Over the past few years, Natixis has sold a number of its buyout divisions. Is your recent acquisition of Euro PE revealing an inflexion in Natixis’ private equity strategy?
Our strategy hasn’t changed since the beginning of 2010. Historically Natixis had a lot of its own capital invested in private equity, either through managers it owned or through investments to third party funds; and like some of our peers, we’ve decided to put these non-core assets on sale. However, we’re still convinced that private equity, as an asset class, has a role to play for our investors. Regional banks, for example, want to maintain a significant exposure to small and medium companies, and private equity can provide that. Investors also like the decorrelation and diversification offered by the asset class.
This is the reason why our operations are split in two: on the one hand, we’re running off our in-house private equity operations, and on the other hand we’re developing our “multi-affiliate” model, whereby we supervise a number of managers who raise and invest capital from external sources. These entities operate in complete autonomy – but being part of the Natixis structure provides them with guidance and support.
Are you not afraid these units will compete against each other?
They follow different strategies, and address different client needs. Our first activity focuses on venture. It’s a crucial activity: with €550 million under management, Seventure is the third largest player in France. We are also a very active provider of expansion capital, with our flagship management company Naxicap, which oversees close to €1.5 billion, and Alliance Entreprendre, a smaller manager better equipped to invest on behalf of savings banks. The third leg of our Private Equity operations is advisory (fund of funds, secondaries and co-investment), with Dahlia, Euro PE, Eagle and Caspian. These three dimensions – venture, growth capital, advisory – are complementing each other. And they’re growing fast: three years ago we managed around €2 billion, now we’re going to have close to €5 billion.
Do you anticipate some of them to grow faster than others in years to come?
Advisory is clearly enjoying tail winds. Private equity has long suffered from a lack of transparency, where the managers would say: “in five to ten years, you will be able to assess my expertise and capabilities”. That’s no longer credible. Instead, there seems to be a convergence between the world of asset management and private equity: managers now have to be closer to their customers and provide more reporting. That’s exacerbated by new regulation, which is pushing for more institutionalisation and professionalisation within the industry.
Having a multi-affiliate approach like ours works well in that respect: management companies can lead their operations independently, but there is also a structure that provides security and best practice to each of them. Advisory also fits client needs particularly well in times like ours, when interest rates are low, real estate expensive and stocks volatile. Investors are looking for guidance on where they can get the best returns with an acceptable level of risk.
How do you see the economic and political environment evolving for European private equity?
I’m not especially optimistic about the economy in Europe. But I don’t think we’re going to see a major deterioration either: the general business climate is just going to remain slow, with a lot of targets missed by a significant margin. That won’t pose a systemic risk – but it makes exits difficult to achieve. Top-quality assets can easily find buyers, and are sold for high prices. As soon as there is the slightest problem, however, the process is blocked.
On the political front, the main issue is regulation. Any impending tightening of regulation creates risk aversion, because investors don’t like to see moving goal posts. At the same time, however, governments seem increasingly aware that long term growth will only come through better support to small and medium companies. Facilitating their access to capital is therefore climbing up on the agenda. Over time these forces will probably balance out – I thus expect risk appetite among investors to gradually come back.