The Exchanges

Q Let's turn a bit to your team to execute across these strategies. What does that look like today?

A So today TKO is 550 people across 12 offices. Europe is our home market. We've been in Asia for five years. Singapore, then Korea, Japan. I relocated to New York a year and a half ago. That was our first step into the North American market. And so the team is really a very diverse, both culturally By gender, by nationalities, you know, it's 27 nationalities at TKO. All our, uh, top jobs, including, uh, CFOs, head of private debt, head of CLOs, head of various countries, are, uh, held by, uh, some of my, uh, female partners. And that, for a company that I started, just the two of us, not that we're alike, but coming from the same investment banking background, as we grew, is a very important achievement in the culture we have developed at TKO. We had a very, very limited turnover over the years, which we are very proud of, but more importantly, you know, some young people who were trainees with us, you know, uh, 15 years ago, two days are heading some very, uh, senior position. We've been through the crisis together. We saw the black swan the day he popped up and now, you know, we know that he may come back. So, uh, it's painful to be paranoid every day, but it's great to know that you can rely on teams you've been, uh, living, breathing, and investing with for, uh,

AI assessment note: “So today TKO is 550 people across 12 offices.”

Q How do you think about the balance that you hear about sometimes with public asset managers of making sure that you're serving your LPs as constituents, but then also shareholders of the company who might be a different group of investors?

A Yeah, that's true. You often have this debate, but I think it's particularly true for what I would call the pure asset manager, meaning people who are gathering assets, taking management fees, sometimes performance fees, you know, based on the strategy, but effectively being only an agent, not a principal, managing on behalf of someone else. Our model, like many of our, you know, close friends and competitors, Is effectively to be invested side by side. And here you mitigate dramatically the debate that you've been, uh, referring to because, you know, you may not be buying only an asset manager, you'll see buying an investment company, but then, you know, you get the benefits both of the scale of the management fees, but also, you know, the performance fees that goes into the listed company. And here it's a model that is developing obviously in the US, but also in Europe where we're seeing more and more of these models. And I really believe that it's certainly the model of the future where people will be looking for an increased alignment between the LPs and the GPs.

AI assessment note: “Our model... Is effectively to be invested side by side. And here you mitigate dramatically”

Q How have you approached investing in the European markets?

A So it's a very interesting landscape because in our industry for years, decades, the European market was London, right? The European financial market was London. You were flying into Gatwick or Heathrow. You were spending, you know, a few days, you know, in London, and you thought that you had covered, you know, the European financial markets. I'm leaving all the, uh, debate about Brexit aside, but, uh, when it comes to private market, as I said, everything we do is very bespoke. It's local situation. You have to be local. We have a saying at TKO, we like to say, good deals have no wheels. And by the time the opportunity hits, you know, some investment banker's desk, you know, in London, a lot of smart people on the ground have seen the opportunity. So long comment to tell you that while I hate saying that the only thing we have in common in Europe is a currency, I mean, that would be a lie, but if you sketch it a little bit, it's very different to be doing business in Madrid than it is in Frankfurt. It is different from doing business in Milan than it is, you know, in Paris, et cetera, et cetera. And so for us, it has always been about having the right people on the ground, people who can connect Own deal flow. Can broaden the origination flow of what we are seeing and not just waiting for advisors, investment banks to show you some, uh, some opportunities and the model that h…

AI assessment note: “it has always been about having the right people on the ground”

Q Where do you find that people on the investment committee have this sort of natural disagreements about ideas?

A So again, it would differ between our private debt equity or real estate strategies, but, uh, let's take a direct lending. For example, direct lending in Europe has been lagging relative to the U S in terms of development. And then it picked up over the past few years. And then we starting seeing some very deteriorated, structure, collateral package, security package, leverage pricing. And, you know, sometimes you would have the people saying, well, but this is where the market is. These are the market terms. And then the people saying, you know what, I don't want to be in this market then. And that's, you know, something that, you know, we think that it's about also, we have a role vis-a-vis RLP, but also vis-a-vis yourself as principle. Obviously we need to be aware of the market, but we need to be able to resist a market. And so that would be typically where we would see that. Or leverage, you know, when we are an equity investor or real estate investors, We're just coming out of a very long and cheap debt environment. You would have been tempted to put 10% more debt on the deal because that was juicing up your IRA by one percent. We're not alchemists. We're not trying to turn lead into gold. You know, the asset should have its merits in itself and not effectively having the going a step too far, you know, and that's where most of the time we would have interesting debates.

AI assessment note: “these are the market terms. And then the people saying, you know what, I don't”

Q So what was it that Antoine said at the time that caught you to say, okay, I'm not going to listen to what all these people are telling me?

A Well, let me step back, if I may. My very first job at Merrill Lynch at the time, as a young intern in the Paris office, you know, I met this guy, Antoine Flammarion, who was a first-year analyst, and when he interviewed me, you know, for the first time, He said, don't give me, you know, all this BS about, you know, what you learned at school. I could not care more. The only thing I care about is, you know, are we going to get along together? Because we're going to be spending, 17 hours, probably seven days a week working together, and that's really what matters. And 22 years later, you know, we're still working together, and I think that's what really matters. So when he decided to leave Goldman Sachs and told me, now we have to give it a go, it didn't take me a Much time to think about that, you know, and, uh, here we went.

AI assessment note: “told me, now we have to give it a go, it didn't take me”

Q How many different countries do you have offices in just within Europe?

A So Europe is, we're headquartered and listed in Paris. London is obviously our second largest presence. And when I say obviously, you know, I really mean it and it will remain post Brexit. And then Benelux is an interesting concept. When we opened Belgium, despite being only two hours away by train, you know, we thought that Benelux was a concept That stood on its own, but actually, you know, we had to open Luxembourg. We then opened Amsterdam and all this rich, these boots on the ground, you know, you put with different cultural nationalities, that is all incremental to your deal flow. Italy, Milan, you know, is great platform. So is, you know, Madrid, Spain. So we really have these boots on the ground that not only have proven to be a huge differentiating factors for our sourcing, But also for our investor relationship and our investors dialogue. I mean, they appreciate you being close to them, not visiting them only when you launch, you know, the next vintage of a, of a fund and developing a dialogue and creating this partnership.

AI assessment note: “headquartered and listed in Paris. London... Belgium... Luxembourg. We then opened Amsterdam”

Q When you're thinking about going into a new opportunity, what's the analysis and the assessment that you do to decide either to launch a new fund or develop a new team?

A So there are some very subjective ones, which are, does it tick the objective, the targeted returns that we, uh, have made public, you know, for the public shareholders? You know, we said that our capital is a 10 to 15% return on capital employed. And so sometimes, you know, let's say, uh, I don't know, an infrastructure debt product, at least in Europe, which is very, uh, competitive with the European banks, does not really make sense. But, you know, expanding into the equity infrastructure in the U.S., in the mid-market, then it makes, you know, potentially a lot of sense. So there is this analysis, these grid lines, you know, where effective is it additive? Is it relative? And then do we want to be ourselves, you know, exposed to that? And then it's about, you know, the team. All the people we hired along the way are people we either have met in other capacity, have met, you know, in some deals we've been knowing from a And that is something that very quickly helps you decide whether or not, you know, that she is or he is the right partner to help you in this new strategy. And that's an important item, I guess.

AI assessment note: “does it tick the objective, the targeted returns that we, uh, have made public”

Q What opportunities are you most excited about today?

A We are only at the beginning of the private market strategies in Europe. You know how much money, uh, has been allocated by, uh, North American LPs to these strategies. The very fact that, you know, the numbers, uh, 80% of, uh, the companies are, uh, non-bank finance in the U.S., when in Europe, the contrary, it's 20%. So you've got all this dynamic of a market who is much maturing, and we want to be able to address As much of it as possible. That's why you saw TKO evolving from our very first deal that we were debating was a real estate deal, but then as a third party money manager, you know, we were probably fairly early in the direct lending and the private debt, and today we've got a much more balanced portfolio. I think that on the back of what we are living today, there is a massive need for equity capitalization of the mid-market companies. They've been using I would say rightly so, given the circumstances, some of them in excess of, uh, cheap leverage. And today, you know, as the cycle turns, you know, there will be a need for a long-term capital equity base for all those, uh, you know, family-owned businesses that, uh, been there for three generations sometimes, and certainly here to last, and they don't intend to sell. So that's clearly one. And you can call it however you want. You know, it can be a growth equity, minority equity, special opportunities. It's about, y…

AI assessment note: “there is a massive need for equity capitalization of the mid-market companies.”

Q And so what did you learn in those initial years in investment banking that kind of caught a spark for you?

A Listen, that was late nineties. It was very intense. A lot of, uh, Deal flow, a lot of transaction, and when you're fresh out of school, you know, it remains. One of the greatest ways to learn the business, to learn the toolbox, to learn how to behave, you know, also, you know, how to behave with people. And as I said, you know, to make some, uh, meetings and get to know people along, uh, along the way. Lucky enough to, uh, have great mentors, great bosses. Many of them now work with us at TKO. Our very first partner, uh, was our first boss, Antoine and I. And along the way, you know, we brought in some twenty-year or so people we've been meeting and working with, and today hold some very senior positions.

AI assessment note: “One of the greatest ways to learn the business, to learn the toolbox”

Q Before we get to today, I'm so curious about how you start with this one deal and then grow and grow and grow. So before you can have real institutional investors, you're still, what was the next deal after that? And how did that progress over a short period of time?

A I think we were, and we're thankful to that, the support we received from, uh, some, uh, large European family offices who, uh, even more so maybe back in the day were not as structured as they can be today. And they were telling us, you know what, you may not have a lot of capital to deploy, but you've got plenty of idea and plenty of energy. And maybe without knowing it, we had created our own co-investment program at the time. Which was, you know what, you can speak for bigger than what you can swallow because we will be there. I can think of great support of ours over the years, you know, from, uh, Albefraer in Belgium to, uh, Bernard Arnault, you know, here in France, then, you know, when Goldman Sachs became a shareholder of ours through their principal investing arm, obviously, you know, when you're only a few years into the business and still small, that's a powerful message you're giving the market. So you do a deal, then another one, then the people who co-invested with you, they're telling you, well, actually, why don't I become a shareholder alongside you? And then you grow a little bit bigger, your equity base. And then you can start effectively going to the institutional money. And it's interesting because effectively tying that back with what I think LPs globally now are looking for, be institutional money, public pension funds, but large family offices, they wan…

AI assessment note: “So you do a deal, then another one, then the people who co-invested with you”

Q How does that investment committee decision process work?

A We are depending on the strategies because we've got some dedicated IC, but the rule of thumb is that we've got a unanimity process to this, uh, committee so that we create what I said. There's been enough work along the way so that people had their chance to challenge, to dig, you know, we're trying as much as we can, not to have people discovering a 50 pages investment memo on a Friday for an IC on the Monday. We want people to be socialized, Along the way, having, uh, exchange. Very often also having leverage, you know, their own skill sets. Skill sets, or reach, or network, or knowledge about, uh, so that's, you know, how it would work, and we really want something that I've learned over the years. I'm co-CIO. I remain co-CIO of the group, and over the years, I've learned to ask sometimes the most junior team member to speak up first, okay? Because otherwise, it's just his or her judgments, you know, get biased because someone, you know, Talks louder than she would or he would. And I think that's important. And partly, you know, sometimes we have, you know, we finance some fairly disruptive businesses, you know, not that we do much tech, but, uh, I didn't really have a good sense. And sometimes, you know, just common sense from those people are actually extremely helpful. So that's one thing, you know, we're trying to, uh, favor as much as we can, you know, is to speak up.

AI assessment note: “the rule of thumb is that we've got a unanimity process”

Q So you mentioned this backing into effectively this co-investment model that stayed with you. What are the other, as you look today, core components of TKO's philosophy?

A I'm coming back to this backbone of our approach, which is the skin in the game. Only a few structures, I mean, certainly in Europe, where management team, taken as a whole, has invested real sweat equity, what I would call, because we all know that the alternative markets have generated this optionality, which will be by way of carried interest, incentive fees, that people would put as a The alignment of interest, I actually think, you know, it's a fairly cheap option compared to any other business. You know, if you were to open a restaurant, you would go to the bank, you would borrow some money, you know, you would be losing sleep at night, and that hasn't changed. It's been at the core of our development. It's been at the core of the support of our shareholders, investors, historical and new. As a matter of fact, you know, I must say that, uh, not only new markets in Asia, in North America, That's an interesting part of the story and talking to capital allocators, even, you know, some consultants are getting more and more interested to this aspect of the business where effectively we're not investing someone else's money. We're first and foremost investing our money and offering someone else to tag along.

AI assessment note: “backbone of our approach, which is the skin in the game”

Q What are the advantages of being local in a bunch of different countries compared to someone who, say, is just focused on lending in Italy?

A If you take the Eurozone, and if effectively as a capital allocator, you know, you have to allocate to Europe as a playground, you want to be able to work with people who can navigate on your behalf the opportunities across, you know, the markets, but also being aware of the threats. I'll give you an example. Despite, you know, having this strong presence in the UK, we have been historically extremely underexposed in the UK market. Nothing against the opportunity, but we had found the market way too crowded, and as a consequence to that, our private debt, our private equity, our real estate portfolios were a little bit underexposed relative to our peers. That had proven to be a pro, but maybe today, UK might be a great investment opportunity, and we can move into that because we don't have some kind of, you know, inventory. So I think that's what LPs are looking for. It's what I would call a local guide. If I was to sketch a bit, it's like, that's your first time in Europe. You're asking me, okay, I'm going to be spending a week with my family. Where should I go? And I would tell you, you know, go to see, uh, Big Ben in London and, uh, go to Rome and obviously spend, you know, some time in Venice and, oh, and by the way, you have to climb at the top of the Mont Blanc. But then I would be telling you, you know what, Ted, by the way, I'll be with you because I'll be climbing with…

AI assessment note: “navigate on your behalf the opportunities across, you know, the markets”

Q And what's been your biggest mistake where you may have learned that lesson?

A I would say maybe that, uh, you know, in the early years, I would tie that maybe to the patient that was driving us and To the, uh, energy we're putting there. And, uh, because we wanted to sit at the table, you would listen to some, uh, advisors, banks telling you, well, you should really look at that because, you know, the other guys, you know, the big boys, you know, they're into these things and you just don't want to be a follower. We have another, uh, saying here at TKO, I leave you with that is, uh, we like to say, uh, create, not compete. And so, uh, thinking out of the box and trying not to follow the crowd is probably what we've done best, but certainly in the early years, you know, we may have done some mistakes there.

AI assessment note: “in the early years, you know, we may have done some mistakes there.”