In the inaugural episode of 17 Minutes with 17Capital, host George Lee sits down with Pierre-Antoine de Selancy, Managing Partner and co-founder of 17Capital, to discuss the early development of NAV finance and the circumstances that led to the firm’s launch in 2008.
Pierre-Antoine reflects on his career in private equity and secondaries, the challenges of raising a first-time fund during the global financial crisis, and the evolution of a financing strategy that was still emerging at the time. The conversation also explores how perceptions of NAV finance have changed as the market has developed, including common misconceptions around its role within private equity portfolios. Pierre-Antoine shares his perspective on the importance of risk discipline, investor alignment, client focus and culture as 17Capital has grown, while looking ahead to how the market may continue to evolve.
Podcast Transcript
GEORGE
Hello, and welcome to 17 Minutes with 17Capital, the podcast where we explore the ideas, people, and trends shaping NAV finance and the wider private markets industry. I'm George Lee, and today I'm excited to be joined by Pierre-Antoine de Selancy, managing partner and co-founder of 17Capital, to discuss the origins of the NAV finance market.
Pierre-Antoine, welcome to the pod, our first ever episode.
PIERRE-ANTOINE
Hi, George. Nice to be here.
GEORGE
So, let's go right back to the beginning. What were the early years of your career like leading up to the launch of 17Capital?
PIERRE-ANTOINE
I started working with PAI, Paribas Affaires Industrielles, back in '94. It was a different century. First in Paris for a year and then 2 years in Hong Kong. Then I thought IT was going to be something, and I bought a small IT business in Lyon for one year in ninety-seven. And after six months I realised I didn't understand anything at IT. So, I went back to finance and joined Coller Capital in in London, and that was the beginning of the secondary market.
And they were extraordinary times. And I learned a lot at Coller. And then after that, went to FondInvest, which was another secondary firm based in Paris, AGF Private Equity, which is today Eurazeo, and started ‘17’ in 2008.
GEORGE
And during those years of working at PAI, Coller, FondInvest, AGF, did you know then that you wanted to be an entrepreneur within private equity, or was it an idea-driven thing?
PIERRE-ANTOINE
I never really wanted to be an entrepreneur. I knew I wanted to make some money at some point, but being an entrepreneur wasn't really something I was after, but being on the secondary market was really exciting. I joined that market in '98. Annual volumes were $700 million of trade globally in '98. I think last year we're at $200 billion.
So, the market has grown immensely over the last 25 years. And I thought that was really interesting, and I wanted to ride with the market. I believe in luck, and joining very early a market that is growing exponentially is definitely proof luck exists. I was trying to apply leverage on some of the secondary transactions we were doing, especially at AGF Private Equity, where I was running a small team doing secondaries.
And that proved incredibly difficult, finding leverage for secondary transactions or finding leverage for single positions in funds or private equity portfolios. And that's when I thought maybe there's a market there. But being an entrepreneur never really was on the top of the list, although I like the independence. I like being able to do things and have control - I think it's really more difficult to have clients than to have a boss, to be honest.
GEORGE
Right. So, what was the moment when you decided to go for it?
PIERRE-ANTOINE
You know, as the markets, the private equity market was growing, it continued to be very difficult for investors to find leverage. And I was at a conference in Zurich in February 2006 where there were 4 participants. The description of the panel was overview of the entire secondary industry. You had one guy working for RBS lending money, very complex transactions, loan-to-value 30-40%, but portfolios needed to be extremely diversified.
There was one provider lending at 4-5%, and then you had 3 equity investors, secondary funds, Green Park, Adam Street, Pomona, and they're all seeking 20-25% IRR. And there was no one in between. That didn't make sense to me. So, like, there should be something, there should be financing more flexible than the current debt available and a bit more competitive than the equity that LPs have access to.
So, that was the idea, like providing financing to investors in private equity. At the beginning it was LPs, then we grew out of that very quickly.
GEORGE
Are you surprised that others didn't spot that gap in the market in it? I mean, for many years, 17 were one of the only providers out there.
PIERRE-ANTOINE
I think a number of other people saw that. There were people who were doing it, but I think the idea is 5%. The execution is 95%. Among the other people who tried to do it, I think they didn't look at it as the way to provide a certain risk profile to investors. Like our job as private equity managers or private credit managers, we're not paid to do deals or to make investments. We're paid to agree with our investors on a certain level of risk. And once we have that, once we've agreed on the level of risk, we try to give them the maximum level of return. So that's the job. And then you do it through a specific strategy, which you put in place, which you can repeat, which is scalable, which is easy to understand.
But you agree on the level of risk, and then you deploy and maximise the return. And I think very few people had that. From the get-go, day 1, day 0, we were driven to be as institutionalized as possible, even when we were extremely small. First closing, first fund, €23.1 million. If you look at our investment memo, they haven't changed. They're still the same. From day 1, we were very institutionalised.
GEORGE
Just going back to the initial launch, you and Augustin launched 17Capital amid the '08 global financial crisis.
PIERRE-ANTOINE
We both resigned in July 2007, a week before Bear Stearns went belly up. So, we had no idea what was coming.
GEORGE
So, correct me if I miss any, but a first-time team raising a first-time fund for a first-time strategy.
PIERRE-ANTOINE
Yes.
GEORGE
That couldn't have been easy. Perhaps you can just take us back to those days. How was it?
PIERRE-ANTOINE
Yes, well, it was— all of that was a first. I think that the good news there was a lot of people had a lot of time on their hands, and they took that time to meet with us. And it took us 600 meetings to raise the first, the first $80 million from 12 investors.
And it was obviously a bit more difficult. I think you have a word in English, which is interesting. And these times were certainly very interesting in the most English sense of the word.
The vast majority of that time was around; we wish you good luck. I'm sure it's going to work. Maybe not. That was the spirit of most of the meetings. And we also had a lot of goodwill. People thought we needed help or support. So, a lot of people we were meeting were introducing us to other people.
In the end, the first fund we raised was $88 million. All the investors there were people either Augustin or myself had worked with before. There was no new relationship, only people who knew us. And it was the same in terms of portfolio construction. All the people we dealt with for the first years were people we had had some form of interaction directly or indirectly in the previous years.
So, you build on what you have. And we launched, we were 34, 35, so we didn't have much to build on, but it was enough to start.
GEORGE
Was there ever a point in '08, '09 where you thought maybe this isn't going to work out?
PIERRE-ANTOINE
No, there was never any plan B. In 2009, so from the very beginning, we had a board with 3 more seasoned investors, friends or parents of friends who helped us. In 2009, we had 9 board meetings because we really struggled. We looked for investors, we were looking for— at one point, we were looking to sell 20% of 17Capital for 400,000 euros, and we met you know maybe half a dozen investors. None of them believed in it. They all told us that's not going to happen. We will we can do it, but you need to have a decrease in your salary, which was already very, very low. So, it didn't work, but we never had a plan B.
But we …there were a lot of doubts, and there were a number of moments where we had a few thousand. euros left on the bank account when the next transaction or the next closing of the fund happened. But that's— we loved it. We absolutely loved it. It was like we had to prove everyone this is a good idea and the execution is impeccable. Just watch. We wanted to prove.
PIERRE-ANTOINE
We still do, by the way. We still do, that is still there.
GEORGE
Was there one investor that really changed that when you were raising Fund 1?
PIERRE-ANTOINE
I think there were several. The first investor was AGF Private Equity, so my former employer, who invested with us at the first closing of the first fund. That showed that, you know, my former employer was happy to back me in my new venture. And then we had a Canadian pension plan based in Toronto invested with us, you know, in the first transaction alongside us in the first fund for almost half the size of the fund. And that was a tremendous help. And they saw the market, they believed in our execution capability. They're still with us today. It's a $150 billion plan, so major league. And 19 years later, they're still an investor and we keep on having good relationship with them and we value their trust immensely. Obviously.
GEORGE
It's a good endorsement. So today, NAV finance has entered the mainstream. When did you realise the market had truly arrived?
PIERRE-ANTOINE
I'd say there were a number of these moments. I'd say that probably the first one was in New York at a conference organised by one of the main intermediaries on the private equity secondary markets. And the panel was one bank lending to LPs, JP Morgan, and one of the main secondary players, Ardian.
And I was sitting in the middle between them providing a third source of capital for LPs. I thought, well, that's exactly where I'm I thought I should be when I was at that conference in 2006. So it took us 9 years to get there, but we were positioned in the right place.
And I'd say the second moment was probably in 2020 when we declined a transaction with one of the top 3 PE firms globally, one of the inventors of our industry. And we looked at it; we didn't feel comfortable for a number of reasons that we have really not matching the mandates our investors gave us. I think there was a transaction to be done there, but the money our investors gave us did not match what these guys were trying to do. And we declined.
And I thought, well, if we get to that position where we are strong enough to decline a transaction with people in that league, maybe that says something about the market, the depths, and also where we are and what we've built.
GEORGE
As NAV finance has entered the mainstream, there's a lot more written about it, but there's also a lot of misconceptions. What in your mind are some of the things that people still get wrong about NAV finance?
PIERRE-ANTOINE
Right. There's still quite a few things that people get wrong. First of all, the main question we had for all the fundraising meetings until 2022, '23 was, do you have a market? Are you sure you can deploy? We had that. We raised the first fund, $88 million, deployed it in 2 years, raised the second fund, $200 million.
People were saying, that's too large. Like, your market is okay for a €90 million fund, not for €200 million. So, we raised the fund, deployed it in 2 years, launched a new fund, target €450 million. People were saying, that's too large for the market. We deployed again. So, the main question we had is, do you have a market and are you sure you can deploy?
And what is also interesting is the people who said that, when they saw we could actually deploy a lot of money, and this year we're at €4.5 billion deployed in the first 6 months of this year. So, the market is substantial. The same people went from, if you don't have competition, you cannot deploy.
But now that you have competition, returns are not interesting, so I'm not going to invest with you. And I was asking them, so where do you invest? Well, I invest only in the buyout space. So, the question of the deployment has been there forever. I think the other misconceptions were probably around the fact that, are we adding leverage to leverage?
We're actually not. We're replacing existing leverage by another one. Are we there to fix a bad fund? No, we're not. We're there to make a good fund even better. And we're fully aligned with the LPs. That's something people still don't have always on the back of their mind, but we are fully aligned with all the investors in the fund. And that's, that's incredibly valid and incredibly powerful. We are not the LPs' enemy. We are the LPs' friends. We help them get better returns for the money they put in each buyout fund.
GEORGE
Yeah. That alignment is very important. Yes. So, a bit of a gear change. You've grown from 2 founders to more than 120 people today. What's the one thing you've worked hardest to preserve as 17Capital has grown?
PIERRE-ANTOINE
It might be an obvious answer, but culture is always what is the most important for any firm, whether it's in our industry or whether you're making ice cream or whether you're running a restaurant or manufacturing parts for an automotive industry. The behaviour of people, how you treat the clients, how you treat each other within the firm, the initiative, how you try to stay ahead of the competition, doing the right thing, never forgetting the investors are first.
It doesn't start with the investment team; it starts with the investors. That's very important. Yeah, preserving the culture is very important. And we're now part of a much larger group, Oaktree and Brookfield, and they've been tremendous partners. They've let us keep what makes us a great partner for our investors and for the private equity organisation we work with.
So, we've been able to keep that culture throughout all these years. And I think that's part of one of my important roles in the firm, trying to keep that culture.
GEORGE
And just digging into Oaktree a little bit more, what does that mean for you personally? It must have been a pretty big accomplishment to have Oaktree on board in 2022.
PIERRE-ANTOINE
Well, it's a mix of 2 things. First of all, when we looked for a partner, we launched a process in 2021 trying to find an American organisation to help us be even more embedded into the US ecosystem. And I'd say it's a combination of 2 factors. You have kind of the traditional imposter syndrome where you think, well, they're going to find out.
And then you look at the organisation and say, well, actually, there's a few things we're doing right. So, there's a mix of pride and imposter syndrome. And I think the combination of the 2 probably avoids us getting too close to complacency, which is the kiss of death in this industry or in any industry really.
So, a bit of pride and a bit of imposter syndrome keep you on your toes, I think. And hopefully we're doing that.
GEORGE
So, turning to the future, if we record this podcast again 10 years from now, what do you hope we'll be saying about the NAV finance market?
PIERRE-ANTOINE
So, am I going to be interviewing you in 10 years?
GEORGE
Hopefully.
PIERRE-ANTOINE
The ambition really is to continue to lead the market, not by volume, but by quality, by reliability, always being able to make things happen for the clients, for our investors, also for the people we provide financing to help them save time. I think there's a lot of transactions. We're not cheap, but I think what we provide to our clients, especially the private equity organisations we lend money to, is certainty of execution.
And typically, we have a first discussion with them. It's rarely the first. It typically takes 10 years of discussion before we engage into a transaction. But when we start engaging on a specific transaction within the hour, we can tell them that's going to work or that is not going to work. We've probably signed, 3,000 NDAs and transactions in the last 15 years.
And the experience we've built there is really tremendous. I want to believe that we're going to continue to be the reference. If people say, I'd like to do a transaction like 17Capital. I'd like to be a reference in terms of quality, reliability, much more than volume. That's really the ambition. And European and American.
We started in Europe. We did our first transaction in the US in 2010, opened an office there 10 years ago, 2016. I think it's important to be able to have two feet on two sides of the ocean and have a balance between the two parts of the organisation, which we try to make work as one only.
GEORGE
We're almost out of time, but before we end, we have the 17-second challenge. This is where each guest has up to 17 seconds to answer my final question. So, Pierre-Antoine, for you, your 17-second challenge is, why the name 17Capital? And your time starts now.
PIERRE-ANTOINE
Augustin and I are numbers people. He was born in December on the 5th, 12 and 5, 17. I'm July 17. You know, there was a mutual number, and we went on with that. To be honest, we didn't spend much time on the name. We also like to be on the top of the list of attendees at each conference. And that was it.
GEORGE
Fantastic. I think that was a little bit over, but we'll allow it. Pierre-Antoine, thank you for joining us today to pioneer this podcast.
PIERRE-ANTOINE
Thank you for having me. Pleasure to be here.
GEORGE
And thank you all for listening. If you enjoyed this, please subscribe to 17 Minutes of 17Capital wherever you get your podcasts. We'll be back next month with more insights around NAV finance. Until then, I'm George Lee, and this has been 17 Minutes with 17Capital.
VOICEOVER
17 Minutes with 17Capital.
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