9 / 204
Rothschild & Co | Annual Report 2017
7
In July 2017, the merger of the two French private banks
Rothschild & Cie Banque and Banque Martin Maurel was
completed and the French private banking activity is now
operating under the name “Rothschild Martin Maurel”.
The operational integration is progressing to plan.
Assets under management increased to €67.3 billion in
2017 due to €10.0 billion from the merger with Martin
Maurel group, €1.7 billion of net inflows and market
appreciation partly offset by negative exchange rate effects
of €1.6 billion. Net new assets were driven by inflows of
€1.3 billion in Private Wealth across all major geographies
and of €0.4 billion in Asset Management.
Rothschild Merchant Banking
continued to perform strongly
during 2017 and profitability here has developed into a
major contributor to the Group’s growth. The business
generated revenue of €185 million, an increase of 39% on
the prior year and of 28% when compared to the average
of the last three years. Revenue from Rothschild Merchant
Banking comprises recurring revenue of €61 million and
investment performance related revenue of €124 million.
Operating income rose to €120 million for 2017,
representing a 65% operating margin.
The increase of both revenue and operating income reflects
the enduring strong performance of funds, mainly driven
by the performance of the Five Arrows business line.
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 direct investments
(including those made as part of the Rothschild Private
Opportunities co-investment programme). Disposals
generated proceeds of €156 million.
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. Our teams have
now developed a recognised, niche position in Europe
with a solid track record of long-term value creation.
Merchant Banking’s assets under management were
€7.5 billion as at 31 December 2017 compared to
€5.8 billion as at 31 December 2016.
Outlook
In Global Advisory, we continue to maintain our position
as one of the leading global advisers. Despite lower global
M&A market activity in 2017, principally at the large cap
end of the market, the conditions for M&A continue to be
relatively positive. We therefore expect current activity levels
to persist into 2018, although the Group remains alert to
the risk of volatility.
Private Wealth & Asset Management is well positioned to
deliver net asset inflows and improving profitability. Our
strategy of focusing on our core target markets, leveraging
our network and targeting entrepreneurs is bearing fruit
across our geographies. In France, the operational
integration of Martin Maurel is on track to be finalised
by the end of the year.
Merchant Banking is committed to growing its assets under
management. Within the Private Equity funds, FAPI II has
successfully deployed in excess of 70% of its commitment
and we will therefore aim to launch FAPI III in the course of
2018. In the Private Debt funds, following the successful
FADL fundraising, we will continue to expand our product
offering both in Europe and the US.
Overall, financial markets have been much more volatile
in recent weeks than seen for the whole of 2017. If such
volatility were to continue through 2018 then that could
impact market sentiment with a negative effect on our
businesses. However, if markets continue to be benign
we would expect our performance to be broadly in line
with recent years.
This has been a successful year for Rothschild & Co and
we are proud of our achievements, but we remain single
minded in our focus on the long-term and growing the
business for the future. As each of our businesses develops,
we are seeing increasing synergies between them,
producing positive results. Our strategy of diversifying our
earnings is progressing well. This success is due to the
highly talented and devoted teams of people who work
within Rothschild & Co and who share the same culture
of utmost professionalism towards their clients, providing
outstanding execution and effective long-term solutions.
This strong culture is what gives Rothschild & Co its distinct
perspective and unique position in the financial markets.
Alexandre de Rothschild
Executive Deputy Chairman of Rothschild & Co Gestion
Nigel Higgins
Marc-Olivier Laurent
Robert Leitão
and Olivier Pécoux
Managing Partners of Rothschild & Co Gestion