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Rothschild & Co | Annual Report 2017
Rothschild Merchant Banking continued to perform strongly
during 2017 generating revenue of €185 million up 39%
(2016: €133 million). When compared to the average of
the last three years revenue is up 28%.
Revenue comprises two main sources:
• Recurring revenue of €61 million was made up
of management fees net of placement fees
(2016: €51 million).
• Investment performance related revenue of €124 million
(2016: €82 million) comprised:
–– €31 million of carried interest (2016: €29 million),
–– €95 million of realised and unrealised investment
gains and dividend (2016: €62 million),
–– less €2 million of provisions (2016: €9 million).
Operating income rose to €120 million for 2017 (2016: €82
million), representing a 65% operating margin (2016: 62%).
To measure the performance of this investing business, we
look at the RORAC (Return On Risk Adjusted Capital – being
adjusted profit before tax divided by an internal measure of
risk capital invested in the business on a rolling three years
basis). As at 31 December 2017, the RORAC was 26%
(31 December 2016: 25%).
The increase of both revenue and operating income reflects
the enduring strong performance of funds, mainly driven by
the performance of the funds forming part of the Five Arrows
business line (corporate private equity, secondaries and
private debt).
The alignment of interests between the Group and third
party investors remains a key differentiator. During the year
the Group’s share of the investment made by the division
amounted to €116 million, of which €94 million was the
Group’s own investments in funds managed by Merchant
Banking, and €22 million in proprietary investments
(including those made as part of the Rothschild Private
Opportunities co-investment programme).
Disposals generated proceeds of €156 million following
the sale of investments in Autodata, a provider of technical
automotive data (2.6x MOIC )
(1)
, Munters, a provider of
humidity and climate control solutions (2.5x MOIC), Grand
Frais, a fresh food retailer (3.3x MOIC), Kisimul, a specialised
education and care provider (3.2x MOIC) and Baozun, a
leading Chinese digital and e-commerce service partner
(5.0x MOIC).
Thanks to the team’s strong track record in private equity
and private debt across multiple economic and credit cycles,
the division continues to expand.
During the year, within the private equity funds, Merchant
Banking held the final closing at €195 million for Arolla,
a global multi-manager private equity platform and, within
the private debt funds, Five Arrows Direct Lending (FADL),
a European mid-market direct lending fund, completed a
further closing to bring committed capital to €540 million.
Rothschild Credit Management priced its latest CLO,
Contego IV at €360 million and raised over €300 million
in new commitments for its third Oberon fund (unlevered
senior secured loans).
2013
2014
2015
2016
2017
58
143
117
133
185
30
32
37
51
61
28
111
80
82
124
Recurring revenue
Performance-related revenue
Revenue
(in millions of euros, 12 months to December)
2015
12m to Mar
2016
12m to Mar
2017
12m to Mar
2016
12m to Dec
2017
12m to Dec
109
57
90
82
120
Profit before tax
(in millions of euros)
(1) MOIC stands for Multiple On Invested Capital.
Rothschild Merchant Banking
Financial results for 2017