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Mathieu Chabran helms Tikehau Capital, a European asset manager, which oversees $40 billion in private debt, real assets, private equity, and capital markets. With a front row seat to the uncertainty and geopolitical tension in Europe, Chabran sat down with the Delivering Alpha newsletter to discuss the role of alternatives in the region along with his shifting perspective on tech. 

 (The below has been edited for length and clarity. See above for full video.)

Leslie Picker: As you look across your portfolio, are you seeing the effects of war of inflation on the assets that you manage?

Mathieu Chabran: Actually, not at this stage. Obviously, we’re monitoring extremely carefully, because we were first focused a couple of months ago on the [rising] interest rates, even if Europe is lagging a bit relative to the U.S. And then obviously, and unfortunately, the war started, and now we’re seeing some supply chain issues, some increase in raw materials. So, as much as we are very close to the company we’re working in, we are trying to anticipate as much as we can. But we see, also, some interesting shifts happening, typically on the energy – I know we debated that a lot. So, right now, I think it’s a critical moment, crossroads, to work on your portfolio companies – to anticipate, to provide your portfolio companies with the long-term resources they need. And that’s what we’re doing at Tikehau. 

Picker: So you’re not seeing any impact of inflation on margins, or higher prices, or anything like that?

Chabran: We’re actually seeing that less in Europe [than] what we are seeing in the U.S. right now. In Europe, we’re trying really to be as local as possible and to be less dependent on some supply sources. Energy is one big thing. The other thing is obviously on the cost of funding and the interest rates. That’s one thing we monitor, very, on a daily basis, if I may say. And B) on the private debt, on the private equity, on the real estate, we see different approaches where you can try to anticipate that, work with your portfolio company. But right now, on the mid-market, because that’s really what we’re focusing on, it still remains under control but it’s up to the companies, it’s up to the management team to effectively anticipate that so that we can weather this situation and make sure we can shift our supply chain.

Picker: Because of that, are you seeing more opportunity in Europe than you are in the United States right now?

Chabran: If you can remain local in your sourcing, and Europe, as you know Leslie, is a big playground, right? From northern Nordics all the way down to southern Europe, those are very specific markets. And if you have the footprint on the ground, as we try to develop, and as we’ve been developing at Tikehau, it effectively provides you the ability to be more nimble, if I may say, working with your portfolio companies, with your management, with your local partners, with your local banks, in a way that you can effectively try to tackle these issues ahead of time, and rather than being defensive, being proactive about that. So that’s really what we are trying to develop, what our investment teams have been doing over the past, I would even say, since the pandemic. What we’ve been seeing with interest rates [rising], and then with the situation obviously in Ukraine-Russia is just adding to a situation that was already carefully monitored on our end.

Picker: Are you worried at all about Europe tipping into a recession though at this point?

Chabran: It is very likely. You’re starting [to see] some countries flagging these risks, this potential. It’s something that is now unfortunately potentially on a global scale. We see what’s happening in China, we’re seeing, obviously, what’s happening in Central Europe as a consequence of the situation. Europe could very well be because of these spillover effects, I would say, of these various headwinds. So, again, our job as asset manager, and even most of us, as private asset managers, is trying not to time the market, but really to invest the cross cycle. There is a lot of capital available, this capital needs to find a home. There is a home for every good deal. And that’s where the private managers maybe can address this situation better than the public markets.

Picker: You’re involved in real assets – both real estate and infrastructure – so I’m curious from your vantage point, how well positioned do you think Europe is to break free of its dependence on Russian energy?

Chabran: I think we have to remain fairly humble when it comes to this situation, and not leaving aside the human tragedy, but, what we see that we have developed over the past few years or decades, this dependency on energy that people are not [realizing] how bad they could be. Now the silver lining to that…is that you can accelerate the shift to transition energy. Effectively being less dependent on Russian oil or gas, and effectively having some more local source of alternative energy is, once again, what I would call the silver lining of this situation. We’ve been doing a lot on this front, not only in Europe, and now also in [the] U.S. What for some was only greenwashing a couple of years ago, is now clearly picking up as a major trend, where asset managers and private asset managers have a real responsibility. And so that’s where we are actually increasing the effort, the weight, and the allocation of our capital being deployed there – both on the equity side, but also on the credit side.

Picker: Historically, you have avoided tech as a sector – something I think in a previous interview you described to me as a bonanza. Do you think that the recent sell off though still makes it a bonanza or do you see potential opportunities there now?

Chabran: You’re pointing out some recent market movement that we had feared and anticipated. That’s why we were not effectively present there. So that market repricing has happened for the time being very much on the public market. It’s starting to transition into the private market from what we’re hearing…I think we’re coming to a rebalancing of some excesses that we had seen in this very particular space of the market. Once again, it started with [rising] interest rates, and people started realizing that money has some value, and if the price of an asset is effectively the present value of its future, if it’s discounted cash flow, there is an impact on that. And then also a supply-demand effect and the benchmarking that the public [markets] are providing. So, without any crystal balls, obviously, we prefer a market that is repriced by 75 percent, for some of them, than what it was only six months ago. And again, having some bespoke pool of capital, we certainly provide great opportunity in a market that is trying to find its equilibrium.

Picker: So, you’re considering tech, then? You don’t see it as the bonanza that it was before, if I could summarize that.

Chabran: Tech is a big – it’s a big concept. As you know, we’ve raised a lot of capital dedicated to financial services. The FinTech part of Financial Services is a growing trend of the market that many traditional investors will have to focus on. Things we were looking at six months ago, again, have repriced by 75 percent sometimes, so today, we like it much more than we used to…Today, all our companies have to be tech enabled one way or another. So, if people and investors start approaching [things] in a less – how shall I put it – disconnected way, where effectively growth justifies some double-digit type of multiple on turnover, and that effectively [comes] back to what is the real profitability or path to profitability to a company, then it becomes interesting.