Transcription

• Julien Menegalli

  Good morning, everyone. I'm Julien Menegalli and you're listening to Banking Insider, a podcast boosted by Indosuez Wealth Management, broadcasted on paperjam.lu. Banking Insider tells you everything you need to know about investments. And today we will talk about private markets, what they are, what they're not, their strengths, but also what you need to know before adding them to your portfolio. In order to do so, I'm pleased to welcome Beatriz Oreja, Private Market Investor Relations, who's coming from Indosuez in Spain. and Florent Saint-Quentin, head of private market investor relations at Indosuez in Europe.

• Florent Saint-Quentin

  Hi guys.

• Julien Menegalli

  So first question, it's about the definition. Can you tell me what are exactly the private markets and what's the point with them? Review batteries first.

• Beatriz Oreja

  Okay, so private markets is simply the investment in private-owned companies that are not traded in the public markets. Private markets is the global term we use for the investment in the equity of companies, which would be private equity, in the debt, but also including real assets like infrastructure and real estate. And well, here normally what we see is that private equity is used normally as a global term for this kind of investment, but as you can see, private equity is investing in the capital, it's part of private markets.

• Florent Saint-Quentin

  Florent what could you say about that ? Well i would say that private markets is invents investing in the real economy i mean you know a pharmacy down the street or a hair styler down the streets this is really the nature of of private market and there is different ways to invest in private markets you can do it through primaries so basically investing in the fund you can buy back position from existing investors or from our assets from GPs that we call secondary investments or co-investments alongside a GP. So if I can take an analogy to explain this a little bit better, I would say that it's like going to a car dealer shop. So basically you can choose to buy a new car. So this is primary investment. You can buy a used car, that's secondary investments. Or you can even go to a car dealer. to the more customised, personalised type of car, you know, a motor boost, etc. And that we call co-investments.

• Julien Menegalli

  To make things concrete for our auditors, I would like, Beatrice, if you can give us some example of companies who had the benefits of the private market.

• Beatriz Oreja

  Yes, of course. So, for example, We can think of Facebook, for example, which is an indispensable company for many of us right now. So Facebook is a company that initially was financed by business angels and venture capital. Then also some strategic investors entered the company as minority shareholders, of course, to finally go public in 2012. And so here we see that. is a company that grew, thank you, to private capital. And then it has grown by acquisitions, gone organically and by acquisition, by the acquisition of WhatsApp, Instagram, and also more recently, Oculus VR. And then also we have an example last year, the most maybe eye-catching IPO that we saw last year, because we all know the company, which was Birkenstock.

• Julien Menegalli

  The comfort shoes.

• Beatriz Oreja

  Yeah, exactly. So this company was owned by Al Carterton, who entered the company in 2021. And well, that was a very successful exit for the company. And here we have another example, but there are many of them. Those are the most renowned because we know the company that really big companies whose natural exit is IPO. But most of the exits that are done in companies that maybe that we are not so familiar with. They are done through a sale to strategic investors, a competitor in the sector, or another private equity firm who considers they can still create value in another way.

• Julien Menegalli

  It sounds very clear. When we prepared this episode, we talked about long-term investment. So, Florent, could you tell us why private markets is a long-term investment?

• Florent Saint-Quentin

  Well, private markets is all about long-term investing. We need time to create value at the level of the assets. We need time to improve the asset, to improve a company, to transform it operationally, to create growth, be it organic or external. So. Private market again is all about long-term investing. We need time to create value, we need time to reposition assets and that gives more performance on average compared to other listed investments.

• Julien Menegalli

  Thank you for this answer. My second question is obvious but what are the advantages offered by this kind of financial product? What would you say about that, Beatrice?

• Beatriz Oreja

  Well, of course, the advantage we have from including private markets in our portfolio is diversification from the other asset classes versus our investment in public equities and public debt. And we have a huge universe of investment. Not only maybe people think about technology, but it's present in all of the sectors of the economy, education. technology of course but health and b2b services industry so there's a huge universe investable universe where we can find this diversification and different type of accesses and also well to think that here the managers that enters the company are very focused now to value creation we don't have to think that over leverage the companies they buy to just exit the companies at high multiples. I think that's not the story anymore. And all the managers have a very entrepreneurial stance towards the company they buy, and they really want to make the companies grow in a healthy way.

• Julien Menegalli

  Yeah. Florent, I think you want to add something about this point.

• Florent Saint-Quentin

  Well, I would say that private markets is the largest investment universe in the whole world. I mean, think about it again, the bakery down the street, a paper jam actually is owned by a private individual, by Mike, if I'm not mistaken. So this offers a strong reservoir of investment opportunity compared to other markets. What I like also and what's important with private market is that there is way more levers for growth, for value creation than other assets, for instance. I mean, we can. create value by operationally improve the company. And we have time for this. And time matters, you know. In private markets, you don't have pressure from stockholders that want to get as much dividend as possible, you know. So we have time to use these levers to create as much value and pay back investors as much as possible.

• Julien Menegalli

  Thank you, Florent. We... talk about the what we talk about the why and now it would be the womb i mean uh is this product is dedicated to any investor profile any investor

• Beatriz Oreja

  can deal with this kind of financial product yes so normally it used to be a class asset class that was reserved for professional clients Professional, we think about it, is from the MIFID point of view. But not anymore. Regulators in the different European places had set up vehicles in which they allow non-professional clients to access this type of investment. However, of course, with certain conditions in terms of risk profile, in terms of knowledge on the product, and also we have to take a very prudent stance toward the asset class and make sure that... There is not an overweight on illiquid assets on a global financial portfolio.

• Florent Saint-Quentin

  I mean, traditionally, as mentioned by Beatrice, this kind of investment were reserved to more sophisticated institutional clients. But we see today that more and more products are available for retail clients. I mean, even from all of us around this table. So it's getting there. It's getting there. And I think governments need them. They have less and less power to invest directly in the economy. So they're more inclined to delegate this responsibility because it is a responsibility to private investors. So we've been seeing for quite a while now more and more products, solutions available for more clients. And one of them is semi-liquid products. So basically, it gives client access to private equity portfolio. with a liquidity window on a regular basis if they want to get out.

• Julien Menegalli

  Thanks a lot to both of you for your explanation. We now have a real picture of what are the private market and all their advantages. For the second part of this podcast, I would like to play with you. I'm going to tell you some misconceptions, and I would like you to tell me if they are right or wrong. The first one, private markets involve very long-term investments. Consequently, tying up funds for many years. Is it right or wrong?

• Florent Saint-Quentin

  Yeah, totally true. But we need to nuance that a bit. I mean, you know, we mentioned with with Beatrice that private equity, it's all about liquidity, it's all about long term investing. So it's not liquid for sure. However, we can decrease or reduce the investment horizon through different investments, for instance, secondaries or co-investments that put capital at work. in more major investments right away, hence distribution paid earlier. Or, as I mentioned right before, we can also offer clients, propose clients investment in semi-liquid products. Again, giving access to a portfolio of private equity, super well diversified with liquidity windows on a regular basis.

• Julien Menegalli

  Stereotype number two for you, Beatrice, this time. private markets are opaque because they are unlisted and investors do not know what they are investing in. Is it real, wrong, both?

• Beatriz Oreja

  Well, it's true that it's opaque. Maybe not that they don't know what they're investing in. So I will elaborate. So yes, it's not a transparent world. If I want to know what a manager did in a certain fund, I probably will find very limited information because they only give access and are transparent. to their investors. So unless your investor in that fund or the manager gives you access to his database, you won't really know and be able to really elaborate on that. So here is an advantage of being investor in many funds gives you, you know, you have this information. So yes, and then, but what happens next? I think here there is more transparency because there's a follow-up. on what is being done so you really know and many times it's published in the newspaper that some gp has bought a company so yes it's a very maybe not transparent world and that's why it's important to go in the hand of someone who has a lot of information to be helped yeah all

• Julien Menegalli

  right uh stereotype number three uh it's your turn florent it's a sharp one private markets are very risky

• Florent Saint-Quentin

  Yeah, not a stereotype. Totally true, 100%. I mean, all investments are risky. You can lose your money by buying real estate. You can lose your money buying one stock. And what's very important is to be surrounded, is to be supported by the right firm, the right experts. And we have, again, 23 years experience in the private markets. So we have a longstanding track record. And we know what's good, what's bad for the client, or at least we believe what's good, what's best for the clients. Thank you. And again, our approach is diversification. I mean, our model portfolio is composed of more than a thousand companies. So we diversified our portfolio to get as much downside protection as possible for our clients. But again, totally true. All clients can lose all of their money in anything, including private equity.

• Julien Menegalli

  It's very clear. And Beatrice, you want to add something?

• Beatriz Oreja

  Yes. The same way we approach, we give to liquid investments in which we naturally give some weight to. equity investment by buying shares or funds, or and then we give some weight to debt or even commodities. We have to take the same mindset when we think of private market investment. We have to have some exposure to private equity, to private debt, and if possible, also real assets, because diversification is key to navigate through different cycles. It's a long term investment. So diversification is key.

• Julien Menegalli

  Diversification is key. That would be the last word for this answer. Popular misconception number four, private markets are reserved for ultra high net worth individuals or institutional investors. Is it real? False? Florent, with you maybe?

• Florent Saint-Quentin

  Yeah, I think it was in the past. I mean, private equity was for institutional, sophisticated investors, but we see that in the market it's evolving and it tends to be democratized to to all investors and again it goes with the importance of investing in the real economy and as i mentioned the governments are inclined to delegate this responsibility to private to to private firms so we've been seeing in the market more and more products and solutions but also regulations that open the investments to less sophisticated clients and sometimes starting from only 10k.

• Julien Menegalli

  All right. You want to add something, Beatrice?

• Beatriz Oreja

  Well, yes, of course. So there are vehicles through which less sophisticated clients can access to diversified portfolios. And well, then the higher the investment, of course, the more personalized investment approach you can have. But there are many solutions from any type of clients.

• Julien Menegalli

  Sounds clear. For the third and last part of our podcast, I would like to talk right now about the support you give to your customer every day. And my first question would be how Industrious stands out from the crowd when it comes to private market? Florent,

• Florent Saint-Quentin

  can I say we're the best? No, no, no, no. I mean, you know. If I take a step back, the DNA of the Crédit Agricole group and by extension Indosuez and our franchise and private equity, Tierra Capital, is to support clients in their journey to private equity, to build trust, is to support them in any ways. And for that, again, we have a 23 years experience. And most important, in Tierra Capital, there is a team, a vertical, only dedicated. to provide support, transparency, advice, recommendations, visibility on cash flows, on investment of clients. So the way we do it is we try first to create portfolio. And again, I think this is key. We are not on a product push model. We... push, we build solutions to cater to the needs of all these clients. And once we've built this portfolio, what we do is to try to have as many contacts as possible with clients so that they can understand this portfolio. I mean, the cash flow, the performance in what they invest, etc., etc. So that is really the DNA of Tura Capital and that we strive to offer as accompaniment through their journey with private equity.

• Julien Menegalli

  Yeah. About the support that IndusUS can give to your... to its customers? What would you say, Beatrice?

• Beatriz Oreja

  First, what we have to think is that when a client invests in private equity, with us or with in general, an investment is an act of trust because actually there is no visibility on the portfolio because it's not being constructed. So we can compensate that with a lot of information. So communication and information here also is very important. We have a proprietary tool in which we can aggregate all positions, give information about performance. We can have the big picture from performance, but also go into detail into the single investments and then go to the underlyings with quarterly reports in which we can see what the managers are doing, what companies they are buying, what exits they are doing, and really explain. the performance and how it is evolving. So I think, yeah, the communication and transparency.

• Julien Menegalli

  Transparency is the key. Talking about support, how does it happen practically every day, Florent?

• Florent Saint-Quentin

  I mean, concretely, how we work with clients is first, you know, we have a discussion, you know, we have more educational languages, you know, try to explain the asset class. And when a client is inclined to get exposures to private market, we build a portfolio. So again, we are not on the product push approach. We build a portfolio that would cater to all the preferences of clients. For instance, if the client doesn't want to do real estate, we exclude real estate. If he doesn't want to do debt, we exclude debt. If he doesn't want to do, I don't know, Asia, co-investment, we can exclude this. So again, we try to personalize portfolio to cater to the needs of all clients'preferences. And then we're not like, see you in 10 years and see what's up. We try to have regular contact with clients to explain everything that's inside the portfolio. And for that, we can leverage our digital tool. A couple of years ago, we tried to find out a tool that would allow us to understand more quantitative data within a portfolio, cash flow projection, etc. So we looked around, we found nothing. So we decided, for the sake of our clients, to create our own portfolio tool called My Private Markets. And clients, they love it because it gives more perspective. It gives more understanding of a portfolio of different components. So that's one thing. Also, what we did at the beginning of the year is we took a minority stake in a French startup called AirFound. With the objective of giving access to a platform whereby clients can have access to their portfolio, they will have access to private markets, private equity annuance again, so the tool we developed in-house, they will have access to marketing content and they could even subscribe online in all Terra Capital products available.

• Julien Menegalli

  How does it happen from your side, Beatrice? So,

• Beatriz Oreja

  yes. When a client decides to invest, it's a trust decision in our capacities. So here, because we don't know the portfolio because it hasn't been created, it's a portfolio that is going to be constructed in the following years. So here, communication and transparency is key. As ISAF law, we have the tool to aggregate positions and give really a good insight of how the portfolio is performing. but also we have quarterly reports of each underlying and each of the funds to see, go to the really the underlyings and know what companies the managers are buying and what are the exits. And also I think there's also a good job in understanding and transparency here because it's an asset class with a lot of jargon and terms, financial terms. So what we try to do is simplify the reports and put it in a clear way, which is understandable to everyone. Also, there is homogeneity because each manager publishes information in a certain way. We all put it together in a clear way for everyone to understand. And I think also this is a very appreciated work from our investors. And also when... someone makes an investment, takes a commitment on an investment, you don't just invest and forget about it. You have an obligation to attend the capital calls. So if in August you're on vacation and if you don't attend a capital call, you have a legal issue. So in that way, we also take responsibility from our clients because we simplify also all this investment process in which, well, we take care of all of that, of course. And yeah, I think simplification and clarity and transparency is a good part of our value add to our clients.

• Julien Menegalli

  Thanks a lot for this insight, Beatrice. On the future of the private market, Florent.

• Florent Saint-Quentin

  Well, I mean, if you see what's happening in the industry, I mean, the capital flows expected from private individuals is expected to double within the years to come. So it is reality. It's coming. No, the idea or objective, I mean, the objective of the industry is to try to conceive, to build solutions that cater to the needs of all clients. And that's why I think our model with Cheha Capital really suits private individuals, private clients. We are a bank. We know how to, on the listed market, how to build portfolio. We had this 23 years experience in private markets to build portfolio. We have the right to sourcing. We have the right capacity to understand cash flows. We have the right tools to show clients how the portfolio is evolving. So partnering up with the right experts, the trusted partners, is something that will be more and more important going forward in this asset class.

• Julien Menegalli

  Beatrice, Florent, thanks a lot for your clear and inspiring explanation. Dear Zolito, we see you soon for a new episode of the podcast Banking Insider that will be dedicated to... to sustainable finance. The series of podcasts Banking Insider is available on paperjam.lu and all your favorite streaming platforms have a very nice day.

• Florent Saint-Quentin

  Thank you very much. Have a good one.

• Beatriz Oreja

  Thank you very much, everyone.

• Julien Menegalli

  This podcast is for general information purposes only. It does not constitute an investment recommendation. Before making any decision, is it your responsibility to ensure that the product or service correspond to your personal and financial situation? An investment decision involves risks, including a loss of capital. Seek advice is for professionals.