DeA Capital (DeA) one of Italy’s largest alternative investment operators, with assets under management of c €11.9bn and an investment portfolio of more than €370m as at 31 March 2019. DeA shares are listed on the FTSE Italia STAR section of the Milan Stock Exchange and the company is majority owned by De Agostini, a private group owned by the Boroli and Drago families, with operations in the media, gaming and services sectors. De Agostini currently owns 58.3% of the shares but, allowing for the cancellation of treasury shares recently approved by shareholders and due to take effect in August, this will increase to 67.1%. On the same basis, the free float will increase from the current 24.4% to 30.4%.
In alternative asset management (AAM), DeA is the leading independent (ie non-bank) promoter and manager of real estate, private equity and credit investment funds through its subsidiaries DeA Capital Real Estate and DeA Capital Alternative Funds, both now wholly owned. In addition, 45%-owned associate YARD provides property services to the real estate sector to a range of clients including DeA.
The investment portfolio comprises DeA’s investment in the AAM platform as well as co-investment in its own funds managed and direct investments. The investments are made from the group’s permanent capital base, which allows the group to take a long-term view and avoids any of the pressures to divest within a pre-determined time frame that may occur with a traditional private equity fund.
In recent years, DeA’s strategy has been to recycle the proceeds of divestment from legacy large-ticket private equity investments and reimbursements from maturing fund holdings towards investment in further building the AAM platform infrastructure, supporting new fund launches, and selective direct investment including the sponsoring of Italian special purpose acquisition vehicles (SPACs), while also returning significant amounts of excess cash to shareholders. In our view, AAM has stronger growth prospects, greater earnings visibility and more stable cash flows than direct private equity investment, and has the potential to be more highly valued by the market.
DeA’s net asset value at 31 March 2019 was €471.1m, or €1.82 per share, before the May payment of €0.12 per share (c €30m) in dividends. The net assets of the AAM business (43%), investments in private equity and real estate funds (26%) and a significant net financial position (20%) together represent 89% of the NAV. The direct investment portfolio accounted for most of the balance (8%).
Exhibit 1: Group financial position
|
31-Mar-19 |
31-Dec-18 |
|
€m |
€ per share |
€m |
€ per share |
Alternative Asset Management (AAM) |
|
|
|
|
DeA Capital Real Estate |
151.5 |
0.58 |
140.4 |
0.55 |
DeA Capital Alternative Funds |
45.5 |
0.18 |
43.4 |
0.17 |
Other (inc YARD, DeA Capital RE France/Spain) |
5.6 |
0.02 |
5.6 |
0.02 |
Total AAM |
202.6 |
0.78 |
189.4 |
0.75 |
Private Equity Investment |
|
|
|
|
Private equity/real estate funds |
120.9 |
0.47 |
125.0 |
0.49 |
Kenan Investments (Migros) |
17.3 |
0.07 |
19.4 |
0.08 |
Other (inc IDeaMI, Cellularline) |
31.6 |
0.12 |
31.6 |
0.12 |
Total private equity investment |
169.8 |
0.65 |
176.0 |
0.69 |
Total investment portfolio |
372.4 |
1.44 |
365.4 |
1.44 |
Other net assets/(liabilities) |
6.2 |
0.02 |
0.5 |
0.00 |
Holding company net financial position |
92.5 |
0.36 |
100.6 |
0.40 |
Net asset value (NAV) – before €0.12 per share distribution in May 2019 |
471.1 |
1.82 |
466.5 |
1.84 |
Highly focused on growing the AAM platform
DeA is already the leading independent promoter and manager of real estate, private equity and credit investment funds in Italy, and the group’s strategy is to grow this further while expanding into other countries in Europe. The latter would be targeted at taking advantage at the growth in the alternative asset subsector within the broader asset management industry, while further expanding DeA’s base of investors as well as broadening its product range.
2018 and the early months of 2019 saw two significant developments:
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The buyout of minority interests in DeA Capital Real Estate. At the start of FY18, DeA owned c 65% of this key subsidiary, but in two transactions has taken full ownership. We welcome this move, believing it was conducted on attractive terms, increases DeA’s AAM exposure, adds flexibility to the management of the group and simplifies its structure. In November 2018, DeA completed the acquisition of an additional c 29.7% of DeA Capital Real Estate, from minority partner INPS, increasing DeA’s ownership to c 94.0%. The consideration for the acquisition of the stake was €40m, based on the book value of DeA Capital Real Estate, wholly financed from DeA’s significant internal cash resources. In addition, there is a maximum earnout of €4.5m over the three-year period 2019–21 that is subject to DeA Capital meeting undisclosed set targets for new assets under management. In March 2019, DeA acquired the remaining 6%, also at book value, which was owned by Fondazione Carispezia, a private foundation that remains one of the main shareholders in the Italian bank, Credit Agricole Carispezia. The €8m consideration has been settled with DeA treasury shares, which are subject to a six-month lock-up, and the agreement also includes a maximum earnout of €0.9m. The implied value placed on the c 5.2m treasury shares issued was c €1.55, above the market price at the time and now.
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First steps in the creation of a pan-European real estate platform. Building on its existing leading position in Italy, DeA established two new majority-owned real estate subsidiaries in France and Iberia in partnership with experienced local management. 70%-owned DeA Capital Real Estate France was established in September 2018 and was followed by 73%-owned DeA Capital Iberia in February 2019. The new companies are partnered with experienced local management and aim to develop real estate advisory and consultancy activities for fund-raising and real estate management.
DeA’s existing AAM platform consists of 198 professionals and provides a wide range of products on a multi-asset platform across real estate, private equity and credit investment funds. It has a proven capability to structure and launch innovative products and benefits from a deep knowledge of, and extensive contacts in, the Italian market. We next look at the main platform components in more detail.
DeA Capital Alternative Funds
DeA Capital Alternative Funds manages private equity funds with aggregate AUM of €2.5bn at 31 March 2019. It manages 12 closed funds of funds, comprised of funds of funds (five), thematic funds (five) and credit funds (two).
Fund launches in recent years have been in the areas of thematic funds and credit funds, driving a gradual shift away from funds of funds, which are of older vintage and in their disinvestment phase, and have in any case proved less popular with investors. Looking forward, DeA anticipates a regular stream of new fund launches, with a seeding commitment of c 10%, consistent with its experience of recent launches.
2018 saw the launch of the thematic fund IDeA Capital Agro Fund in July (€80m commitment), and the shipping segment (‘CCR Shipping’) of the credit fund, IDeA Corporate Credit Recovery II Fund (€170m commitment), in December 2018. IDeA Capital Agro Fund is the first Italian private equity fund dedicated to investments in Italian agricultural businesses with eco-sustainable business models. CCR Shipping is a new segment for the IDeA Corporate Credit Recovery II Fund, dedicated to acquiring shipping loans from banking partners. During Q119, DeA Capital Alternative Funds launched the DeA Endowment Fund, a closed-end fund of funds intended for investment by banking foundations, and was awarded the management of a portion of Azimut Capital-managed ‘Azimut Private Debt’ closed-end fund. Together, these new mandates added €114m to AUM.
DeA Capital Real Estate
DeA Capital Real Estate is the largest independent real estate manager in Italy, with a c 20% share by AUM. It had AUM of €9.3bn at 31 March 2019 comprising 47 managed funds including two listed funds.
DeA Capital Real Estate specialises in core real estate investment strategies, targeting income-producing real estate that is bought and then held for the long term; however, it also offers value strategies. Value strategies look for opportunities to benefit from improving the income stream and value of the property acquired. Overall, it seeks investments in transactions with low-risk, stable returns and low volatility. As a result, its portfolios are focused on good-quality real estate assets in large Italian cities with a significant share of the total represented by office buildings and bank branches.
DeA Capital Real Estate’s appeal to institutional investors such as pension funds, insurance companies, sovereign wealth funds, corporations and banks, both from Italy and from abroad, is enhanced by its strong market positioning in Italy. The investor base comprises c 100 institutional investors, representing c 90% of all investments and more than 70,000 retail investors.
Business development is focused on expanding existing funds, launching new core and value initiatives, and expanding the product range. In 2018, eight new funds were launched raising AUM of €1.0bn.