CapMan Oyj (CAPMAN) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation of CapMan's Q1 Report 2025. My name is Charlotte Wessman, Head of Communication. And presenting today, we have Pia Kall, CEO of CapMan, and we will have a Q&A session after the presentation, and you are welcome to send in questions using the chat in the webcast link. Pia, please, I hand over to you.

Thank you, Charlotte, and welcome also from my side. CapMan has had a good start to the year, strong activity and a solid financial performance. Our assets under management continued to grow at the end of the first quarter at EUR 6.4 billion. The main contributor to this growth, the Hotels II funds transaction of Midstar Fastigheter large hotel portfolio. So 6% growth in AUM from the start of the year. Revenue at EUR 13 million for the first quarter. Here, we have continued growth in fee income of 8%, but no material carried interest recorded for this quarter, which means that it's on a total revenue, a decline compared to last year. Still growing EBIT, so comparable EBIT at EUR 7.2 million here, both improving fee profit of 46% compared to Q1 last year and good fair value development in our investments that contribute to the growth. In our business, we are, through our investments today, building the society of the future. We're working towards our vision to be the most responsible private asset company in the Nordics. When we look at our portfolio at the end of the first quarter, we continue to grow in our real asset strategies, just below EUR 5 billion of assets under management in real estate, infrastructure and natural capital with real estate growing during the first quarter. The real estate portfolio now constituting 250 properties. In Infra, 11 portfolio companies across energy, transportation and telecom sectors contributing to building sustainable societies. In Natural Capital, a portfolio of 240,000 hectares of land across Europe in eight different countries. Within our specialized private equity and Wealth strategies, a portfolio of just below 40 portfolio companies in total employing some 10,500 employees. From a shareholder perspective, when you look at our business model, the value drivers are really from the asset management, fund management business, it's fee profit and it's carried interest that we record when transactions are completed, exits are done from the funds that are in carry. And then, we have our balance sheet investments that are primarily investments into our own funds, supporting growth of that business, but also contributing investment returns as a value driver. And when we take those value drivers and look at the key financials for the first quarter, we have a fee profit at EUR 1.5 million. It's a 46% or EUR 0.5 million growth compared to last year. Over the last 3 years, a continued average annual growth of 26% per year in fee profit. Carried interest for the first quarter at zero, no material transactions that would have contributed carried interest. If you look over the last 3 years on average, a bit more than EUR 5 million per year of carried. From our balance sheet investments, the fair value of investments at the end of the first quarter at EUR 184 million, and we had a positive fair value change of EUR 5.7 million. It's a 3.3% increase. And main contributor there, our own funds that had a positive fair value change across our investment strategies. A deeper look then at the fee income and fee profitability development. So fee income growing 8% compared to the first quarter last year, whereas in fee profit, we continue to see improved fee profit margin and a fee profit growth of 46% to EUR 1.5 million comparing to last year. In our balance sheet, we have private asset investments now at a value of EUR 184 million. We also have a very strong cash position with EUR 80 million in cash and other short-term financial assets. This is after the divestment of gaps at the end of last year. It's a well-diversified investment portfolio, both when we look across strategies, but also vintages, and we expect it to generate significant positive cash flows during future years. Looking at the fair value changes in this portfolio, it is a long-term business with also variations across the years. Zooming in on the first quarter this year, a 3.3% positive development, EUR 5.7 million in total, EUR 5.4 million out of that coming from our own funds who increased 4%, and this comes from all investment areas contributing positively. Also a significant increase comparing to last year's situation. When we then add up all the EBIT components, we have growth from fee profit and the fair value changes that contribute to the total EBIT growth. So fee profit at EUR 1.5 million, or 46% growth, no material carried in the first quarter. This is a volatile by nature as we record carried interest when the exits happen from the funds. And last year, first quarter was a strong carried quarter. But therefore, EBIT, excluding fair value changes at EUR 1.5 million this year, but then positive fair value changes of EUR 5.7 million, taking us to a comparable EBIT of EUR 7.2 million, a 5% growth compared to last year. Our balance sheet continues to be solid, and we had a very strong liquidity. Equity at EUR 193 million with an equity ratio of 57%. And when we add up cash, other short-term financial assets and undrawn credit limits, EUR 100 million of liquidity. This liquidity is used to grow our asset management business. There's also an intent to decrease interest-bearing debt and enable strong dividend distribution. Moving then towards the strategy implementation and the market outlook. At the beginning of the year, there was a cautiously positive view on the market from several market estimates, indicating potentially the market -- fundraising market and the transaction market in general to turn positive during 2025 with European funds really leading the way. With the recent increased uncertainty, geopolitical turmoil, tariff regimes, looming trade wars, the uncertainty has increased significantly from the start of the year. And what we see from this one is increased uncertainty leading to slower decision-making and an expectation that both on the transaction market side and then consequently on the fundraising side, decisions will take longer and the turn in the market, we're more likely to see it towards the latter part of the year than now during the first part of the year. However, it's a long-term business. And when we take a midterm or long-term view, it is and continues to be an attractive sector for investors, good diversification, solid value development. And if you look historically, also a stronger value development than in listed equities. And therefore, the long-term forecast of an annual average growth of somewhere between 8% to 10% per year is still valid, and it continues to be a growth market in the midterm. We continue to implement our strategy and implement it through our CapMan Wins strategic programs. As we also reiterated in our Capital Markets Day, our strategic objective is to reach EUR 10 billion assets under management during this strategy period, and it's really coming from scaling real asset investment strategies and selectively launching new products and exploring acquisitions. Our strategic programs, that CapMan wins programs center around winning team, investing in our people, making sure we attract and also develop the best people in the industry. Investors choice, working to be the selected partner for investors looking to invest in the Nordics, systematically broadening and deepening our investor relationships. And of course, it's all building on a fundamental strong fund performance that keeps our products attractive. Nimble operations is our program where we seek scalability, effectiveness and the utilization of technology and AI in our operations, getting effective ways of working and smart ways of working. And sustainable, making sure sustainably is integrated in everything we do and really having responsibility as an enabler for superior financial performance and value creation in our investments. Our growth objective to reach EUR 10 billion of assets under management is coming from three levers. It's scaling existing funds, and it's especially the real asset strategies that have a scaling potential. It's launching new products where we see market opportunities and it's selectively exploring acquisitions. When we break down this growth objective further, we see that it's based on ongoing and planned concrete fundraisings. And you could divide it into three different levers of growth. The first one being raising the next flagship funds in our real asset strategies in real estate, natural capital and infrastructure. And here, the Nordic Real Estate IV and the European Forest Fund IV fundraisings are ongoing at the moment, targeting a first close during this year. But given the most recent market uncertainty, we are rather looking at the second half of the year than the first in this, but continue to see strong investor appetite for the products, but also expecting decision-making to take longer. The second growth bucket is then increasing intake to our open-ended, especially real estate funds. And here, I want to do two highlights. So at the end of the first quarter, we closed a transaction where our hotels fund doubled in size by acquiring Midstar's portfolio of Nordic hotel properties, adding EUR 400 million of assets under management in one transaction. The second highlight here is our Wealth Investment Partners program that raised their fourth fund in the program, also had a final close during Q1 at USD 120 million, the largest fund so far in that series. And I think both of these strong examples of where we have a strong track record and an investment team that investors are trusting also in these uncertain times. And then -- the hotels transaction, I think, merits a couple of more words. It is one of the largest transaction of its kind in the region. Our Hotels II fund doubled in size in acquisition by acquiring Midstar Fastigheter's portfolio. So from being a fund with 26 hotels, mainly in Finland, we now acquired a portfolio of 28 hotels across Sweden, Norway and Denmark and in one go, making the fund truly Nordic, well diversified. This adds EUR 400 million of assets under management for CapMan in one go, but it also makes the fund more attractive and more diversified for future fundraisings. Then looking at our fund performance, it's really the fund performance we set the foundation for future success. Investment capacity at the moment, we have EUR 1.2 billion of undeployed capital or dry powder. It means that we have the capital to capture opportunities that we see in the market. During the first quarter, it's really been our real estate team that's been active, both the Midstar acquisition that was just mentioned, but also two investments into the Nordic Real Estate III fund in Sweden and Denmark. Fund performance for our funds that are in value creation phase, we have 90% of the funds in that phase that are above carried interest hurdles, meaning that the returns are what is to be expected as it's a good foundation for future fundraisings. And during this quarter, there were no platform exits executed, but several processes are ongoing. Our products continue to attract international institutional investors. During the first quarter, we raised in total EUR 420 million of new capital, especially a couple of Swedish investors increasing their allocations to CapMan total AUM now at EUR 6.4 billion and a good diversification of roughly half being from the Nordic countries and the other half then from Central Europe and North America. Within our sustainability work, we continue to integrate it as a part of our financial value creation in our investments. We work across five material sustainability teams in all of our investment strategies. And a couple of highlights, especially from the climate action side now for the first quarter. So first of all, on our emission reduction targets, by the end of the year within real estate, we had reduced greenhouse gas emission intensity with 37% in commercial real estate and 54% in residential real estate, being ahead of our targets towards 2032 here. We're also increasing the share of portfolio companies that have set their own science-based target emission reduction plans, 17% at the end of Q1. It was 8% at the end of 2024, and it's Netox and Hydroware that got their targets validated during the first quarter. Our long-term financial objectives remain unchanged. Revenue growth on average, targeting above 15% annual growth in the first quarter now 8%. Strong balance sheet return on equity target above 20%, equity ratio above 50% and a distribution policy to pay sustainable distributions that grow over time. And for this year, based on last year's result, a total dividend distribution of EUR 0.14 per share. Our outlook estimate remains unchanged. We estimate assets under management to grow in '25, and we also estimate fee profit to continue to grow in 2025. Thank you.

Thank you, Pia. We also welcome Atte Rissanen to the stage, CFO of CapMan, and we start the Q&A session. So let us start with questions here from the audience.

Sauli Vilén from Inderes. How much AUM was booked from the Wealth III program, the USD 120 million? How much was it at the end of the Q1?

So from the Wealth IV program. Majority was booked in Q4, so on last year's side. And then, there was a small amount coming in now in the first quarter where the final flows was held, but majority was in the AUM already in the '24 numbers.

Yes. Then -- can you remind us about the Nordic Real Estate IV? Now I got the number right. So about the timeline, like how long do you have to do the fundraising? You already started last year, so like.

So there's no time limit in that sense, because there -- so usually, when you start to get a time limit and when you have had the first close and then you usually have 1 to 2 years' time from that to get to the final close. But the Nordic Real Estate IV kind of the early marketing started during last year and the fundraising is now ongoing towards the first close. So in that sense, there is no external time limit on it other than, of course, our team wants to get out there and deploy capital. And the way it looks right now, it's a first close target during the second half of the year.

Okay. Continuing that, it seems like that it's fairly probable that during the '26, you will have all three flagships that simultaneously raising capital. Do you like -- do you see that as a problem since you only have a limited fundraising team, obviously?

So it's -- in our business, it's really -- it's the investment team and the investment team partners who are doing the majority of the fundraising, because the institutional investor, they invest in the investment team. So that's the people they want to meet. So yes, it's true that our fund Investor Relations is a relatively small team who are coordinating these efforts across and keeping in contact with the LPs. But since both -- some of them are the same, it's just from different allocations that they invest in different products. So it's not all kind of adding up new contacts on it. And then, it's really the teams putting a lot of effort into the fundraising. So it's going to be busy, absolutely, but this is good, not impossible in any way.

Yes. Great. Then what kind of tickets are you planning to invest in those flagships by yourself? Obviously, the last two vintages were exceptionally large tickets for Infra -- Infra I and buyout, et cetera. So what kind of tickets are you looking at for these funds?

Do you want to take?

Yes, sure, of course. Sorry. Infra I, that was, of course, a substantial investment given that it was a new strategy with the buyout XI fund, although it wasn't a new strategy, it was a new team and thereby, it was also a substantial sort of show of commitment from CapMan's side. Here, when we are talking about established franchises like Infra III, Nordic Real Estate IV, then the role of CapMan's commitment is substantially smaller than when you are, for example, launching a new strategy. So I won't go into saying a direct number, but we're not talking about the same magnitude as with those large EUR 30 million commitments back then.

It's also good to remember when we do these commitments that it's not adding on top all the time, because what we use those commitments for is, of course, getting to a first close faster, but then it's also when we raise the next vintage, it's a possibility to take in investors who want to get into the new fund, but then they also want a share of the older fund and then we can sell out our balance sheet investments. So actually, it's rolling it forward in a way, you can say, and in that way, also attracting new investors into the funds.

In ancient history, CapMan used to have, if I remember correctly, a target of 1% of the total AUM of the fund to invest. It's a fairly good proxy of the overall industry. Do you have like any internal target or so?

Well, it, of course, ranges. I think 1% could be perceived as the minimum.

It's Jukka-Pekka Pesonen from Nordea. Maybe thinking about the Nordic real estate earlier vintages and lineage, so to speak. So the Nordic Real Estate III made two investments in Q1. Is there still significant undeployed capital in this fund that could maybe push the Nordic Real Estate for close further?

So the investment period is still ongoing in that fund, and they still have capacity, but it's clearly nearing its end. So I don't have it on top of my head when the investment period ends, but it's somewhere later this year, kind of towards the end of the year.

Okay. So there's no like overlap that we should be worried about?

No.

Okay. And maybe to the overall market uncertainty. So you still stated the target for Nordic Real Estate IV as the EUR 750 million. Is that still topical? Or could that be changed in some point if the market uncertainty continues?

So the target is that one and remains that one. And I would rather say that what's happening in the market now is, again, delays and delayed decision-making doesn't take down the kind of absolute appetite in the fund from investors. So that's still the final close target of the fund. And it all depends on the appetite, then it could, in the end, be higher, it could be lower, that's what we're aiming for.

Okay. And maybe last question on your overall platform. So you stated that it's going to be a busy year next year. But do you require any significant personnel or new hires to actually meet your fundraising goals next year?

I think, if we look at the platform in general, no kind of significant needs there. We are strengthening -- we have already strengthened our fund Investor Relations team with senior recruitments in London. So we are strengthening selectively in that area. But then on the other hand, we see increased effectiveness in other areas. So kind of net-net, no major changes.

It's Patrick Campbell from Nordea. Just going back to the Q1 results. I had a question on the strong fair value development. Could you maybe go into a bit more detail on what actually drove this? You mentioned across the board, but maybe some more color on that. And then my second question is, how do you see it developing kind of later on in this year? So Q2, Q3, what are your thoughts on that?

In Q1, the fair value changes were driven -- the majority is from underlying funds or CapMan funds. So external fund investments quite flat, own funds driving the positive development. And diving into that a little bit deeper, I'd say almost 50% coming from real estate and 50% driven by buyout.

And if we think ahead, I mean, in the underlying portfolio at the moment, we continue to see strong performance, strong development and not at this point yet, at least any kind of slowing down. What can, of course, influence is in the areas where you have peer group valuations if the stock markets continue extremely volatile. But I would say the underlying performance looks good at the moment. And when we talk about our real asset strategies, it's more cash flow-based valuations, so expect less volatility there.

Yes, that's true. The volatile market environment, of course, impacts fair value changes, not directly, but indirectly also our fund investments.

Yes. A couple of more for me, Sauli from Inderes. About your open-ended funds, considering the fact that a lot of LPs are kind of restrained with their liquidity at the moment and you happen to have semi-open-end funds. Have you seen any interest from LPs to liquidate their holdings?

No, actually not. So I think, over the past 3 years or so, I think we have a total redemption of something like EUR 30 million, and we have close to EUR 3 billion -- EUR 2 billion in those funds. So no, it's institutional investors who are very steady and kind of investing over the time. So I mean, we've seen a net capital inflow also to our real estate open-ended funds during now the last year or so and don't see any expectations that there would be significant redemptions rather in the other direction. So it's -- they are all continue to be open. They have good liquidity. There's also been transactions and exits in many of the funds. So the liquidity is there if there would be they will, but they performed well. So we see more inflow than outflow.

Then about the fundraise of the Forest Fund IV. I mean, I was kind of surprised that also that the market uncertainty also delays that since I mean, if I have understood correctly, forest is a subsector where there is still fairly strong demand and there is no overallocation or overcommitment kind of the opposite, if I have understood correctly. So can you open this up a bit like why also forest real estate is kind of an obvious one here, why there is a lag?

That's a good question to clarify, because actually, we don't see delays in the forest fund. It has just now started their fundraising. So actually, a first close and the second part of the year would be very good in that fund, and we see good interest. That said, the asset class is very stable and attractive in this market, but the overall uncertainty still impacts decision-making at LPs at large. So that might delay it even if the asset class is super attractive. But at the moment, we see really good momentum in that fund.

Okay. Then finally, about the Midstar arrangement, you invested some EUR 15 million on that. How we should look at the fairly sizable investment to the hotel fund? Should we look at that it's permanent, so to speak? Or would it be rational capital allocation from your point of view, at some point to, I guess, liquidate is the right word for the holdings since you're kind of -- the allocation is fairly large from your part. That's what I'm asking.

It is very large. At the same time, it was a really large transaction that the team managed to push through. And it's not meant to be a long-term investment. It's a bridge, but that was needed also to show our commitment in this transaction. And then, when the fundraising continues in the fund, we'll see what the right point is to redeem it from that.

Not, exactly. And that's a super example of how we use our balance sheet to support the growth of our Finnish generating business. But like Pia mentioned, no, it's not a perpetual investment once fundraising advances that EUR 15 million. But I'm not going to give sort of a timeline on that, of course, but we're not looking to sort of hold that as the sort of strategic level, what we want to see in that exposure.

Thank you. Let's move over to the audience online. Is CapMan's strategic focus on infrastructure and real estate still justified given the seemingly low risk-adjusted returns?

It's definitely justified, and that's real asset strategies is where our strategic focus and the growth focus is Real Estate, Infra and Natural Capital. And here, for example, in Real Estate, good to remember that we do a mix of what we call value-added strategies where really the return profile is more comparable to private equity. So very strong returns in that one, also, of course, coming with a higher risk level and then have less or kind of -- yes, less on these income strategies where the return levels are lower. It's still an attractive diversification for investors with that kind of stable return levels. Same goes for infrastructure that we do some of the kind of more higher return strategy that we have in our infrastructure focus. So again, there, very attractive returns for investors looking for that segment. So we are not in the really core low return segments in Infra either. And in forest investments, we've been doing what we also publicly stated about 10% net IRR across the years. So also there attractive in this market.

And how credible are CapMan's communicated return expectations for its funds when the current portfolio does not appear to support them?

The current portfolio is, like I said, 90% of our funds that are in value creation are above their carried interest hurdle. And I think, it's I don't remember, but it's a clear majority that is also above their stated target returns. So it is actually supporting the targets that we have communicated to our investors. But good to remember is that when you look at the fair value changes in our balance sheet investments, it's not the same as the average of our returns in our funds, because our balance sheet investments varies between different funds. And there are some funds where we have more exposure, some where we have less. So you cannot take that change one-on-one into how the funds are performing with fund performance, very solid. And I think both Midstar and the Wealth example now from last year, growth hitting hard cap on their strategy, that's demonstrating that we are meeting the return expectations of the investors.

Thank you. And that was the last question. So thank you very much, and we wish you all a very nice day. Thank you.

Thank you.