Welcome Keynote by Mohamed Kallala - Global Head of Natixis Corporate and Investment Banking

I heard that King Charles complained about the traffic generated by the private debt forum. Depth is obviously a wide scope and it varies from organization to organization. So what does private debt cover and why is it so important for Natixis CIB? First, thank you Christina, thank you all for being with us today. Um, private debt actually covers almost everything - we keep aside equity. And Natixis, the CIB of the group BPCE, and BPCE is the fourth European bank with 75 billion core equity. It is a bank with a debt DNA. It goes from retail, different asset classes of debt, of retail of course, to corporate, and then to real asset, real estate, aviation. So debt is everything within the group. BPCE's senior management is familiar with this asset class - all kinds: senior, mezzanine, the trenches of a CLO, the senior management of the group is really coming from this business and are familiar with this. That's why I think we've been able to navigate faster among the different changes we faced over the last decade. Private debt for me used to be the flavor of the month, and it will continue to be the flavor of the month because the final investors are asking for this. Of course, from time to time they expect to be paid back from their investment to invest in new funds, but at the end of the day, private debt will be one of the major asset classes for the final investors. So that's why private debt is within the DNA of our group because we believe it's strategic. And second, it's our DNA as you know. As everybody knows, it's the second edition of the Private Debt Forum.

Look at the newspapers - there are more headlines talking about private debt everywhere. It used to be the case in the US, but now it's everywhere: it's in Europe, more than London, it's in continental Europe as well. So private debt is in the middle of all discussion, the heart of all discussion of strategies of investors, banks, brokers, asset managers. It's a real new asset class. It's not new? But it's showing amazing growth. Second topic: private debt is mature enough, big enough to be able to replace almost all banks and, from time to time, the markets. So it's a real option for all kinds of deals, whatever the size. I saw 16 billion, 12 billion. So it's... and especially, this is one driver why private debt is again on the head of the scene: the crisis we faced last year - increasing interest rates, dramatic change in the volatility of spreads, the extent to which different committees of different banks are not that comfortable to underwrite new situations. That's why private debt was able to replace, in some transactions when it makes sense, when it's highly profitable, to replace the other actors that have financed the economy. So that's why this edition is just showing that we still have a few editions to organize next year and the year after. We are just seeing this asset class taking its place.

I think that the fact again that private debt is within the DNA of the group as I mentioned earlier. We've been able to immediately build partnership and trust between our partners, our clients, and the group. Actually, 10 years ago, 11 years ago, we said we're going to originate because we know the client, we know many clients, we understand the business model, we understand the risk, and we understand what they want to do - to acquire another company, investing massively - and we are happy keeping a portion of this debt. So we said to our partners: we'll originate, we'll underwrite, we'll make the deal happen on the origination side, we'll distribute it, but we'll distribute it in the Natixis way, which means we keep a portion of it and we continue to be aligned with you. This was, I think, the big difference between an American bank and Natixis, which is the bank that is in between. We are not taking it all on our balance sheet. We are not the US bank, we are not selling 100% of our underwriting. We are in the middle, meaning we keep a significant portion on our balance sheet. This really makes the real difference between our business model and the US or other European banks. But actually, the achievements - when you look at the figures, it becomes more and more a significant part of our net banking income. And when you look at the rankings, either real estate or infrastructure or aviation or middle market in the corporate debt in the US, we have rankings that are among the top five, let's say that way, which is totally different from the size of our CIB. When you compare to our ranking as a CIB within the debt, we are in the top five almost everywhere.

Interesting question. I think the competition we always face - a huge competition between banks over the last five years. So a big competition between banks trying to establish partnerships and being really servicing private debt funds. Now, I think that even though I think that assets under management for private debt will definitely grow at a double-digit rate, and even more than double in the coming five years, we're going to have competition between the different private debt funds for one simple reason: it's really difficult today to raise new funds. For two technical reasons: first, over the last two years, because of the sharp increase in interest rates, the value of listed assets decreased by let's say 15 to 20 percent. And the final investors, the LPs, are seeing their listed portfolio decreasing and the private portion of their portfolio increasing in terms of allocation. So they expect to have a more balanced portfolio in order to increase their allocation to the private sector, equity and debt. This creates competition between the different private debt funds in raising new money. So this will create competition. We always have competition between banks, that's for sure, but we start to see competition between private debt funds to raise money. And that's why at Natixis, we think we work with the best in class and we think we can be a partner to help them navigate through this new competition, I would say, between the different asset managers of private debt funds. And what about 2024? Then it's going to be an amazing year for private debt. I'm talking about - it's on the screen, of course. Yes, it's going to be an amazing year. Actually, in the different asset classes, you have drivers for strong growth. Real estate offices are going to be amazing. The market will settle in 2024 and you're going to have huge opportunities to take on debt at decent profitability and really low risk. In infrastructure, the needs are doubling every year. The needs of the government and corporate to comply with all the commitments they made regarding carbon dioxide emissions are going to double. So, who can serve this client? It's going to be you. You're going to have the choice. So on the corporate side, with interest rates at 5% in US dollars, with spreads for B like B+ of 400 or 450 basis points, you cannot use only markets and banks. And on top of that, the ECB is putting pressure on European banks to redo the allocation to what they call highly leveraged transactions. Another driver for more need that cannot be served by existing players. It can only be served by private debt. So for private debt, it's going to be an amazing year. So, but we're going to meet next year, Christina. Of course I'm waiting for the invitation already. Thank you very much.

There are many topics that we're going to discuss during this forum. I think that we - all of us, the banks, the private debt funds, and the market - will have to have a better understanding of the underlying business. So we're going to have more and more specialists to allocate on the debt. It's already the case in certain banks, it's obviously the case in private debt. So you are bringing to the final investor the expertise at the relevant price, which is different from what banks used to do before. Because, as you know, a bank is an issuer of bonds and has a portfolio of different asset classes and different maturities. No one invested in the bond of the bank is having a deep and thorough understanding of what we have on the balance sheet. Don't tell this to the financial analysts of banks, but actually the specialization of the debt fund and the bank regarding each asset class will create the driver for growth. And at the end of the day, the money coming from the LPs will be directed to the best in class that are able to show that they understand the underlying asset class, the business model, and have the relevant partner to originate more debt. Because my understanding from the behavior of the LPs today is that they are prepared to allocate more money, but to fewer names, to fewer hands. So for me, the competition and the driver will be expertise: show that you are able to originate a lot of deals and have the right to pick the best ones. And we are here to work with you and partner together for the rest of 2023 and 2024 as well. So maybe thank you all, and see you next year.