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Mathieu Chabran leads Tikehau Capital, a European asset manager, which oversees $40 billion in private debt, real assets, private equity and capital markets. At the forefront of geopolitical uncertainty and tension in Europe, Chabran sat down with the Delivering Alpha newsletter to discuss the role of alternatives in the region as well as his changing perspective on technology.

(The following has been edited for length and clarity. See above for the full video.)

Leslie Picker: Looking at your portfolio, do you see the effects of the inflation war on the assets you manage?

Mathieu Chabran: Actually, not at this point. Obviously, we are watching very carefully, because we first focused a few months ago on the [rising] interest rates, even though Europe is lagging a bit behind the United States And then obviously, and unfortunately, the war started, and now we’re seeing supply chain issues, an increase in materials raw. So, as we are very close to the company in which we work, we try to anticipate as much as possible. But we’re also seeing some interesting changes happening, usually on energy – I know we’ve discussed this a lot. So right now, I think it’s a critical time, a crossroads, to work on your portfolio companies – to think ahead, to provide your portfolio companies with the resources they need for the long term. And that’s what we do at Tikehau.

Picker: So you don’t see any impact of inflation on margins, or higher prices, or anything like that?

Shabran: In fact, we see this less in Europe [than] what we’re seeing in the United States right now. In Europe, we really try to be as local as possible and to be less dependent on certain sources of supply. Energy is a big thing. The other element obviously concerns the cost of financing and interest rates. This is something that we monitor, very, daily, if I may say so. And B) on private debt, on private equity, on real estate, we see different approaches where you can try to anticipate that, work with your holding company. But right now, in the mid-market, because that’s really what we’re concentrating on, it’s still under control but it’s up to companies, it’s up to the management team to anticipate this effectively so that we can get through this situation and make sure that we can change our supply chain.

Picker: Because of that, do you see more opportunities in Europe than in the US right now?

Shabran: If you can stay local in your sourcing, and Europe, as you know Leslie, is a big playground, isn’t it? From the northern Nordic countries to southern Europe, these are very specific markets. And if you have a footprint on the ground, as we’re trying to grow, and we’ve grown at Tikehau, that actually gives you the ability to be more agile, if I may say so, working with your portfolio, with your management, with your local partners, with your local banks, so that you can effectively try to tackle these issues in advance, and rather than being defensive, being proactive about it. So that’s really what we’re trying to develop, what our investment teams have done in the past, I would say even since the pandemic. What we’ve seen with interest rates [rising]and then with the situation obviously in Ukraine-Russia only adds to a situation that was already carefully monitored on our side.

Picker: Are you worried about Europe tipping into a recession at this point?

Shabran: It is very likely. you start [to see] some countries pointing out these risks, this potential. This is something that is now unfortunately potentially global. We see what is happening in China, we obviously see what is happening in Central Europe as a result of the situation. Europe could very well be because of these ripple effects, I would say, these various headwinds. So again our job as an asset manager, and even most of us as private asset managers, is not trying to time the market, but really trying to invest the cycle cross. There is a lot of capital available, this capital needs to be housed. There’s a home for every bargain. And this is where private managers can perhaps manage this situation better than public markets.

Picker: You are involved in real estate assets – both real estate and infrastructure – so I’m curious from your point of view, how well placed do you think Europe is to break free from its dependence on Russian energy?

Shabran: I think we have to remain quite humble in the face of this situation, and not leave aside the human drama, but what we see that we have developed in recent years or decades, this dependence on energy that people are not [realizing] how bad they could be. Now, the silver lining to this… is that you can accelerate the shift into transition energy. Effectively being less dependent on Russian oil or gas and actually having a more local alternative energy source is, again, what I would call the upside of this. We have done a lot on this front, not only in Europe, but now also in [the] United States What for some was just greenwashing a few years ago is clearly becoming a major trend, where asset managers and private asset managers have a real responsibility. And that’s where we’re really increasing the effort, leverage and allocation of our capital deployed there – both on the equity side, but also on the credit side.

Picker: Historically, you’ve avoided tech as an industry – something I think in a previous interview you described to me as a boon. Do you think the recent sale still makes it a bargain or do you see potential opportunities there now?

Shabran: You are pointing to a recent market move that we had feared and anticipated. This is why we were not actually present there. So this revaluation of the market has so far mainly occurred in the public market. It’s starting to transition into the private market from what we’re hearing…I think we’re coming to a rebalancing of some of the excesses that we’ve seen in this very particular space of the market. Again, it started with [rising] interest rates, and people started to realize that money has some value, and if the price of an asset is indeed the present value of its future, if it’s a cash flow updated, there is an impact on that. And then also a supply-demand effect and the benchmarking that the public [markets] provide. So, without a crystal ball, obviously, we prefer a market revalued by 75%, for some of them, to what it was only six months ago. And again, with a tailored pool of capital, we certainly offer a great opportunity in a market that is trying to find its footing.

Picker: So you’re considering technology, then? You don’t see it as the manna it was before, if I can sum it up.

Shabran: Technology is a big – it’s a big concept. As you know, we have raised a lot of capital dedicated to financial services. The FinTech part of financial services is a growing market trend that many traditional investors will need to focus on. The things we were looking at six months ago, again, have been 75% overhauled at times, so today we like it a lot more than before…Today all of our businesses need to be enabled by the technology one way or another. So if people and investors start approaching [things] in a less – how to say – disconnected way, where indeed the growth justifies some type of double-digit multiple on turnover, and which effectively [comes] going back to what is the actual profitability or the path to profitability of a business, then it gets interesting.