Altamir SA (ISIN FR0000053837) – French PE at an attractive discount or CEO “self-service” vehicle ?

Altamir is a French holding company whose main purpose is to invest into private equity funds. Such a structure is called in general “listed private equity”.

To be more specific, this is what they state as the company strategy:

Altamir invests exclusively with Apax Partners, in three ways:

In the funds managed by Apax Partners France:

€200m to €280m committed to Apax France VIII;

In the funds advised by Apax Partners LLP: €60m in Apax VIII LP;

Occasionally, in direct co-investment with the funds managed and/or advised by Apax Partners France and Apax Partners LLP

As investing in only one Private Equity fund company is a quite special arrangement, one asks oneself only one question: Why ? Well, this is explained in the annual report:

Apax Partners was founded in 1972 by Maurice Tchenio in France and Ronald Cohen in the UK. In 1976, they teamed up with Alan Patricof in the United States, bringing the independent entities together under a single banner, Apax Partners, with a single investment strategy and similar corporate cultures, and applying the rigorous standards of international best practices. In 1999, Apax Partners began to merge its various domestic entities into a single structure (Apax Partners LLP), with the exception of the French entity, and reoriented its mid-market investment strategy towards larger transactions (enterprise values between €1bn and €5bn). Apax Partners France opted to remain independent and conserve its mid-market positioning, targeting companies between €100m and €1bn. There are currently no cross-shareholdings or legal relationships between Altamir on the one hand and Apax Partners MidMarket and Apax Partners LLP on the other, nor between Apax Partners Midmarket and Apax Partners LLP

This closes the circle: Maurice Tchenio is the CEO of Altamir and was the founder of Apax Partners in France.

Tchenio retired from Apax only in 2010, so for quite some time he was running Altamir in parallel to being actually part of Apax himself. Maybe to provide stable funding to APAX France ? i don’t know.

So why could this be interesting ?

Looking at Altamir, there were some very positive aspects to be found:

+ CEO owns 26%, is buying (2009: 22%)

+ transparent documentation, reporting. Quarterly NAVs, detailed asset lists

+ French Midcap PE is attractive

+ discount vs. NAV (~30%, 11,20 EUR vs. ~16 EUR NAV). The discount is relatively high compared to other listed P/E stocks (currently on average ~10-15%)

+ no double leverage, net cash

+ paying dividends

+ valuation of unlisted assets relatively conservative, sales prices always higher than last valuation

+ the legal structure seems to be tax efficient for long-term holders (no tax on dividends for French shareholders if one commits to hold > 5 years)

+ track record is pretty OK as we can see in the chart: They did manage to outperform the CAC Mid& Samll cap index since inception based on their stock price, although only at a relatively small margin:

altamir vs cac mid

Actually, those points, especially the “juicy discount” in connection with the large CEO share holding makes this quite interesting

However, the most important thing in looking at such vehicles is the question: How much cost do they add and how much aligned are the interests of management and shareholders ?

And this is where things get a little bit messy. According to the annual report, direct fees are around 17 mn EUR or 2,9% of NAV. This includes in my understanding also the underlying APAX funds. This is not cheap but most likely “in line” with other “fund of fund” PE structures. But the real “fun” starts with the following issue:

The Company has issued Class B shares that entitle their holders to carried interest equal to 18% of adjusted net statutory income, as defined in §25.2 of the Articles of Association. In addition, a sum equal to 2% calculated on the same basis is due to the general partner. Remuneration of the Class B shareholders and the general partner is considered to be payable as soon as an adjusted net income has been earned. Remuneration of these shares and the shares themselves are considered a debt under the analysis criteria of IAS 32.
The remuneration payable to the Class B shareholders and the general partner is calculated taking unrealised capital gains and losses into account and is recognised in the income statement. The debt is recognised as a liability on the balance sheet. Under the Articles of Association, unrealised capital gains are not taken into account in the amounts paid to Class B shareholders and the general partner.

So this is in fact a 18% “carried interest” of the general partner (i.e. the CEO) on any realized profits of the company. So for 2014 for instance, 87 mn EUR of realzed income “shrink” to 57 mn EUR shareholder income as first the management fee gets deducted and then further 18% profit share.

So the “privilege” of a shareholder to invest into APX via Altamir is purchased quite expensively. This also puts the CEO investment a little bit in perspective. Yes, he has invested around 100 mn of his own money into Altamir, but in 2014, the management fees and profit share netted him close to 30 mn EUR direct, whereas the proportional profit of his share position was “only” 15 mn EUR.

Ok, maybe being the Ex Founder of APAX France opens the door to invest into APAX, but charging “3% and 18%” for this privilege (all in) looks quite expensive and explains some of the discount.

Activist angle:

The whole fee issue might also explain why French asset manager Moneta seems to have started in 2012 and “activist campaign” against altamir, see here and here.

They seemed to have pushed for a run-off of the company but so far only succeeded in pressuring to pay a higher dividend than before (increase from 0,10 EUR 2012 to currently 0,50 EUR).

According to Moneta’s homage, they are still active. To me it looks like that the increase in the CEO’s share position has much more to do with control than with actually believing that the shares are undervalued, but of course this could be wrong.

Summary:

In principle, a listed PE vehicle specializing in French mid-market Private Equity could be interesting if the discount is significant. At Altamir however, as I have described above, the structure takes out a lot of money and one needs significant Alpha over time to break even compared to a “do it yourself” portfolio of French small and midcaps.

Tha activist involvement is interesting, but I don’t know enough about French Governance rules to assess the chances of a fundamental change.

So for the time being no investment, however if for some reason (market stress), the discount becomes really large I might be revisiting the case.

16 comments

  • Hi, if you are interested in listed PE, I suggest you take a look at P3 PE (ISIN DE0001734994). P3 is an old Dresdner Bank certificate issued in 2000 linked to a PE fund of fund managed by Partners Group. The portfolio is very diversified by managers, vintage years, regions, etc. The current discount is 33% and since inception, the NAV performance was just above 5% pa. The interesting aspect is that investors have the opportunity to redeem at NAV every 5 years and the next chance to do this is in autumn this year. Everybody who gives notice before the end of Nov is moved from the listed, everygreen (proceeds are reinvested) portfolio into an unlisted, run off instrument, from which the proceeds are paid out once a year. Assuming a late payout profile (because of oustanding overcommitments) and the same annualized return of 5% as historical (should be higher for a run off portfolio) gives you an expected IRR of >10%. The downside is that you are locked into an illiquid instrument, which is no longer listed after you have given notice.

  • Hi MMI,

    I think that with Altamir you have both a greedy management and a management which is very much aligned with the interest of shareholders.

    I am grateful to the team of Moneta (their funds own almost 10% of Altamir) for having done an excellent job by being vigilant on the attempts of the management to be too smart or not enough transparent.

    You do not have many investment/PE companies which trade at such discount in Europe and, if we subtract the net cash, the discount to the fair value of the portfolio is even larger.
    Cash (which has remained constantly abundant over the years) can be seen in two ways: 1) it can reduce returns; 2) it gives us a safer balance sheet with some more optionality.
    One thing to remember is that unlisted companies are only revalued by Altamir twice a year. So it is very likely that, even after the payment of the dividend, the current NAV is more than the one published in Q1 2015.

    The discount is very nice indeed, but ultimately Altamir will do well if they keep on picking up good companies and exiting their investments at good prices. If they get excellent prices, I would not mind their getting a hefty slice.

    If managers-owners were even more aligned with shareholders, they would currently buy back shares with excess cash.

    This would probably reduce the discount to NAV (and also raise the management’s reputation in the market).

  • Good evening MMI
    Nice to read a post on Altamir. I’m very familiar with this company and just a few days ago met Maurice Tchenio in London.
    You are right the ongoing charges are around 2.9% of NAV. They are slightly higher than if an Investor would directly invest in Apax Partners France funds by the tune of 0.5%-0.6%. I won’t go into details here on the precise calculation.
    Regarding the performance fee/carried interest you missinterpreted the fee structure. Altamir pays 20% (18%/2%) on statuory net income which is equivalent to realized gains minus potential unrealized losses. However Altamir doesn’t pay an additional carry to Apax Partners (so no double charging on Performance fee/carry). As Maurice has been with Apax until 2010, he is still eligible to receive a certain percentage of the carry from pre-2011 Investments. For the new Investments done out of Apax France VIII and Apax LLP VIII Maurice won’t no longer be eligible to receive any carry. In fact IR explains the mechanics in a letter to shareholders (http://www.altamir.fr/pdf/ag_2015/Votes_resolutions_EN.pdf ).
    Overall the fees borne by public shareholders are somewhat less favourable than if one invests directly in the fund (slightly higher managment fees and no fund carry and hurdle rate), but alignment of interest is still given and the fee scheme doesn’t deviate too much from a classic 2%/20% PE-fund arrangement. On the other hand as an Investor in Altamir one is not locked up for 10 years, doesn’t have to face a J-Curve and is able to invest at a 30% discount to NAV.

    Will you now revisit your Investment decision and buy a few Shares 😉

    Cheers
    Kiskosky

    • Kiskowsky,

      thanks for the comment. Just to be sure:The B shares are owned by APAX then ? What about the B share warrants ?

      Still, just beating the french public Midcap index by a tiny fraction is not that great to be honest, My own French investments did on average much better.

      For many investors Private Equity is attractive because they don’thave to mark-to-market the asset. That’s why public PE is somehow counterintuitive.

      mmi

      • I agree that the whole structure is quite messy. As far as I understood it correctly, the warrants are a way to change the distributions at Apax (e.g. new partners get a slice of B Shares via warrants). This shouldn’t have an Impact on the amount paid by Altamir to Apax (always 20%), just the split between the carry eligible members might change.
        Well the performance of Altamir has been a bit patchy 2007-2009 as a few pre-crisis Investments hit the wall. The current portfolio (businesses, valuations, leverage) looks reasonable to me. Well if you pick the right small-/mid-cap stocks you might still outperform Altamir.
        On your last Point: If the only reason for investing in PE is to be able to book in the Investment values at (quarterly) NAVs, then Listed PE doesn’t make sense. If you somehow believe that the PE-Model (control positions, management incentive structures, operational improvements, buy-and-build, exit Focus) is superior to public equities, then you might take the Listed PE route as well.

        • I do think a good P/E fund can create “Alpha” over the long term.i am just not sure that APAX can create 5% p.a. (assuming 10% long term returns) alpha p.a. to compensate for the fees.

          Do you have a view on the activist involvment of Moneta as well ?

  • Did you have a look at Aurelius Group at any time? It seems a quite interesting approach to PE, with small capital commitments per investment…

  • I invested in a Swedish company with the same “business model” a few years ago, at a similar discount to NAV. That turned out very well. When I invested they had something like 60-70% PE and the rest was cash, but around 120% of NAV was committed to PE funds. They had roughly 1% of NAV in total, yearly management costs and fees. So not at all the kind of structure you’re looking at here.

    After the P/B revaluation and some dividends, I did some deeper research on historical returns for PE and decided to sell the company. The average PE fund has had a quite dismal return according to many sources (of which all are uncertain as the visibility into the firms are low), however, if you manage to pick the best 20% or even 10% of managers you can get a very, very good return on the other side. I didn’t want to be dependent on the management to invest in the right funds and decided to exit with a nice return.

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