The impact of the US election on private equity

Damien Hélène: Louis, do you have any final comments on the current environment?

Louis Flamand: Yes. First of all, I'd like to pick up on what Xavier Robert just said. The impact of Donald Trump's election should be positive for M&A activity and therefore private equity in the United States, which would benefit our American funds, but also our European funds, whose portfolios are also exposed to the US economy. The main uncertainty concerns the tariffs that Donald Trump will impose, but their impact on the performance of our Vintage funds should be limited, as Altaroc does not invest in the industrial sector. I'd also like to give a different perspective to the current environment, a 100% Private Equity perspective. Given its ten-year lifespan, a private equity fund navigates several different macro-economic environments, so it's obviously difficult to know in advance whether a vintage is going to be good, very good or excellent. Yet, historically, crisis and post-crisis vintages are good, and the best vintages usually correspond to year N+2 or N+3 if N is a crisis year. Let's take the example of the subprime crisis N = 2009. In 2009, valuations collapsed and business slowed sharply. There was a timid recovery in 2010, followed by a real upturn in transactions in 2011. The 2011 vintage, N+2, was therefore very good, because 1) valuations had fallen, 2) funds were able to invest selectively, as they took advantage of a growing number of investment opportunities.

Damien Hélène: And Louis, if we place ourselves in the current environment, what is the year N of crisis then?

Louis Flamand: Without talking about a crisis on the scale of 2009, we can say that 2022 was the last year in which the macro environment was difficult. It was a year of sharply rising inflation and, consequently, sharply rising interest rates, which had the effect of significantly increasing the cost of financing LBO transactions. First of all, this brought the market to a complete standstill, because sellers were still thinking in terms of 2021 prices, while buyers were waiting for a drop in valuation to offset the increased cost of financing their LBO. Activity therefore slowed considerably in the second half of 2022 and in 2023, and during this period, valuations fell by around 20% compared with their 2021 level, so that activity could gradually pick up again in 2024.

Damien Hélène: In fact, Altaroc's recovery has been very noticeable.

Louis Flamand: Yes, we'll talk about that later, but we made ten co-investments in 2024, compared with just one in 2023. Private equity managers have too many companies in their portfolios. They have to sell. As a result, the market is expecting an acceleration in activity in 2025, based on valuations that have fallen. So, empirically speaking, we can expect Vintage 2022 and 2023 to be good, while Vintage 2024, the one we're currently raising, N+2, and Vintage 2025, N+3, should be even better. This is also what Xavier Robert said earlier. But let me remind you that past performance is no guarantee of future performance.

Damien Hélène: Tua s talked about the acceleration of business. Does this translate into a good start for our Vintage 2024 in terms of deployment?

Louis Flamand: Yes, our Vintage 2024 is an ideal start in terms of deployment. All the capital we called in from our investors, after the first and second closings ofOdyssey 2024, has been invested in the first companies of the Vitruvian V fund. We'll talk more about this later, but we've already signed an initial co-investment agreement with Vintage 2024.

Damien Hélène: Thank you very much, Louis. Speaking of co-investment, I suggest you stay with us. For this second part, we're going to focus on co-investment, because it's an essential part of our strategy.