Thematic funds are PEs' secret weapon for times of change, volatility – PE Forum Italy

Thematic funds focus on specific trends, like clean energy. Other areas ripe for thematic funds include areas where tech can play a disruptive influence, such as healthcare, food, cybersecurity and artificial intelligence (AI).

Deploying capital in this phase of the market is not easy, particularly due to macro-economic issues, Tikehau's Italian head Luca Bucelli said.

However, there are secular trends that are accelerating and cannot be ignored. Bucelli said. Thematic funds allow investors to bet on specific sectors in partnership with corporations, he added.

Tikehau has pursued this avenue with a decarbonisation fund alongside TotalEnergies; a sustainable agriculture fund with AXA and Unilever; an aerospace defence fund with Airbus [EPA: AIR], Dassault, Safran and Thales and other companies; and a cybersecurity fund with the French Ministry of Defence.

"Very capable generalist PE funds have been around for a long time, so it is important to find an investment differentiation component," Bucelli said. Meanwhile, corporations have sector knowledge and large teams of engineers, he said. "They know about the renewable space better than any of us."

Sector expertise is also of interest in competitive areas like manufacturing and luxury, where PE executives need an edge. Gruppo Florence in Italy is an example. It was founded in 2020 by Fondo Italiano D'Investimento SGR and other investors, who brought together three leading companies dealing with the development and production of luxury clothing collections for third parties.

The investors recently sold the business to Permira. In the buildup phase, they were thinking hard about how PEs struggle to compete with French luxury conglomerates in a market with many small and medium-sized enterprises (SMEs).

"This was a fragmented, family-owned arena made of SMEs, often concentrated on one or two clients; it was an opportunity to replicate the French brand model through the distribution and production value chain," said Fondo Italiano D'Investimento senior partner Marzia Bartolomei.

The new vehicle targeted manufacturing plants and supply chain providers. Starting with three companies, Gruppo Florence's portfolio reached 27 targets, particularly independent businesses that would not like to be bought by a competitor but that appreciated attaching themselves to an institutional entity that valued the Italian original manufacturing tradition.

This led to rapid consolidation when compared to initial shortlist of 10 targets, also with the addition of new management teams that brought in a different perspective.

Industrial competences are a strong basis to guide investing in this moment, agreed NB Renaissance partner Luca Deantoni. "You can't just rely on leverage, you need to aim at industrial value creation and attract competences that are not only related to dealmaking – particularly in relation to digitalisation and sustainability," he said.

NB Renaissance uses operating partners who assist investment teams and management teams both in due diligence and portfolio management, Deantoni said.

Despite the complexities of the current market situation, it is impossible to sit still both for investors and corporates, as disruptions from AI and energy transition will determine winners and losers in any sector quickly, Deantoni said.

Bucelli mentioned Tikehau's investment in Eurogroup, a manufacturer of rotors and stators, as an example of a play in this direction. The deal was a bet in 2020 on the acceleration of the automotive sector electrification.

The acceleration happened so fast that this year the company needed additional capital to fund its footprint expansion, and did it through a listing becoming a company with a market capitalisation of EUR 1bn. The EBITDA was EUR 30m at the time of Tikehau's investment and is now above EUR 100m.

Bucelli said that a similar exploration is now targeting deals in decarbonisation and regenerative agriculture. "We invest to support the growth of proven and profitable European sustainability leaders," he said.

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