Expense structure at Altaroc

So many of you ask us questions about fees, so that you can fully understand the fee structure. A very important element at Altaroc is total transparency. We explain everything we do in a totally clear and transparent way. We wanted to illustrate the issue of fees in a different way. The first graph shows the full cost ofAltaroc, the full cost ofAltaroc, i.e. the cost of the portfolio that we bear because we invest in professional Private Equity funds and institutional funds, to which we add the cost that we charge you. This gives you an idea of the full cost of Private Equity management. So for us Altaroc, we charge fees of around 1.2% on the underlying funds. And for the most expensive part, at Altaroc, we charge 2.5%, which means that a private client ends up with a full cost of Private Equity of 3.7%. Now, if you had bought a Private Equity portfolio from a bank as part of a feeder, the feeder is a vehicle that aggregates small subscribers who don't have the means to subscribe 20 million euros, which is the minimum amount for a Top quartile manager. And somewhere along the line, it invites 200 customers, the feeder at €100,000 each, to make up this minimum ticket of 20 million. Typically, the private bank will pay the Private Equity fund 2% on the underlying assets, and charge the private client 1.5% for the complete management of the feeder.

So we can see that the full cost for a private client subscribing to a Private Equity product via a feeder is 3.5. So we're talking about 3.5 for a feeder compared with 3.7 for Altaroc for the most heavily loaded share at Altaroc. So, to put it simply, the feeder and the Altaroc product have the same total cost. Well then, this deserves some explanation here. Why do we Altaroc, have a raw material cost in funds of 1.2% and not 2% as is the case in a bank feeder? For two reasons. Firstly, we will be entering very large Private Equity funds, which typically do not seek the 2% that a bank feeder will offer, because they often have access to regional funds or medium-sized local funds that charge 2%. Very large funds typically charge one and a half. So we're dealing with large funds whose performance is often better than that of small funds, which charge 1.5 against the feeder's two. That's the first point. The second point is how we make co-investments of up to 20% of our Vintage and that on these co-investments we are invited by the underlying funds without fees and without carried, Altaroc in fact only bear management fees on 80% of its portfolio.

So in fact our management fees are 80% of 1.5%, or 1.2%. This explains why our cost price at Altaroc is 1.2%, compared with 2% for a bank that invites you to subscribe. So which is better? Altaroc or a bank feeder, knowing that it costs about the same? As we've just seen,Altaroc is clearly better. I'd like to explain why. In a feeder, you have one fund. We have 6 bottoms. A feeder typically has a minimum entry ticket of €100,000. Altaroc also, so for €100,000, at Altaroc, you have a diversified global portfolio built around the world's best managers, with a very clear strategy on the countries you want to be exposed to, the managers you want to be exposed to, and the sectors you want to be exposed to. Whereas in a bank feeder, you'll typically have an average-quality domestic fund. So the power ofAltaroc 's diversification is incomparable to that of a feeder. Secondly, withAltaroc, you have full consolidated digital reporting, available quarterly, with ESG analysis and analysis of each underlying company, which you'll never get with a bank feeder. Then, when it comes to calls for funds, and this is fundamental, when you subscribe to a bank feeder, you can have calls for funds at any time without the underlying manager having to warn you.

It can't happen. At Altaroc, we have set up a subscription system somewhere. Calls for funds are programmed, amounting to 20% at closing and then 10% every six months, 10% on March 30, 10% on September 30. So, in terms of ease of subscription, in terms of ease of planning, in terms of dynamics, reporting, transparency and complete vision and creation of a consolidated portfolio, the Altaroc portfolio is incomparably more efficient than the bank feeder. And, as I said, they both cost the same. One last key point: Maurice and I have committed to investing 33 million euros a year in our Vintage. So he and I are committed to 33 million euros. There's a very strong alignment of interests. He and I are both highly experienced Private Equity professionals, and we're the ones who built these portfolios. We co-invested with you, and that's fundamental. You'll never have that kind of interest in a bank feeder. In any case, you'll never have this alignment of interests. Banks are pure distributors. We're not pure distributors. We're co-investors alongside you. We built Vintage for ourselves, first and foremost, as investors. So, I hope I've explained the virtues of the Altaroc portfolio against feeder at iso cost. Now, I'd like to illustrate another point. When we build you a turnkey portfolio, it comes at a cost, and I'd like to come back to a rather important point.

Whether you're an institutional investor, since we build institutional-quality portfolios for you, or an extremely wealthy family, when you want to build portfolios of the quality ofAltaroc, you need teams, you need teams to do three things: to select managers, to diligently manage managers, to build portfolios, to monitor portfolios, to manage calls for funds, to manage cash flow. To manage reporting, you have to incur due diligence fees, legal fees, tax due diligence fees. So you have a whole battery of costs that will eat into your gross performance and mean that there will be a gap between the gross performance of the underlying managers and the net performance in your portfolio. Somehow, the team, the costs of building a portfolio, all this has a cost. So, in the case of large institutions and large families, they have dedicated teams of 10 people, 20 people, 50 people. In fact, they have fixed costs. Thanks to Altaroc, you can fully vary these costs. So what we offer you is a known cost, perfectly known, totally variabilized, which is the cost of managing a portfolio. I like to take this example. When you go to a great restaurant and they offer you a tasting menu, the tasting menu is more expensive than the sum of the cost price and the basic ingredients. At Altaroc, it's the same thing.

Maurice and I have put together a worldwide tasting menu for you. Well, there's a cost to building this portfolio. You have to accept that in order to get this exceptional performance from these exceptional managers, we have to fight to get you into a constructed portfolio. These teams have a cost. There are around forty of us at Altaroc. We're not yet profitable. All this has a cost. What we build for you has a cost. What's important is that the net performance we deliver to you remains absolutely exceptional. And that's our promise to you. And that's our promise. Last but not least, the weight of costs varies over time. So there's a practice we're often asked about in the Private Equity world. And it's true of all funds worldwide. Funds charge during what we call the investment period. They charge on the commitment for five years, and then after the investment period, they charge on the net assets, with the net assets fluctuating and, as the underlying companies are sold, the net assets diminish to zero in year 10 or perhaps earlier. That's the way they bill. This is the business model of every Private Equity fund in the world. As a portfolio of funds, we have adopted an equivalent billing model. So, if I take the example of the most heavily charged client at 2.5% on commitment for five years, followed by 2.5% on net assets over the next five years.

The reality is that, at the beginning of the story, in years 1 and 2, the commitment is much higher than the amount drawn down. The amount drawn down is 20% of the commitment in year one. So the weight of costs in year one is by construction much higher than its ten-year average. To put it another way, if I represented the story differently, rather than presenting you with 2.5% on the commitment in year one, followed by 2.5% on net assets thereafter, we could have averaged it out and already presented you with 1.8% on the commitment for the entire life of the fund. So, if we had chosen the commitment as the basis, we could have presented it at 1.8% of the commitment. All this to illustrate the fact that, at the beginning of the fund's life, the expense ratio is higher because the fund has not yet drawn down the full commitment. So, as the years progress, you'll see that the weight of expenses will decrease. And somewhere down the line, the gap between the portfolio's gross performance and the investor's net performance will narrow considerably, reaching equilibrium in year five. So this element of fees is important. We hadn't necessarily explained it in detail, because we hadn't explained all the ways in which Private Equity works. But the weight of these costs varies over time, due to the way global Private Equity is invoiced.

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