in H1 2023. Those realizations have generated returns in line or above our expectations. They actually contribute to the realized performance of our firm, which is key [indiscernible] of our healthy franchise, but as we look for our balance sheet investments.

And actually, the context that is a very dynamic runrate monitor for the first semester with EUR 3.3 billion, which is a record for our H1 since 2Q was treated. This shows that our diversified product offering makes a lot of sense and that we are actually positioned on strategies that resonate for health, even in a definitely more complex environment in which decision making for our clients takes more time. In addition to that, we've been making a lot of progress on expanding our franchise globally with our new open offices, which are ramping up nicely and allow us to build new relationships with new clients. Fred will get back to that. You may have picked up that we announced the opening of our office in Abu Dhabi a couple of weeks ago. So we are now operating in 15 geographies.

We have also been delivering in terms of client-based diversification, with continued success in offering innovative and adaptive investment solutions to private investors. Moving now to the next slide with a couple of more financial figures to keep in mind for H1. First, our AUM Asset Management reached close to EUR 41 billion at the end of June, which is a solid 14% increase over the last 12 months. Second, our asset management revenues also grew actually by 11% to EUR 160 million in H1, mainly driven by the long-term recurring management fees that are attached to the vast majority of our stability. In terms of profitability, fee-related earnings are up 20% year-on-year, reaching close to EUR 50 million and a 31% margin. Finally, the realized portion of our revenue generated by our balance sheet portfolio are up 5% compared to last year, which is a robust performance.

I will move now to Slide #5 and focus on sustainability, which is, as you know, an ended all of our actions and across our business products. Today, I would like to highlight some of our key achievements in the first half of this year. Firstly, related to climate change and after becoming signatories of the Net Zero Asset Management Initiative, we finalized our target in March this year with a commitment to manage close to 40% of our AUM to support the goal of achieving net euro greenhouse gas emission by 2050. What does that mean concretely? That means that for the real estate assets in scope, we will be aiming to improve the energy and carbon intensity with a focus on our assets in France.

As far as private equity, private debt and capital market focuses are concerned, our target means that we will be gradually shifting our financing towards companies that are setting decarbonization commitments and making progress towards their low carbon transition. Of course, the target is not static, and we will aim to increase the proportion of the event to be managed in line with net zero over time as new funds will be introduced with net-zero strategy. The second achievement would like to highlight today is actually related to our sustainability team and impact platforms through which we want to address key sustainability issues, including decarbonization, nature and biodiversity, cybersecurity and resilience.

At the end of the first semester, the impact platform comprised of EUR 3.5 billion of AUM, in which EUR 2.4 billion is specifically dedicated to client exchange and biodiversity. This means that we are clearly on track to reach our target to exceed EUR 5 billion by 2025. Finally, as you can see, our sustainability performance has always been recognized externally for the second year in a row, sustained analytics has identified the term TKO to be as a top-rated ESG performer in our sector and our ESG rating puts us within the top 4% of the industry.

Maybe we can move to the next slide on operating highlights for the first semester. I will now move to the capital deployment for H1 '23, which actually amounted to EUR 2.5 billion for closed end funds. This amount is actually in line with our 2 years average for the first semester of this year. We've been leveraging our multi-local platform and our strong positioning in the private debt segment, which accounts for more than 70% of the total capital invested by our fund in H1. We've been deploying capital mainly across our direct lending and our CLO strategies. We have built a leadership position in the mid-market direct ending, which allows us to have access to a deep origination pipeline and to be highly selective.

In real estate, we've been rather selective and quite opportunistic across our [indiscernible] and value-add strategies. Private equity deployments have been mainly driven by our special opportunity strategy, which has a broad investment mandate offering an interesting value proposition actually in the current context. Maybe I'd like to also add that the pipeline is rather solid in terms of deployment for our traditional private equity strategies for the second half. You may have picked up a few days ago a new announcement as far as energy transition is concerned.

We've been remaining very selective on H1 when deploying capital into our funds. The selectivity rate stands actually at 98%, meaning that for every 100 potential transactions that we look at, we are only executing 2 of them. Be in mind that we have significant skin in the game, and that pushes us actually to be rather focused on investment discipline. Finally, important data, at the end of June, we had EUR 6.7 billion of dry powder, which is a significant amount of capital available for deployment. This is actually an increase of 16% compared to end June '22. Our funds have ample means to face attractive investment opportunity in the current dislocated environment.

Moving now to the next slide. We will be providing you a few data points on the good realization momentum. We keep on delivering clearly a healthy pace of exits so that we can provide realized performance to our clients and to our prospects. Typically, we are now able to exit a growing amount of private equity investments. latest example has been [indiscernible] with the successful IPO of EuroGroup in Italy, which has generated a 3x multiple and 55% growth IRR. Just a couple of days ago, we also announced that we were disposing of our stake in Eren, generating 2x MOIC and 20% IRR for private equity secondary strategy. We still have some exits in the pipeline, notably for H2 with potential strong performance [indiscernible].

We've been also able to continue as far as real estate is concerned with some disposal, thanks to very granular midsized exits, in particular, through residential real estate program in Portugal and also through the disposal of Hotel in Paris, which took place a few weeks ago that have generated 2.3x multiple in the context of our pan-European value-add real estate strategies. In private debt, thanks to some refinancing to place in H1, we had the capacity to crystallize performance, which will obviously support the coming month of our sixth vintage of direct lending strategy. This strong realized performance duration is not only supporting future fund raising, but it's also contributing strongly and very significantly to the balance sheet returns. That's what we like to call you the compounding effect of our balance sheet.

Talking about the fundraising momentum on the next slide. For the second quarter and providing EUR 3.3 billion net [ new money ] for the first semester. Our fundraising remains exceptionally strong, actually, with this EUR 3.3 billion of net new money in the context of, obviously, global slowdown and later allocation process with our LP. We actually take this achievement as a testament of the relevance of our product range on multi-local platform and our capacity to deliver consistently strong performance. Overall, we are posting our strongest H1, even in terms of fundraising with a clear acceleration between Q1 and Q2 and also to be noted in the absence of some of our key flagship strategy.

Overall, we have developed a range of strategies that are quite appealing features for LP in the context of rising interest rates. In direct lending, the financing, we are arranging our floating rate instruments, so performance progresses as rates go up. Coupled with conservative deployment, high selectivity and low leverage, we are able to offer compelling performance with downside protection. As such, we raised in H1 around 55% of our net money through product debt platform. We actually kept a healthy base of CLO influence during the first semester, both in Europe and the U.S. in spite of the deteriorated environment. Private debt has also proven to be an interesting asset class for private investors, as evidenced by the strong demand we've been seeing for our unit-linked products, which we've been launching on the French market since a few years.

We are now getting ready to market our fifth vintage of European lending strategies, which is one of our key [indiscernible]. As far as our value-add strategies are concerned, we've been, in particular, very happy in successfully raising capital for our 4th vintage of private equity strategy dedicated to cybersecurity with the first closing, which is actually ongoing. We've also been booking the first AUM of our second vintage of decarbonization, private equity strategies as such a total commitment of EUR 400 million, both from our balance sheet and total energies has been recorded in June 23. This strategy will gradually ramp up in terms of fundraising, which is set to begin in Q4 of this year.

So overall, a very strong achievement for the first half of 2020. I will now pass the mic over to Fred in charge of Global Franchise Time Solutions. Fred, the floor is yours.

[Frédéric Giovansili, executive]

Thank you, Henri. Hello, everybody.

Let me start with a quick focus here on the fundraising achievement towards nondomestic investors, such investor being located outside France or domestic home markets. We are very -- of course, very happy to be strong in our home market. But needless to say, we're also very pleased with the traction that our strategies are having outside of France. As you can see on the Slide 11, we now have more than EUR 15 billion of the AUM coming from nondomestic investor, which is roughly 8% of the total AUM. We've been also growing this AUM -- nondomestic AUM by 16% over the last 12 months. Maybe for the record keeping in mind that at the time of IPO, this nondomestic investor base was only EUR 2 billion. So significant growth since then. In terms of flows, nondomestic investors account for roughly 2/3 of the net new money for H1 despite as any alluded to earlier on, as the absence of several of our key flagship strategies that will materialize in H2.

So fair to say the results that we've made trends progressed during the past years in internationalization our client base. Also, as you can see, we are starting to see the benefit of the various investments we've been making in expanding our global footprint and opening new offices over the last couple of years. Typically, we are very happy with the way our platform expand in Europe. You can see that just 5 years after setting foot in the U.S., this area is now the second most represented nation within our AUM after France. Going forward, we are about to start raising capital for several of our flagship plants, as we just said, which are poised to contribute to further internationalizing our client base. But I'll come back to that in the fundraising pipeline.

Moving on to the next slide. I'll focus more on the current footprint and more specifically on recent inroads globally over the last couple of months. Over this recent period, we've been focusing on high-growth markets, driving substantial opportunities in terms of fund raising. Large and sophisticated asset owners in such regions appreciate our synergetic platform that is also supported by a significant alignment of interest. As I alluded to on the previous slide, North America is very much a [indiscernible] point. We opened our office back in 2018, but an opportunistic acquisition in the infra space, launched CLO business, which is scaling quite fast, also started our innovative secondary private platform and issued also our first Collateralized Fund Obligation, CFO in the year '22.

On Continental Europe, we are accelerating. In 2022, we can measurement in the Netherlands and another one in Germany, which has been open for just a -- office has been opened for just a couple of months. And we're also expecting good news from Switzerland in the near future. When it comes to Middle East, which is a more recent development, as Henri has said, with the opening of Tel Aviv in '22 and more recently, the opening of our first office in Abu Dhabi in July. We've already close -- we have already close to EUR 1 billion AUM because these 2 geographies, thanks to the recent win of a dedicated special opportunities mandate with a [indiscernible] in Abu Dhabi. And last but not least, our Asian footprint is going also very well, leveraging the 3 offices that we are having. In Singapore, we have a hub and operated [indiscernible] and a growing PE franchise in South Korea, Seoul. We have a long [indiscernible] relationship with insurance companies. And as [indiscernible] in Japan, we're also starting to capture share of the growing demand for private markets.

Worth mentioning also that we are happy to share that we have been giving our first 2 Chinese LPs over the last 2 months -- 12 months. So overall, we have a unique insight derived from this collaboration across our global presence, that is definitely a differentiating factor going forward for our business to capture further demand. Page 3. Another way to look at our client base is to look at the type of clients that entrust us with our capital and our capacity to diversify the source of AUM for Tikehau Capital franchises. As most of you know, and we share this view that bringing international expertise in project market to non-international investor is a strong secular trend for our industry.

We've built strong position in this pace in a very disciplined way. That said, [indiscernible] category. We are actually talking about a mix by ranging from family fees to high net worth individuals, but also individual retail clients. In order to capture the most suitable product and educate such investor, we want to have the right partners to work from inside us the right distribution network and the right one format. We are, in fact, very mindful of asset liability liquidity management and everything we do with private clients is done with that in mind.

The good news is that we've been growing the share of AUM coming from private investors to 28%, which represent more than EUR 11 billion. Just highlighting there that we've made a slight change of methodology compared to our reporting at end of December 22. We wanted to be more accurate in reflecting the [indiscernible] AUM. The majority of the AUM is influenced through life insurance contract and the insurance companies who are previously classified as [ intentional ] investor. In order to better reflect the real allocator, making investment decisions, these flows are not reported as coming from pricings. Also, among our most successful [indiscernible] during the past 18 months, the unit-link private debt product launch in partnership with large insurance companies in France are probably the most iconic. We've been also working with Private Bank in Italy expand through dedicated Fideuram or [indiscernible] multi-asset and private equity strategies.

Finally, we've also been innovative in the way we've been distributing our funds through the partnership we signed with iCapital in 2022 and the launch of our own platform, Opale Capital, which has recently launched a new from the fund.

Moving on to the next slide. As Henri alluded to -- alluded to early on, our capacity to bring a fully integrated platform that offers a broad range of investment solutions across asset classes is a key asset for [indiscernible]. This is even more crucial in an environment in which LPs are concentrating their GPs relationship. Our LP clients want to keep allocating a large amount of capital to alternative and product market, but to a sure number of asset managers. We strongly believe we are uniquely positioned to be one of these winning players. At the end of June, our AUM base is very well spread across private debt, representing roughly 1/3 real assets, which comprise real estate and infrastructure, also roughly another 1/3 private equity and special situation and opportunities for 15% in our capital market strategies for 10%.

Looking at the return profile of our strategies, we are still overweight in new strategies, which have been -- which have appealing features in the current context since they can provide some kind of hedge and protection against inflation and rising rates. I will talk about private debt, but it's true also for the majority of our [indiscernible] strategies. Value-add strategies where performance is run more by capital gains are more recent in our mix. When we IPO-ed, we had virtually no or very little AUM in such strategies, and we are now managing almost EUR 9 billion of assets in such value-add strategy. These strategies will keep ramping up as our position of strong secular mega trends such as energy transition, cybersecurity and are currently scaling very quickly and strongly. So we remain confident in our capacity to keep growing these strategies in the future. Back to you, Henri.

[Henri Marcoux, executive]

Well, thank you, Fred. Let's move to next slide, Page 15. We thought it was really important in the current cycle to provide you with a few data points on our funds to understand how we are going actually to behave in the current cycle. I've already provided you with stat on the selectivity rate, we are exercising when deploying our phone. But the few figures on the slide here are actually further demonstrating the quality of our underlying portfolio companies and assets. I will not go into detail in each and every figure. But what you are seeing is that across private debt, private equity funds, our company, our portfolio company are growing their top line and their profitability at fast pace, delivering EBITDA margin in the region of 20% on average and have actually limited leverage.

The approach we have in [indiscernible] high-quality companies have allowed us to record the strong exits I mentioned earlier, would that be EuroGroup or Eren recently. Finally, in real estate, our portfolio are actually very granular, remaining more than 8,000 units. They are resilient with high occupancy rate, high-quality tenants and there, again, moderate user leverage even in urban. So as we often say, we used to try to stay away from the excess we've seen on the market during the low rate area such as unreasonable valuations such as high use of leverage. We have been deploying capital with an entrepreneurial mindset, investing for the long term, leveraging our platform and our organization capabilities are skinning the game [indiscernible] in that approach.

I will now move to the granularity of -- on the next slide, which I think is a key issue. Dry powder, as you can see, accounts for EUR 6.7 million, which is roughly 16% of our AUM. This is actually capital to save future opportunities. Looking at our investments on the slide, our strategies are deployed across a great variety of sectors. We want to avoid -- to rely too much on one single sector or industry. Typically, the top 15 sectors account for 44% of our asset base at end of June 23. There is no individual sectors that account for more than 6% of the total, and the rest is actually well spread across sectors. Regarding real estate, remember that our platform is composed of highly granular assets selected with [indiscernible].

I'd like also to illustrate on the right part of the slide, the geographical split of our assets, France still accounts for 43%, Europe is our second exposure with overall a bit more than 30% invested, adding up Continental Europe and finally, North America, it's ramping up nicely with the differentiating strategy we've been launching into the region. Well, that is for our operational review. I will move now on to the financial highlights, starting with Page #18. A quick word on our fee-paying AUM, which is as a key metric to consider when it comes to brand new generation for our asset management business. Fee paying AUM has reached EUR 33.3 billion. And as on June, that's a 9% decrease compared to a year ago. This growth is actually mainly reflecting the sustained deployment momentum for direct lending, CLO and special opportunities.

Few words on future fee paying AUM, corresponding as to AUM, which will generate management fees in the near term. They have actually gone up by 51%, driven by fund rating and strategies, charging fees on capital deployed, but as well as fundraising and private equity strategies, which are not yet activated at the end of June 23. So achieving an average management fee rate of around 1%. We are now talking about future incremental revenues in the region of more than EUR 44 million, which are actually secured. Together, fee paying and future fee-paying AUM grew by 13% year-on-year, providing strong long-term visibility for our management fee generation.

Looking now at our asset management revenue. On the next slide, management fees and other revenues increased by 12% over year-over-year, reaching EUR 156 million. Is the strong growth actually reflects the continued progression of our fee-paying AUM. And overall, at end June of this year, management fee represented 97% of our asset management revenues. A few words on performance-related revenues that have contributed EUR 4.3 million to our asset management revenue, driven actually by the strong performance of several historical midsized private equity and private debt vehicles, which are actually gradually naturally. Bear in mind also that our performance-related revenues still have a limited contribution to our asset management review given the relative use of our funds as well as a cautious approach. We have always been adopting when recognizing carried interest into our financial statements.

At end of June 23, also to be mentioned, AUM eligible to carried interest have kept on borrowing at high pace that have reached EUR 18 billion, representing a 15% year-on-year increase, and they are actually growing faster than our asset management figure. This means that we are raising capital in priority in strategies eligible to carry interest, which is set to become a strong revenue and profit engine in the coming years actual.

I will now switch to our average management fee great. On the next slide, the weighted average management fee at the end of June 23 was resilient, at 97 basis points linked to the fundraising mix over the last 12 months. That's actually since December 2017, up 26 basis points growth, and that reflects the positive evolution of our business mix. We are satisfied with the way our management fee rate is progressing. Not only we are increasing the fee paying nature of our AUM, but we are also compounding that we have capacity to maintain the average fee margin at a high level, which actually translates positively on our revenue generation.

Not finally that given the cutoff on calendar effect, average management fee rate may vary in the range close to 100 basis points, which is a fair assumption of evolution of average management fee for the long term. I will now move to the next slide and a quick word on our fee-related earnings. In H1 of this year, we have generated EUR 49 million of fee related earnings, representing a growth of 20% versus last year. This evolution is supported by the 12% growth in management fees, partially offset by 9% growth in our operating cost. To be noted that the [ restricted ] of expense into share-based compensation transaction [indiscernible] to IFRS 2, operating expenses have only grew by 7% year-on-year, reflecting the selective investments we carried out to strengthen our platform.

As such, we have opened since January '22, 3 new offices, in Tel Aviv, in Zurich Sentiment and Abu Dhabi, our multi-level platform is key [indiscernible] to source clearly value-creation investment opportunities but also to consolidate our relationships with our LP tokens. As a result, H1 '23 FRE margin stood at 31.3% compared to 29.2% in H1 '22. Our platform scalability will be a powerful driver for our growth going forward. We are confident in our capacity to deliver FRE margins in the mid-40s area by 2026.

I will now move to our investment portfolio on to the next slide. Our balance sheet investment portfolio reached EUR 3.6 billion, at the end of June 2023, that actually compares to EUR 3.5 billion at end of December '22. Over the first half, we have invested close to EUR 500 million, of which EUR 400 million in our own strategies alongside our funds. We have performed approximately EUR 400 million of realization, including regions of cattle. That figure actually demonstrate, as I mentioned earlier, the velocity of our balance sheet even in a very challenging environment. And finally, we had positive changes in fair value, which have been partially offset by some negative foreign exchange effects. As a result of continued investment in our strategies, we are now at 78% of our investment portfolio, which is invested in our asset management solutions, therefore, strongly once again, aligning our interest with our clients and compounding improves.

Let me also add that this exposure with our funds is pretty well balanced, as you can see on the right part of the slide, across private market strategy, private equity, private debt and real asset strategies each represent close to 1/3 of the total investment of our strategy.

Now moving to the next slide, is the realized revenue of our portfolio. You can see here on that slide is the breakdown of portfolio revenues between realized and unrealized revenue. Realized revenue represents a bulk of total revenues amounting to EUR 82 million, driven actually by a 5% growth in dividend coupon and distribution. This growth is actually mainly coming from our private debt and real asset strategies. Overall, TKO strategies contributed EUR 72 million to realized revenue, which is a 39% growth compared to a year ago. Unrealized revenue amounted to EUR 2 million in FY'23 and includes positive contribution, notably for our growth equity, energy transition strategy, but there have been many offsets not only by market effects on our listed rates.

Of note, you may remember that H1 '22 unrelated revenue was benefiting from EUR 56 million of positive foreign exchange rate between euro and dollar and EUR 73 million of positive change in fair value for one of our core investments in the U.S.

Well, having a quick look now at our consolidated profit and loss onto the next slide. So let me try to wrap up the main figures on that. Overall, strong improvements in our fee related earnings growing by 20% year-over-year, excluding expenses linked to share-based compensation transaction, FRE actually reached EUR 57 million. So that's a 23% increase year-over-year. A resilient investment portfolio, despite a high basis of comparison with revenue, which has been driven by investment base in our own asset management strategies. Financial results back in negative territory after our first half of '22, driven by positive change in swap in fair value, which was offsetting financial interest and overall net result for the group for the first semester, reaching EUR 72 million.

Jumping to the next slide with our consolidated balance sheet and remind you a few data points. level, it's supported by strong financial means with EUR 3.1 billion of equity and additional short-term financial resources of EUR 1.1 billion, of which EUR 330 million of cash and cash equivalents. We are also benefiting from an undrawn RCF, which has been increased to EUR 800 million in March of last year and the maturity, which we have actually extended recently to July 2028. Our financial debt remained stable at EUR 1.5 billion at the end of June 2023. We have announced earlier this month that we decided actually to exercise the prematurity option on the bond, which is maturing in November 2023. As such, we will proceed to the redemption of the bond at the end of August next month.

In Q2 this year, Fitch and S&P ratings both confirm our investment-grade credit ratings with a stable outlook, thus confirming the strength of both our business model and our financial structure. Finally, as you know, sustainably is at the heart of our G&A, whether in terms of investment, but also at the group level in terms of financing, ESG-linked debt remained stable and accounted for 65% for total debt, it was actually 0% at the end of December 2020. That's it for our financial review. I will now leave back the floor to you for our outlook. We are jumping to Slide #27.

[Frédéric Giovansili, executive]

So on the Slide 27, let's follow quick on the fund rating outlook for coming years. I'll be brief and tell also in detail with you for each strategy and just get a gist of it. So we'd just like to highlight that we have a strong forwarding pipeline across our yearend value-add strategies. And some of the strategies are already in the market, by the way. Some of them would be added in due course in the second half of 2023. Typically, for example, we are months a few weeks ago, our intention to venture [indiscernible] debt to a good example of how we can leverage you see know-how to launch an adjacent strategy. In addition, 3 of our key tactic packages will be fundraising in the success of vintage in second half or second vintage of our decarbonization private equity strategy. Henri mentioned are the successor funds. The second vintage as well of our secondary private credit funds. And as a [indiscernible] of our direct lending strategy.

Let's move now to the next slide to focus on 2 specific strategies. So let's start with European direct lending. It definitely a strategy where we have a long and robust track record as Mathieu did at the beginning of this call, we've been a pioneer of these strategies, and we've been able to attract a significant demand in Europe and also globally. We are now managing the set of funds with discipline, low leverage, our [indiscernible] to a high-quality mid-market company. You will find in the appendix some interesting stat as well on our direct lending strategies. And also, the value proposal for IP is quite a company, right? We have on one hand liquidity, which is including the thing with banks that are retrenching for mid-market financing and on the other hand, the relative protection and hedge that is asset class is offering to the -- in the context of a rising rates environment.

Another yield strategy that would launch in the second half is going to be the second vintage of our secondary private debt after the success of the sales vintage, both in terms of AUM, but also and more importantly, in terms of performance. This also we have a couple of data points in the appendix, in particular, showing the nice double-digit net return, as I just mentioned, derated by this strategy.

So again, initially an innovative adjacency not clearly poised to scale and become a patient going forward. Last but not least, we launched in the course of the second half as the fundraising for our private equity becoming [indiscernible]. As a reminder, we raised more than EUR 1 billion in the [ first ] vintage and still benefiting from the support of total energy alongside our balance sheet commitment. The second vintage would be across Europe and North America for this new one. That's also a new development. The performance is very good for the first vintage with a strong exit met over the last 12 months, as mentioned by Henri, we successful IP of EuroGroup in Italy, [indiscernible] sub-time multiple. And first is expected to take place, I would say, on due course in Q4. Back to you, Henri, for concluding remarks.

[Henri Marcoux, executive]

Thank you, Fréd. Well, maybe a quick wrap-up here. So clearly, what we are seeing right now is that the environment has not yet stabilized. Fundraising is obviously taking more time our LTR selective in their allocation. But we think we are convinced that we have the right product to keep capturing clients in going forward. our diversity, both our AUM of our product offering of our geographical and as well from a perspective is a clear positive for our business model. So then obviously, we are very happy to operate with a strong and liquid balance sheet, which allows us to align our interest with our clients. And as we've always been saying, a [indiscernible] skin in the game that is at the heart of our model.

We are more than ever convinced of the strong value of having a compounding balance sheet serving actually the growth of our asset management business. As you know and as we've been explaining to you today, we are focused on downside protection, strong megatrends, [indiscernible] that makes lots of sense in the current context. And we will keep on delivering on product innovation, internalization, thanks to our new Tikehau platform operating with our [indiscernible].

So overall, we are confident that the setup we have been building for the last 19 years will allow us to navigate in the current cycle, and we'll keep on delivering on our targets. That concludes actually our today's presentation. Thanks for your attention. And I think operator, we may now open the floor for questions.

[Operator]

[Operator Instructions] The first question is from Nicholas Herman of Citi.

[Nicholas Herman, analyst]

Three from me, if that's okay. One on client demand, one on costs and one on CLO. So on client demand, it's quite interesting to hear the progress you're making with the China LPs and the new mandate with the Middle East sovereign wealth funds. Just curious, can you talk about the progress you're seeing with new clients in those regions, there's a pipeline of new clients? And any further mandates please, that would be interesting.

On costs, so the EUR 107 million in asset management operating cost includes the EUR 9 million of share-based expense. So excluding that, operating costs in asset management is flat half-on-half and year-on-year. My understanding is that you would be investing notably in the platform this year. So are you managing the cost base and that investment comes through in the second half? And I guess what does that imply for the FRE margin, I guess, at the same time, you will be with fundraising backloaded to the second half, that's just kind of also be managed that's kind of offset that if it case.

And finally on CLO, you've launched the warehouse of European CLO 10 this week. Which point more is fast CLO this year, noting an attractive window. Do you have plans to launch by the CLOs in the second half of this year?

[Mathieu Chabran, executive]

Thank you, Nicholas. This is Mathieu back on. I will probably start on your first question with some general comments, but I will let Fred get into more details probably and we can address your cost question, and he will pick up on CLOs. What we are experiencing right now because is very much what we've been planning and investing for in the platform, meaning that we've always believed that as we did across Europe since we expanded outside Paris 10 years ago now, 10 to 12 years ago, that being local, having this multi-local platform, both from an origination standpoint, getting closer to companies, to executives, to founders, to entrepreneurs was critical to generating a differentiating sourcing.

But similarly, on the investor side and on the investor dialogue, being close to them every day, having good reasons to develop a dialogue with them every week, every month, we make a big difference. And over the years, and you would remember me saying that, that obviously -- and I will tie to your cost question, by the way, we've always had to upfront the cost base, the working cap base in order to make these investments.

Our people are our key assets. And when we expanding 8 years ago in Asia, 5 years ago in North America and more recently in the Middle East, that was really the game plan of developing this trusted close relationship. So I'm making this comment because I went through the journey of starting in Paris, then expanding into London, obviously, and across Europe we've experienced that this approach are being, at first, more costly and we would have never had the opportunity to do it based exclusively on a fee-based business had we not benefited from a very strong balance sheet that we could invest in the platform.

That's where we are now in this new region. So we saw still at this state -- at this stage in some baby steps, I would like to say, at Tikehau one step at a time, but one step forward. And that is very much where we are in these new regions. As you may recall, personally based in North America. Fred, I will hand over in a second, has been extensively involved in our Middle East more recently as well in North America. But we are really at a pivotal moment of the franchise where effectively we're developing now this trusted dialogue and commercial relationship with this global LPs. But there will be the capital to take Tikehau 42 of our target of 65, you may remember, but definitely to the 100 mark in the years to come. But maybe, Fred, you want to elaborate in more granular...

[Frédéric Giovansili, executive]

Sure, Nicholas, yes, I mean, to your point on the can, especially the Middle East and I would include both, by the way, [ East side ] and Abu Dhabi office trend are quite similar, actually, different clients, but very similar. So we are facing very large allocator, very sophisticated allocator. And as you rightly pointed out, I mean, most of the opportunities is more on SMA co-investing alongside strategies.

But also worth mentioning that in this region, we specifically benefit from 2 trends. And the first one is rebalancing our portfolio to Europe versus U.S., where they've been marketing significantly, especially in market. And last but not least, also as a shift to yielding strategy away, I would say, from a pure value-add strategy. So we benefit from these 2 trends and building some very specific SMA with this larger location.

And to the point of maturing I will conclude here. Having a location in this region, definitely bring us closer to this allocator, designing very specific SMA and providing the best risk-adjusted returns they are seeking to achieve.

[Henri Marcoux, executive]

Well, a quick word on the cost. Obviously, I should say that in the current environment. We are more than ever very disciplined on cost. We are taking care, obviously, for profitability, but we need to keep on investing into the platform by doing selective recruitment. Obviously, we are not providing any short-term guidance on FRE margin for this year. What we see clearly is a strong trend in increasing our management fees. And obviously, to reach our 2026 target, the increase in cost will be at a much lower pace than the increase of our management fees.

But in the current environment, more than ever, we are very disciplined on cost.

[Mathieu Chabran, executive]

And so on the last question, Nicholas, on CLOs. So you may remember, we launched this strategy as an extension of our credit platform back in 2015, when we first priced our inaugural euro CLOs. Effectively, we got to opening the tenth warehouse for the European program. At the same time, we will get into the fifth one in the U.S., not even 2 years after launching, obviously, the market in the U.S. is probably deeper and we're in a position to issue more frequently, market permitting.

I would also stress that, once again, our parent team being a very strong catalyst to these strategies, enabling us to get closer to very large financial institutions, banks, large asset managers, being investor of ours with some very concentrated programs both in Europe and increasingly so in the U.S. And as much as the, let's say, the securitization market back in the day they have suffered from somehow some [indiscernible] perception. This has remained -- the CLO market has remained one of the most performing asset class over the cycles from the AAA all the way down in equity.

And in this new environment of interest rates when obviously, both yesterday we prepared today with the ECB or conviction of Tikehau is that we are in a higher for longer interest rate environment, being able to leverage and capitalize this compounding, diversified, granular, totally [ cold ] underwritten diversified credit pool is a very open yield strategy. So yes, you should expect us to be more active there, including potentially broadening to a wider structured credit strategies. Today, we are only managers. We're not structured to investors because we have entered an extremely attractive fixed income and yield environment for fiscal investors.

[Operator]

The next question is from Mandeep Jagpal, RBC Capital Markets.

[Mandeep Jagpal, analyst]

Mandeep Jagpal, RBC Capital Markets. The first one is on the 97 bps management fee margin. On retail, it was down from recent years due to the mix of fundraising. Are you able to speak a little bit about how you expect this margin to progress over the next 12 months and over the longer term? And are you seeing any early signs of a return in demand for value-add strategies?

Second question is on Direct Lending fix. I saw that you're looking to raise EUR 4 billion to EUR 5 billion. What proportion of this are you hoping will be for some previous TDL investors and LPs and other TCO strategies? Just trying to get an idea here of how well TTR is now able to relationships with existing clients to tolerate growth? And final one is just you mentioned a few times about the dislocated environment. Are there any particular effects or the countries where you see value for deployment over H2?

[Mathieu Chabran, executive]

Thanks, Mandeep. On the level of management fee, what we stated last year at the Capital Market Day is that our hypothesis was to remain in the range of 100 basis points. Obviously, that can move from a quarter to a semester, depending on the pace of fundraising on CLO, on private debt, on private equity. Towards the direction where we are going, you need to have a look at our asset mix.

Obviously, we are now standing at 22% of value-add products. That was actually a bit lower last year. At the time of the IPO, that was 0. Clearly, we stick to what we said which is to jump or to go to 1/3 of our strategies being in value-add. So depending on the pace of fundraising on value-add or yield strategy, that may vary but our hypothesis is actually to remain in the range of 100 basis points.

[Henri Marcoux, executive]

Fred, you may want to...

[Frédéric Giovansili, executive]

Yes. So on your point on area for TDL VI, we are aiming at 70% in terms of amount of AUM of current investor of TDL V into TDL VI. By the way, we've been above that between TDL IV and TDL V, and our special sit right now is closer to 80%, so we believe 70% sales assumption is conservative. Bearing in mind that we had 144 investors across 18 countries. So we intend to increase some portion in the new high-growth geographies we just mentioned as well complement the I just discussed.

[Henri Marcoux, executive]

And then the last question, Mandeep. On the dislocation, we try to keep it short, but clearly, this new environment where as you heard us saying that liquidity, the cost and credit has some value. This new environment where [indiscernible] not cheap, it's not free anymore. That were asset managers like us [indiscernible] the private strategies can make a huge difference.

And in the past 5, 10 years, obviously, we were navigating in a very accommodating monetary policy. Right now, we can make a difference. We can make a difference in the credit space, both primary and secondary the private and the public. But all the more, we find the secondary pivot strategy that we've launched. We can provide this liquidity that did not exist elsewhere. And the supply-demand imbalance that you have in this new strategy is such that even if you go to more [indiscernible] trends, the supply side feel outweighed by far, the availability of capital.

And you can generate some very, as I said, downside protected, high single, low teens type of return, which is very much what we are targeting across the strategies. On the primary side, any bespoke financing, I mean, we've been following all the [indiscernible] of [ PLBO ] players, which, once again, we are not, we're not doing control the [indiscernible], we're not navigating with other companies. That's where asset managers like us can, once they make the difference, much more downside protected, contractually, much more better structural, you better price and as a consequence, a very appealing investment strategies for our investors.

So all this very bespoke financing. And obviously, last but not least, real estate we could discuss ours on the opportunity in front of us, both on the primary and it starts at the development phase more and more, all the oversupply and assets that need to be repositioned, convert it and it's through on the equity side, on the debt side. So this dislocation, which once again is just a consequence of the liquidity, the oversupply of liquidity we've been navigating into it's drying up here and there, and that's where the people with flexible patience and bespoke capital can make a difference. And that's what we are focusing on.

And I would tell you, I've never been as excited in 10 years or for the investment opportunities we are being presented by the team. So it's a very exciting and interesting vintage to be deployed in 2023.

[Operator]

The next question is from Joren Van Aken of Banque Degroof Petercam.

[Joren Van Aken, analyst]

I have a follow-up question on the previous one. So although your realizations have been very, very strong over the first half. In general, we are seeing relatively low activity in alternative markets. So do you guys have a view on when you expect deal activity to pick up again?

[Mathieu Chabran, executive]

I'm happy to start on this one and I will let my colleague explain, thanks for your question. I think we cannot just make general statements on the lack of deals happening. I think that what has been slowing down is very, as I said, was a very large buyout, some sponsors selling to sponsors or some corporate spinning off some assets because of the more constrained debt financing, which has pushed down with the price of assets and for some sellers being less willing to exit or to dispose of their assets or the portfolio companies.

Once again, and it's important to bear in mind because our portfolio across our strategy that Tikehau and portfolio on the private equity side and to be really growth equity portfolios where we have invested in the long side, very often as minority partners alongside top entrepreneurs, founders, and we have really driven the performance, the profitability of the business up. I can think of some few businesses, and we mentioned some of them, like it's public, so I can mention that in the Euro Group that we took public earlier this year.

When we invested, it was a EUR 30 million EBITDA business in 2020. When we took it public, it was close to EUR 100 million EBITDA business in order of 2 years. So we're not playing the multiple expansion or the availability of credit to monetize our portfolio, but very much the underlying performance of the assets. So we are actually extremely active as we try to demonstrate during the deck. Both in deployment and realization on the private credit where you see that many of our financing and portfolio companies have been either refinanced or sold as a consequence of which we would be return.

So we've always been extremely disciplined in the selectivity of 5% to 7% of conversion of our pipeline has remained the same over the year -- over the years. So I would say that maybe unlike some of our peers more overweighted towards LBO and controlled LBO we've been relatively less impacted by the slowdown in general activity as we've tried to illustrate in our presentation.

[Operator]

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

[Arnaud Palliez, analyst]

I have 3 questions, in fact. The first one is regarding the dry powder, the EUR 6 billion of dry powder. Can you give us some indication about how it is broken down between the different asset classes? That's the first question. The second one is about the infrastructure market in the U.S. where you are present. I would like to have your comment about how the situation dwelled on this type of asset, which seems to offer a better protection in the current difficult environment. And finally, can you be a bit more -- can you give us more comment about the H2 outlook? How do you see the evolution in terms of fundraising in terms of capital deployment? Are we going to see the usual seasonality with an H2 stronger than the H1?

[Henri Marcoux, executive]

Before handling to Mathieu, maybe on around on H2, few data points. So dry powder actually stands at EUR 6.7 billion. Biggest production comes from private equity is EUR 2.3 billion then real assets, EUR 2.2 billion. Private debt, EUR 2 billion and the capital market strategy close to EUR 0.3 billion. So as you can see, it's relatively well spread across our 3 main private assets. Mathieu, you may want to comment on H2?

[Mathieu Chabran, executive]

Maybe on the infrastructure maybe and thanks, Arnaud, for the question. Effectively, just to remind you, we made this very strategic partnership. I mean, we are taking to an acquisition that we call it a partnership with Star America Infrastructure in December of 2020. It's been 3 years now that we've been working together and have fully integrated. We were -- this acquisition happens pre the Biden election in the U.S., and the IRA, which has been probably successfully in a real catalyst to infrastructure projects in the granting of things.

And we are focusing on new market greenfield, very often PPP or public private partnership, which has been a very strong asset class both from a demand standpoint from investors but also from the project to do the illustration. Right now, we are working on the Terminal 6 of GSK that obviously, people can visualize that. But by the same token, completing some student housing in the University of Florida or already not the case maybe. So a very active market. And as you said, a very strong demand from investors because that gives you an exposure to a high-yielding contractually inflation assets, [ very familiar ] asset but and there is demand.

So it's been extremely synergetic in the way we have -- we are now working with our partners at Stone -- for the time being, it's exclusively focused on North America, U.S. and Canada, but we are now equipped at TKO as a platform to tackle opportunities in Europe. As a matter of fact, we are working, and it's very interesting to -- maybe I can give you this example, we have some cross-selling within the platform. You remember that our private equity team has been backing and investing in, the engineering company.

And obviously, given ag exposure to airports, highways, toll road, our teams have been able to go together. There's [ frustrating ] to look at some projects in Europe. And if and when the opportunity arises, we are in a position now to take advantage of expanding back into Europe, our infrastructure strategy, which is not the case yet, but we got all the players on the pitch, if I may say, to do it when and if it makes sense.

And so finally, on the on your question on H2, we've never tried to time the market. I think we had a slide in the deck that illustrated that our H1 deployment was relatively much lower than H1 2022. And that was a consequence of us trying to get to the write risk or risk-adjusted reward of the capital we were deploying. And as I was saying earlier, it always come back to supply-demand and to the convergence between our sellers' expectations defining the broad sense and buyers or investors an expectation. And we tried to never compromise Arnaud on this.

Obviously, now that I think the market as a whole is factoring in the fact that we are definitely more in a 5% interest rate environment than 0.5%. We should see a much more transaction materializing in H2. We've never been of the view to deploy for the sake of deploying that will take me back to what we've been insisting many times today. This came in the game, the balance need. And as a consequence, the partners, the management, the old team is the largest investor, side-by-side our LPs. So we always think twice. We're not only deploying someone else money when we give you, but we're deploying, first and foremost, the overall key money. And hopefully, that creates this skin in the game that we've been saying and hopefully, a way to approach capital allocation, underwriting assumptions and expected returns in the more.

So I'm expecting H2 to remain very active across the strategies as I was saying earlier, certainly at expected returns, which will be much more appealing than they were a year ago.

[Henri Marcoux, executive]

And maybe just on your point on the outlook on the fundraising. So we have definitely a strong pipeline over the next 6 to 12 months, actually. But it's hard to say that it's quite complex to assess the cutoff effects, especially when investment decision might take longer. But it's fair to say that, as we mentioned before, especially in the intercession we keep building our long-term franchise and we definitely intend some benefits here.

[Operator]

The next question is from Alexandre Tissieres of Bank of America.

[Alexandre Tissieres, analyst]

Just a question on your outlook for private debt. Obviously, you've benefited quite a bit from the fact that banks are pulling back from lending. Also your strategies are floating rates, so presumably, this means higher returns. I guess as well, even though rates are higher, perhaps more borrowers. There's also a negative volume effect that maybe borrowers borrow less and it's more expensive. How do you see the next year or the next 2 years where rates potentially go down or are a bit lower. Banks start getting back into lending, you potentially see more borrowing? How do you see the outlook for your flagship private debt funds?

[Mathieu Chabran, executive]

Thanks, Alexandre. I can start on this one. I think in Europe, which is where we are primarily active on direct lending. As we were saying earlier, we've been very happy in secondary trade more in the U.S. I think in Europe, private debt and direct lending has become very much mainstream and institutional. And by saying that, I'm saying that sponsors, companies, corporates, they no longer come to direct lenders by default.

But this could have been the case 10 years ago during the crisis also. But they come to direct lenders as a very logic alternative toward the bank market, to the capital market. So of them include borrow on the leveraging market or issuing some bonds. And so asset managers are becoming a very legit source of funding. So I'm saying that because it's no longer purely a cyclical opportunity for investors to deploy in the asset class, but it has become extremely structural and the tailwinds for the asset class, to your point, about the interest rate environment has become all the more appealing.

So I will make this comment because it's important that your factoring the fact that the opportunity is now definitely structural. Now banks are still lending. Obviously, you've been following the results of the various banks lately. And it's a good thing. That's what they are fearful, if I may say. The leverage loan market, both market as we were seeing over on the CLO, the question regarding CLO is obviously more on and off mode.

But what direct lenders and asset manager can provide to borrowers is: One, certainty of execution, a lot of flexibility in the structure that we can provide to them. That's what I call the bespoke capital, and that is proving to be increasingly attractive for corporate, for borrowers, for sponsors. And to your point, effectively, if leverage is going down as a consequence of a higher cost of funding -- it's a very good news for the investors and hence, for us because we are able to generate structure some higher-yielding instruments at a lower risk-adjusted contractual and structural levels.

So from time to time, you read in the press, the golden age of product debt and direct lending and then the next day, people are questioning whether that's just a bubble about burst. I think it's, once again, much more structural. It's a growing part of investors, portfolios allocation globally. We are one of -- we thought that is the start that a lot of people have been using that 92%, if I'm not mistaken, 92% of direct lenders of private debt platform has been launched post the GFC. We, at TKO, we started in 2006, 2007. And so now we can effectively leverage our investors and LP, a much longer track record across cycles. And hopefully, that is supporting of from [indiscernible].

[Operator]

The next question is from Christoph Greulich of Berenberg.

[Christoph Greulich, analyst]

Three from my side, please. The adjusted FRE margin, just looking at the mid-40s FRE margin target by '26. Could you clarify if you refer to the reported or adjusted margin. And then if you could give us any guidance on how the IFRS 2 charges will evolve over the coming years? And then secondly, regarding the ecosystem and [indiscernible] could you quantify the negative impact from the FX translation in H1? And then lastly, regarding the partnership with capital partners. Can you give us a bit more color on the rationality of this partnership? What kind of initiatives you are planning to launch? And is it correct to assume that the entry into the buyout segment?

[Henri Marcoux, executive]

Thanks for your question. First of all, maybe congratulations to you. If I may now answer your question on FRE margin and target by 2026. We are talking here about reported FRE. The mid-4os we have already been taking on, so no change at all on that target. Then your second question on ecosystem and notably the ForEx exchange that is affecting our H1. We are talking here about roughly a little less than EUR 10 million for as far as this investments are concerned and the negative ForEx impact between euro and the last. Mathieu, you may want to take question #3 on...

[Mathieu Chabran, executive]

Sure. Yes. Christoph, thanks for the question. This partnership we're announcing today with [indiscernible] is one of the many we had over the years in a total ecosystems. So this team is the team of 3 great partners of ours, we had co-invested in the past in the previous slide. So you have details in the press release, Jeff Clark and Eric [indiscernible] to facts and then joined [indiscernible] Hank Greenberg a decade ago.

We co-invested back in the day with the [indiscernible] if you remember in the [indiscernible] in some health care related and health care for the transaction, which is one of the industry focus. And as, let's say, Mr. Greenberg, like the is putting his business together, they love our own platform, which we've decided to back. And so that will mean that we'll be deploying some capital with them. Getting some economics as some economies out of the partnership as well, like we did in the past, for example, with Green Capital in France.

If you remember on the venture side, which was not a core strategy of ours. And so it doesn't mean that we are entering the buyout market, it means that we're adding to our private equity platform, a health care focused skill set and expertise that will be able to call on like we did in energy transition, regenerated agriculture in aerospace, in cyber. So we're adding another vertical, which is not fully integrated but through the dedicated platform. Since it is a mega trend that we want to be exposed to article in health care, and that's a great way to embark and onboard some proven and very long-term track record and expertise in the space. And at the, I should say, so it's Christoph, at this stage, only for [indiscernible] at this stage on North America.

[Frédéric Giovansili, executive]

I think we don't have any more questions. Operator?

[Operator]

I confirm there are no more questions.

[Henri Marcoux, executive]

Well, thanks for attending this call. The entire Investor Relations team, both and we will be here for any follow-up questions tonight, I'm happy to take those questions. Thanks for participating, all of you. Thanks for your time. And Mathieu, you may want to conclude the call.

[Mathieu Chabran, executive]

Thank you all for the ongoing support. As always, we're available. Exciting times ahead. Thank you all. Good night.