Tikehau: From Second Mortgage to $60 Billion Empire

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Joe Cass: [00:00:00]: What makes someone in their late 20s leave a safe career and bet everything on themselves? 

Mathieu Chabran: Started in finance in the City of London. I mean in my early 20s, I got to meet my co-founding partner, Antoine Flamarion. I'm a first-year analyst, a second-year analyst. And then you do the all-nighters in these cubicles for years. And then you look at what's happening here in the U.S., the emergence of what one would call today alternative asset managers, and you go, why don't you give it a try? 

Joe Cass: And when you started Tikehau, did people around you just think you were crazy? 

Mathieu Chabran: Actually, I even think that the FT at some point quoted us as a "crazy French pair," but that's for the record. But I mean, certainly, we started Tikehau, we had EUR 4 million of AUM, as you would call today, right? So it's a lot of money, in absolute terms, but in relative terms for the business we're in, that was very modest. So actually, a lot of people, when I told them I was moving on, that we were going ahead with Antoine, certainly, some people thought we were crazy. 

Joe Cass: And was there a point after setting out where you and Antoine thought actually, this might work? 

Mathieu Chabran: Certainly, what does not kill you makes you stronger. We started in 2004. And then very quickly, the ramp-up to the -- what we call now the GFC, right? But effectively, if you remember what was happening back then, this exuberance, Wall Street and finance being extremely creative, abundant, all these new products. And we enter as a firm, back then, we had EUR 400 million, I think, of AUM when we get into September, October '08, okay? 

And then we had the near-death experience because you've got this liquidity squeeze, you've got some names on Wall Street, Bear Stearns, Lehman Brothers, Merrill Lynch, who we used to work for where we met with Antoine, who have to be bailed out over a weekend.

So having this experience, young -- I mean, as a young professional, but early on in an entrepreneurial journey, I think that was probably the best experience, looking backwards, that could happen to us. And I would add to that, that the people who were working with us back then, maybe the firm is, I don't know, 40 people. And most of them are still with us today, almost 20 years later. 

Joe Cass: Can you remember that time around 2008 quite vividly? 

Mathieu Chabran: Almost every single day. I wouldn't say every single hour, but every single day. The -- I mean, here's the story. So September 15, '08, the Lehman Brothers day. That's a Monday. And back then, you've got the Pope in Paris this weekend. And the Pope delivers a massive speech on Saturday morning, and it's kind of questioning the finance world and all that in his own way, if I may say. 

And so like it's -- you're thinking about that over the weekend because there's a lot of stress in the system and Bear Stearns bailed out already a few months before. Lehman Brothers, that no one saw going sideways so quickly. And then you go to the office on Monday morning, and Lehman Brothers, by the way, was one of our custodians, like a custodian.

And so you start the day and basically, they're telling you that the assets you were supposed to be having with the custodian are gone because they've used the rehypothecation clause that a lot of people discovered at that time and the mother company here in New York had basically sucked up all the liquidity that they could find around the world. So yes, I mean, long answer to tell you, yes, I can remember every single -- actually, hour now. 

Joe Cass: Yes. Would you say the most stressful period in your entire career? 

Mathieu Chabran: It was certainly stressful. We're in our early 30s. We went all in, as you said, because that's also the model of Tikehau is we were not only managing someone else's money and we hit the wall because there is a once-in-every-century crisis. We have our own money there. Like I mean, we have a second mortgage on a house -- on a flat to be able to be in this business. 

And we're like we're not letting that go that easily because people are telling us, well, it is what it is, right? And so we are in this moment where you're fighting every single minute, where you start getting your lawyers, where you start going after some large institutions on Wall Street actually. Looking backwards, I remember some lawyers telling us, oh, we don't want to work for you because we cannot go against some of these institutions, but you had to fight for what is yours -- that was fundamental for us. It was existential.

Joe Cass: It's crazy. You're in your early 30s.

Mathieu Chabran: Yes, we are.

Joe Cass: You've got a second mortgage on your property. And you're fighting against the biggest names on Wall Street.

Mathieu Chabran: I think nobody ever experienced that. And by the way, it took that day, and I don't know maybe you'll be discussing that, but the period we're in when some people say, oh, maybe it's another 2008 and all that, effectively, there's one thing we learned for a fact that you cannot cheat with experience. And experience comes with this type of situation where you are in the extraordinary.

And for you, what you thought was effectively the going concern of your business is all of a sudden being turned upside down and something you've never experienced. And we were surrounded back then by some partners who had joined us who were slightly older than we were. We started our career in the late '90s, and some of them had started their career and they went through '87. They went through the -- from the Black Monday of '87. 

And even if it was totally different because it was purely an equity market sell-off when '08, it was more credit-driven, which was more our background, and subprime and all this good stuff. That's when being surrounded by this type of people who could tell us not to sit down and relax or to keep and carry on because that was not that simple.

But that's where having these partners, mentors, shareholders, investors surrounding you was very valuable, not to -- I would say effectively not to panic because when you're in the unknown, that's where normally you lose the rationale that should be driving any decision you're taking. 

Joe Cass: And to take you back, you've raised, let's say, EUR 4 million, a large amount of money at the time. Did you ever think that all these years later, you could build something so huge? 

Mathieu Chabran: Listen, that was certainly part of the ambition. As I said, when we started, we like to use this anecdote that we started in 2004, we're managing EUR 4 million. And back then, Blackstone, the best of the breed and who's been for many an example in building a firm, they're managing $40 billion. 

And $40 billion is a large amount of money, but in the grand scheme of things of where they are today and where the industry is today, it's a fraction, right? I mean we're at whatever, $60 billion today in dollar terms. And so because we're watching this very entrepreneurial platform, I think that there is one common theme around those very large alternative firms that effectively made such a difference over the past 20 years or 40 years is that they've all been built by entrepreneurs.

These entrepreneurs are still at the helm of the -- I mean, they are driving the bus in many circumstances. And we're watching them. We're watching them and it's getting -- it's very inspiring as a young professional. And so there was certainly the ambition. The plan was not to be the biggest. 

And certainly back then, we couldn't think about that, managing it. But there was this ambition, I think the drive, hopefully, a little bit of vision and also being able to adapt because post-GFC, a lot of things changed. They changed in the U.S., they changed all the more in Europe. And the whole financial industry has been reshuffled in some way, it evolved in a different regulatory environment.

And Europe as a playground is still one that I believe you can build the next generation of the relevant financial industry players. So I don't know if it was about if we ever thought we will be there now, but there's always been this constantly strong ambition. Yes. 

Joe Cass: On that topic, everyone seems to say Europe is in decline. Do you agree with that statement? 

Mathieu Chabran: Well, I mean, a lot of people say that here in the U.S., right, because it's helping the cause. But if we're being -- you're seeing in London, I come from Paris, we've got some operations across Europe with boots on the ground everywhere, in Milan, in Madrid, in Amsterdam, in Brussels, in Frankfurt, you need boots on the ground. You need to be connected with the local community, with the entrepreneurs, with the asset owners. 

And so regardless of the geopolitical environment we're in, I don't think Europe is going anywhere, but are there some benefits and merits for Europe when it comes to part of the energy transition that is required because of what we're going through, all the defense themes. On the pure financing side, on the private credit side, when you look at the structure of the European market relative to the U.S. market, you've got so much to build.

So I think you cannot paint with a big brush, black or white, the type of situation. We might be entering a world where it's somehow a bit less interconnected, which, by the way, in my view, will lead to maybe some reallocation of some of the large savings pools from the asset owners. 

And so if you are well positioned there, you can take advantage of that, be relevant to your clients, your investor clients, the companies you're investing into, the companies you're financing. And that is, in our view, a massive opportunity structurally there. And I would add that, that's maybe the slight negative, the public markets in Europe are certainly lagging the U.S. market, and that makes even more the case for private markets players to be the relevant alternative.

Joe Cass: Have you heard this thing Euromaxxing?

Mathieu Chabran: Euromaxxing, no.

Joe Cass: It means like it's kind of like everyone says Europe is in decline, don't go to Europe and Europe doesn't produce anything compared to the U.S. It's the kind of counterculture to that. So it's like people in Europe online putting that they're in a cafe in Paris. They're doing a hike in Frankfurt. It's kind of like pushing back on the narrative that everything is going bad and it's horrible. But it's quite cool.

Mathieu Chabran: Yes. Well, I mean, this time of the year, you'll be surprised how many American friends are telling me -- asking me for some advice as to where they should be going between Spain, Italy or the French Riviera. So at least we still have that.

Joe Cass: Do you think that ambition, the ambition that you've shown, has come at a price to you?

Mathieu Chabran: When I look at the journey and where we are in this journey because it's very kind of you to say that the platform is where it is today. But for us, it's just a step in this journey. And first of all, you cannot do that on your own or even -- we're lucky with 2 of us first. With Antoine, we started the 2 of us.

But we're surrounded by a team of colleagues, partners, many of them become friends over the years. As I said earlier, I mean, the very fact that we experienced this situation together, really, that was existential. And today, many of these colleagues, they are running some countries, geographies, some businesses, whilst they were young interns or young professionals back then because that was 20 years ago. 

So there are some good days. There are some bad days. It's not about thinking about our own feelings, but just keeping your head down and making sure that the firm is best positioned with the right people because every single game, if I may say, is different, and you would not have the same configuration.

But today, there's no single day where I'm not coming back home saying that what we are building with our team is relevant, that if we can keep on building that, that there is a need. We never want to become a commodity, which could be a risk in some parts of the industry. I've never looked back. And I think we've never looked back and quite only looking forward because the best is yet to come in the platform we can build. 

And I mean, it's obviously -- I think it's easier today than what it was 20 years ago. So when I look at our peers and friends here in -- our friends here in the U.S. and the way they managed to scale, the way they managed to transform actually the financial industry, there is a massive opportunity for us right there.

Joe Cass: It's funny. I always think around kind of the private credit alternatives more broadly and finance. There's so many entrepreneurs springing up and have sprung up in the past kind of 30 years. A lot of the guys in the U.S. seem to come from Drexel, kind of ex-Drexel employees, of which I've interviewed a ton. But it's interesting that Europe has some as well. And it all seems to come from this kind of alternatives world. I'm sure we've experienced that with meeting these guys and getting to know them.

Mathieu Chabran: 100%. And it's -- your reference to Drexel is interesting because in the early days, we would read the -- obviously, Barbarians at the Gate, but also Liar's Poker from Michael Lewis and the story of Drexel and Mike Milken, who have been so inspiring for so many people here on Wall Street, but even us back then, and we were sitting in Paris in the leveraged finance department and yet, we're reading the books about high-yield bonds and my dissertation at school was about high-yield bonds, which was something that very few people knew about.

And it's very interesting that you're picking specifically on Drexel because effectively, there's been this group of people, many of them are running the largest organizations here. I've been lucky since I've moved to the U.S. to attend the Milken Conference, the Milken Global Conference. And as much as Mike today is in a different phase of his personal journey and focus, but you sit there, you listen for 1 hour of his keynote and you're like, you still have a lot to learn from these people. 

And your point about Europe, effectively, we -- we're lucky in the late '90s, first at Merrill Lynch, Antoine went to Goldman Sachs. I was at Deutsche Bank and the group of people we met over the years, effectively, you had the same evolution into other large institutions.

Some of them have been entrepreneurs and effectively started and launched, but nothing to the scale of what Drexel has been in terms of getting together this group of people, which -- I mean, for us, they've been so inspirational about the journey, the entrepreneurial journey, but more fundamentally about the product, about the innovation because high-yield bonds today, like it seems like it's bread and butter, back then, I remember when I started on the desk at Merrill Lynch, that was something new, which was for the Americans here, it's been bread and butter for some time. 

Joe Cass: It's funny because sometimes I think finance -- in finance, we have a branding problem because if you think about tech, you have the PayPal Mafia. So you have this brand of the PayPal Mafia and all these guys end up -- Reid Hoffman goes to LinkedIn, you've got Peter, you've got Elon Musk, you've got all these guys and it originates from kind of one firm or one kind of time. And then they have such good branding, that kind of label sticks with them throughout their life. You never hear kind of the Drexel Mafia or the Drexel Gang or... 

Mathieu Chabran: They recognize each other. You may not hear that, but you know what they've been through. But the one thing I would say regarding your point about Europe is there is less a culture of entrepreneurship in the finance industry in Europe, very institutional. I mean you have some great private equity funds. 

You have some great hedge funds or mutual funds. But there's been less story like you have in the U.S. of entrepreneurial journeys, of this story where from KKR to Blackstone, they were started with $400,000 in 1976 and '84, respectively. We started -- I mean the EUR 4 million that I referred to as Tikehau, Antoine and I, we had EUR 400,000 that we put in the business because that's what we could do back then.

And in Europe, because maybe the model is in France, in Germany, very much so, less so actually in Italy or Spain, counterintuitively. London is more of a -- obviously, it's a wider playground when it comes to the financial industry. But you've got less of this cultural entrepreneurial story where people can refer to this culture you're doing the parallel with. But I think it's changing. 

And that's great news. If you look on the fintech side, on the neobank side, look at these massive successes of Revolut, for example, in Europe and the pace at which -- when we interact with the people over there, you see the quality of people, they're in their early 30s, like they were maybe at school. I mean certainly at school during the financial crisis we're talking about.

And so that's why I believe people should not bury Europe too quickly because you have this wealth of entrepreneurs of diverse cultures. That's the other thing that I think we sometimes underestimate in Europe is that it's a diverse culture from across the continent. And when they all end up in London, for example, around this project, you get something more. I think you get something more, and that's why we're getting still a lot of attention from global investors. 

Joe Cass: It's interesting you brought up the culture and the culture of Europe and the U.K., I think, and in France particularly, versus the culture in the U.S. And I definitely think they have this thing in New Zealand, the tall poppy syndrome. You have this thing, the poppies grow and then you say, what are you doing? Why are you doing that? 

Kind of like the instant reaction to building something new or even trying something new is criticism. So I think -- I mean, in the U.K., it's kind of changing a bit. You still kind of see it quite often. But I'm sure it's the same in kind of France and Germany. The culture is slowly changing with a younger generation, I think.

Mathieu Chabran: Absolutely. There -- and I'm getting to the point now, I've got my kids are growing. I see them with their friends at school and university. I mean, yes, there are still some people looking at -- they want to join -- I mean, Wall Street or the financial industry, but only as a first step to learning and being able to do something already, which was not the case in my generation.

I mean, we're the anomaly. I mean, Antoine and I, we are the anomaly of any analyst or associate class we belonged to back then. Now that's shifting somehow. And I think people understand that it's not a home run all the time. I think that slowly in Europe, the notion that, yes, it's okay to fail, which is a big thing here in the U.S., a huge thing that you hear in any university, any entrepreneur would tell us. 

In Europe, and I think we can say in Europe, because that, I guess, is common to all the countries over there, that was less the case, and I think it's getting into it. And I think it's great because -- and actually, Joe, I actually think that, that is a consequence if you think about that. It might be a very positive consequence of the GFC that created the very low interest rate environment that we had for 10, 15 years.

That gave access to a lot of cheap or cheaper money, not to say free money. And so that has given the opportunity to many entrepreneurs to try at a lesser cost. And maybe that has been a structural feature that is feeding this cultural change. And that will be the biggest benefit of the past 15 years, if that was the case. 

Joe Cass: Yes. I think it's a decent theory. Moving on to markets. Private credit has exploded, particularly over the past kind of 5 years. Are you at all worried? 

Mathieu Chabran: Okay. So let's step back. I mean credit, where I started as a young analyst, credit goes with defaults. In Europe, you have the banks still highly regulated unlike the U.S. So for them, the constraints on doing business are much higher. And the capital markets, as we said, are probably not as efficient as they are in the U.S. 

And so you were left with these people who did not qualify for one or the other. That's why there is this massive opportunity for private credit in Europe. So that's for the structural aspect. Now when people start questioning the cycle and has there been too much money going to the wrong place, might be for some when you are the last and the marginal dollar coming, that you raised a lot of money very successfully.

And by the way, that you're managing that through some open-ended funds, evergreen because now we cannot say semi-liquid anymore, but that's rule #1 of asset liability matching, right? So there were some features for people to get a little bit into trouble. And so I don't think there is any systemic risk. That's a personal belief. 

So this warning, if I may say, is a healthy reminder that with credit comes default and with credit comes cycles, and they are extremely tied to interest-rate movements. We think at Tikehau that being not only highly invested in our own businesses will not prevent us from doing some bad deals, but normally will give you a double pair of eyes on the underwriting that you are doing. And again, not being forced in deploying for the sake of deploying and still being an asset picker, asset -- being in the asset selection more than just a broker that is printing paper.

There is this massive difference, once again, which is structural between the U.S. and Europe. And right now, I think the opportunities for direct lending in Europe, primary lending in Europe. And I think that the opportunity in the U.S. is about secondary private debt. It will be about providing liquidity to some people who might be overweighted as a consequence of the cycle. And so when you're able to balance both markets, remaining very disciplined in the underwriting, you can weather these various moments in the cycle. 

Joe Cass: I often wonder about like the press interest around private credit. Potentially, if you combine that with new entrants in terms of asset owners buying more private credit than they have done historically, but also retail wealth, let's say. So you have these kind of 2 compounding things together, which is creating, I guess, more noise. That's my personal theory. 

Mathieu Chabran: And I think you're right. It's creating more attention. I mean remember, it used to be called shadow banking. Why was that? -- like 15 years ago? Shadow banking, yes, on the back of the GFC. And I know I'm not a native English speaker, but shadow banking doesn't sound very rosy, right? I mean like -- so I haven't heard about shadow banking for a long time. I mean, quite the contrary, it became very institutional in the U.S., obviously. 

I mean, in Europe, where you had a number of large institutions getting there, promoting the asset managers to be an alternative source of credit. And let's be honest, we're in this situation where we've got these mega cycles of CapEx requirements globally for various reasons.

I mean, here in the U.S., if I sketch it a bit, it's about all the digitalization and all these data center investments. I will not debate whether or not there will be some misallocation of capital. But right here right now, there is this massive opportunity, and we see all the capital going there. 

Europe benefits from that, too, but we've got 2 other massive opportunities that I referred to -- that I mentioned earlier, the energy transition because people woke up to the fact that you cannot be 100% dependent on fossil fuels. So the once-in-a-lifetime CapEx opportunity, investment opportunity, that cannot be provided only by public money because public money in many places, the states are not the most creditworthy investors right now.

So private capital has a massive opportunity there. And then defense, I mean, obviously, that's unfortunately very topical. But this whole macro geopolitical change has opened this reality that money has to come from somewhere. It will be part of that public. But as I said, you cannot keep printing public money and digging the deficit. And that will come from the private allocators and from the asset owners. 

And that's the good news, by the way. I mean, Europe and Asia and the Middle East, there are large asset owners. I mean the retail investors you're talking about, retail, they are savers. And they're becoming very mindful as to how the money should be used, right? And they're like, no, I'm not sure that my money should be buying some 10-year Treasuries as a saver in my pension.

Joe Cass: In terms of AI infrastructure, when you put them up against the trends you just mentioned or priorities, I guess, where would you rank kind of AI infrastructure and everything kind of downstream of that in your priorities for the next, say, 3, 5 years?

Mathieu Chabran: So they're top priorities and actually, it's not for the next 3, 5 years, it's for the past 5 years. We've been heavily involved in financing data center development. So as lenders, we had some shareholders effectively putting the equity, euro or pound, and we were providing the debt. In the past 5 years, there's been a very interesting cycle to effectively be involved there.

Then we came to the view that there was a lot of money chasing some assets and that the pricing, the underwriting and the payback that we could get from such an investment on a relative basis, we thought that we could make better investments elsewhere. So -- and it's not -- once again, it's not mutually exclusive. 

But it always comes down to supply/demand. So very high priority, but at the right return, at the right risk-adjusted returns. And we like the situation at Tikehau where there is this supply-demand imbalance because that's where you can make effectively a difference in this part of the cycle that you're going to be invested into.

Joe Cass: So you've been in the kind of the investing game, let's say, 30 years.

Mathieu Chabran: Getting close to that. Yes. Thanks for counting.

Joe Cass: Coming after it.

Mathieu Chabran: Exactly.

Joe Cass: So you've got a good understanding. You've worked in the vulcan. You've started your own company. You've hired people for decades. You've got a good understanding, I think, of what makes a good investor. So how much of elite investing do you think is analysis? And how much do you think is kind of gut instinct?

Mathieu Chabran: I think it's the latter. I think there's been a lot of instinct, a lot of conviction, which obviously does not prevent you from doing the work, but that's how you -- we developed. And now that you've got a much bigger platform, to your point about having hired and talent that -- I mean, I'd like to say that today, if I was sending my resume to my firm, I probably wouldn't get an interview, right?

And so when I look at the people we have today at our firm, of course, you need to have this elite investing approach that you mentioned. But we're always encouraging our teammates, our colleagues and partly the most junior ones to remain street-smart, not to follow the herd, to be contrarian, to think out of the box constantly, to remain a little bit maverick, I guess, in the approach because we really want them not to take something for granted, to challenge any given of the market. 

The one thing I hate is when people say, oh, the new market standard. I'm like you're here to break the standards. If you're only here to tell me what the market standards are, we're going to average down everything we're doing because that's the sell side, the banks, the process, that's what makes the market. So always try to play on the edge effectively.

Joe Cass: So let's say, 20 years from now, 20, 25, 30 years from now, what do you want or what would you like Tikehau to become? What would it look like in an ideal world?

Mathieu Chabran: Okay. So 20 years from now, maybe not 30, but 20 years from now, I'll be 70 and Antoine will be 73. And when we look at some of the people who pioneered this industry and who are now in their late 70s and are still very much on the pitch every day, you would send an email to some of these founders, they would reply within 5 minutes.

When you would have an average VP in the same organization, it would take 3 days or maybe not even reply to this email. So keeping this pace and this drive and this -- and for that, you need the organization, as I said, to remain relevant and to remain culturally aligned on what we are trying to achieve, which is one of the biggest challenges that most organizations like ours are facing is when you go from 2 to 20 to 200 to 2,000 people, how do you make sure that you keep the same approach? So that's one. 

That's on the intangible, making sure that the firm remains -- keeps this little edge in terms of getting out of your comfort zone. And it's not for everybody. Like don't get me wrong. Some people -- and that's fine. I mean we're not for everybody. But if you can find these people who are hustlers, competitors, then you're in good shape. You need to keep what you just mentioned about having a little bit of this instinct and obviously, hard-working and smart, et cetera.

At the time of AI, I think it will be even more fun because the all-nighters that we used to put in investment banking and now we still might be putting -- just to put together some financing model or some credit covenant comps, I've been doing that for 4 years. I don't know if Wall Street will be 50% less young analysts or not. 

But as far as we are concerned as a firm, I keep telling my team, we're not going to be reducing by 50% the workforce, but I want you to be at least 4x more productive because all these hours that are spent or were spent into putting together the technical work, that normally will be taken care of. And so then you'll be able to flourish in the interpersonal skills and free up your game, free up your game because that aspect will be taken care of. So the organization, that's the way I'd like it to look.

Now in terms of growth of numbers, it's -- a lot of our U.S. friends have shown that -- I'm not saying that the sky is the limit, but you see where they are today. So even if 20 years is a long time away, the past 20 have gone pretty fast. So we should buckle up. 

Joe Cass: Mathieu, thank you so much for joining me. 

Mathieu Chabran: Thank you, Joe.