A permanent investment strategy Altaroc

So we're often asked why, in 2023, do you have the same investment strategy as in 2022? Wouldn't it be a good idea to change the investment strategy for countries and sectors? We're not going to change anything. We've been thinking for decades about which country, which sector? And in fact, we want to be exposed to the best countries and we want to be exposed to sectors whose growth drivers are fundamentally superior to those of global GDP. Well, our four growth sectors - the software world, the healthcare world, digital marketplaces with a retail or consumer dimension, what we call B2C, and digital marketplaces with a professional dimension, what we call B2B or B2B2C - are fundamentally sectors of the global economy that will outperform GDP. That's where we want to be exposed, not in fashionable sectors. We're very fundamental at Altaroc, looking for economic underpinnings that will outperform the global economy over the next five or ten years. We're not subject to fashion: we're not going to make the ecological transition this year just because it's fashionable. Clean tech was fashionable five years ago. We didn't. We're sticking to our fundamentals. You entrust us with your capital over long periods - ten, fifteen, 20 years.

I'm not saying that we won't change our strategy in five or ten years' time - we'll see. But today, the four fundamental sectors we have chosen are the most buoyant and the least cyclical. These are the ones we want to continue to expose you to. So we're going to expose you to different managers, different funds, different Vintage , but the sector choices are unchanged from last year. So, if I continue the logic, people say to me Frédéric, do you realize that tech valuations have fallen? Why are you and Maurice still investing in this sector? Well, we tell them two things. We say, "Look, tech valuations have gone down. But despite a Nasdaq that lost 35% last year, the Altaroc Odyssey 2021 portfolio has grown by 11.5%, while multiples have fallen by at least 30%. So the EBITDA of the portfolio companies grew remarkably, I would even say phenomenally. And this has enabled us, at portfolio level, to achieve very sustained growth despite falling multiples. We're firmly convinced of the power of these carriers. Yes, we suffered a small multiple discount. Yes, the portfolio should have performed even better than 12% last year, or eleven and a half. We took a small multiple discount, but the growth carrier, we're on EBITDA, underlying companies in the software world that are growing at over 15% a year every year.

This is the sector in which we want to remain exposed. Let me give you an example. Last year we co-invested, this time in Vintage 2022 alongside HG, in two investments in which we wanted to overexpose the fund. So we were already exposed through HG and we decided to overexpose ourselves. Software publishers. I'll take the example of Access and IFS. We co-invested 15 million euros in Access and 15 million euros in IFS. We're talking about two software publishers. Access, which specializes in payroll and human resources in the UK, New Zealand and Australia, and is the market leader. And for IFS, a cloud-based SaaS-based PR manufacturer also specializing in complex fleet management. So we're talking about large corporate customers with fleets of trucks, cars, boats and factory spare parts. These two software publishers have sales of between $800 million and $1 billion. They have EBITDA margins in excess of 30% a year, and are growing at over 30% a year. And why? Because their fundamentals are extremely buoyant. Their churn rates are anecdotal. We're talking about 1 to 2% a year.

This is their customer default rate. They have a sales recurrence rate of almost 90%. In fact, they sell subscriptions. They have pricing power, an ability to pass on price increases of 8 to 10% a year. Because what they sell is totally critical to their end customers. They have the ability to upsell, i.e. to sell performance enhancement products by more than 10% a year, and the ability to cross-sell, i.e. to sell other Group products to iso-customers by around 10% a year. We're talking about a company that has iso customers without winning. New customers are able to grow their sales by almost 25 to 30% a year. This is the world of the cloud, of software publishers on the cloud in SaaS mode. That's where we want to be exposed. I don't know of any other sector in the world where you can grow at 30% or 40% EBITDA margin, at more than 30% a year organically. That's where we want to be exposed for you, with entry points this year even more attractive than last, because valuations have adjusted downwards. This illustrates our absolute conviction that it's worth investing in the new digital annuities, if I can put it that way. This is the type of company we want to continue to invest in for you, with the fundamentals we're passionate about.

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