CapMan Oyj (CAPMAN) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation of CapMan's Half Year Report 2025. My name is Charlotte Wessman, Head of Communications. Presenting today, we have Pia Kall, CEO of CapMan. And after the presentation, we will have a Q&A session. You can send in questions any time during the presentation in English using the chat box in the webcast link. So please, Pia, and I hand over to you.

Thank you, Charlotte, and welcome also from my side. During the first half of 2025, we continued to execute on our strategy, and we focus even more on real assets. In March, our Hotels II Fund acquired Midstar's portfolio of 28 hotels across Sweden, Denmark, Norway, one of the largest transaction of its kind in the region, and it also added EUR 400 million of assets under management to CapMan, doubling the size of the fund. In June, we announced and now in July closed an acquisition of CAERUS Debt Investments, a German leading real estate debt manager with focus on the DACH and Benelux region. And with this we form a new investment area, Real Asset Debt, that further strengthens our focus on real assets. And this will, in the third quarter, add some EUR 700 million of assets under management to CapMan. We will towards the end of the presentation, take a deep dive into CAERUS and the market that we have now entering there. But before that, a look at the key financials for the first half year. On the financial side, we continue to solidly develop and progress on our growth strategy. Assets under management at EUR 6.5 billion at the end of the first half, this is still excluding CAERUS, an 8% growth from the beginning of the year. Revenue, EUR 27.1 million, slightly down from last year, which is due to that we had no significant carried interest during this year -- first half of the year, but several exit processes ongoing where we expect exit over the next 6 to 12 months. Comparable EBIT, EUR 10.6 million, fairly in line with last year, but the change in the mix where we, this year, have very strong fair value development, and as I said, no carried interest contributing. We continue to further our vision to become the most responsible private asset company in the Nordics. With the investments we do, the value creation we do in our assets, we are today building the society we want to see in the future. As a responsible investor and owner, we are creating value for our investors, but also for the society. Our real assets now standing at EUR 4.9 billion of assets under management, real estate being the largest one where we are developing human-centric, sustainable real estate. At the moment, an owner in 257 properties across the Nordics. In infrastructure, investing across energy, transportation and telecom sectors being part of the green transition with a portfolio today of 11 portfolio companies. Within natural capital, investing across Europe, invested today in eight European countries with a portfolio of 240,000 hectares of land where we invest in biological growth, climate change mitigation. In private equity and wealth, across our specialized private equity strategies, we are supporting small midsized companies to grow and develop. At the moment, 39 portfolio companies with close to 11,000 employees. When we look at the value drivers in our business from the asset management business, it's really fee profit and it carries interest when we realize exits from our funds, and from our balance sheet investments, investment returns, and we also use the balance sheet to support our asset management by investing in our own funds. Key financials looking through these value drivers, fee profit, EUR 2.8 million, down from last year. But if we take a longer perspective, a continued strong growth of, on average, 22% per year annually for the last 3 years. Carried interest, EUR 0.2 million, no significant exits that would have generated carry during the first half of the year. It is volatile by nature depending on when the exits happen. And if we look at the last 3 years, on average, EUR 4.3 million per year. Investment returns EUR 7.6 million. Fair value uplift in the first half of the year, 4.3% uplift. The fair values of our total portfolio stands at EUR 186 million at the end of the first half. Taking a deeper look at fee income and fee profitability development. Fee income, flat compared to last year. But here, it's good to note that last year, especially in the second quarter, we had several final closings of our funds and with them, the usual retroactive management fees that are recorded in that specific quarter when the final close take place. We had no such final closings this year in the first half. And if we look at the development without these onetime effects, actually see that fee income continues to grow in line with assets under management. Fee profit at EUR 2.8 million, the drop seems larger, but it's actually exactly the same that's impacting there. So it's the first half of the year not having this year any this type of final closing retroactive fees. On the other hand, cost control has remained very strong and good, and we are basically at the same level as last year. So looking at the longer trend, we see that the scalability and fee profit margin development continues on a good track. Our balance sheet at the moment at EUR 238 million, where we have EUR 52 million of cash and other short-term financial assets, giving us a very strong liquidity to support the business in also a more turbulent market environment. Our investment portfolio in private asset funds stands at EUR 186 million with outstanding commitments of some EUR 60 million. It's well diversified, and as we will see exit starts to realize, we expect a significant positive cash flow from the portfolio over the coming years. Looking at the value development in the balance sheet, it is a long-term business where we can have quite large variations, especially between quarters, but also between years. For the first half year this year, EUR 7.6 million of positive fair value development. And here, good to note that our own funds contributed EUR 8.8 million or 6.4%, and we had a positive fair value development across all of our investment areas, significantly stronger than last year. When we then add up the earnings components for our EBIT, fee profit, EUR 2.8 billion. As noted, no significant carried interest this year, but strong fair value changes takes us to EUR 10.6 million, very close to last year's EUR 11 million. On the balance sheet, it continues to be very strong with very strong and good liquidity, equity ratio above 60%, EUR 52 million of cash and other short-term financial assets. With this strong liquidity, we can support growth of our asset management business and also decrease interest-bearing debt while keeping up a strong dividend distribution, and it gives us financial stability also in more uncertain market conditions. And from that, moving to the more longer-term development and starting with the overall market. No significant changes compared to the situation before summer. In the first quarter of the year, we saw transaction activity pick up, and that gave some positive signs that also the fundraising market could start to pick up, but during the second quarter, with the U.S. tariff announcement and in general, the more increased geopolitical uncertainty, we see that the transaction market is again slowing down or has slowed down. And with that, also the fundraising market continues to be challenging. Limited amount of exits in the market means limited distributions to fund the investors and them easily postponing their decisions. So continue to see longer fundraising processes. That said, in the midterm and the long term, we see this as a very attractive market. It is a growth market with strong fundamentals, and we are well positioned in our own niche of real assets. And we continue to implement our growth strategy systematically across the board. Strategic objective to reach EUR 10 billion of assets under management, and we're driving it through our CapMan WINS strategic programs: Winning team, Investors' choice, Nimble operations and Sustainable. Here, one thing to highlight, Winning team, where we are striving to build the best teams in the industry and also offer our people the best opportunities to develop and thrive. During the first half of the year, we have completed several strategic recruitments and also promotions within Natural Capital, where the new Managing Partner will start now during the fall, within Fund Investor Relations and Sales, where we have senior professionals from the industry joining based in London, and within Real Estate, we have strengthened our asset management organization across countries both with promotions and with recruitments, making sure we are even closer than before to our assets and then able to drive value creation in our properties. Looking at our growth ambition to reach EUR 10 billion of assets under management. It is coming from scaling our real asset investment funds, launching new products and targeted acquisitions. Already during the first half or year-to-date, the Hotels II scaling of that fund with the Midstar acquisition, adding EUR 400 million of AUM, now the completed partnership with CAERUS that will add some EUR 700 million, contributing to this growth objective. In addition, our flagship fundraisings, Nordic Real Estate IV, European Forest Fund IV, are progressing, and we see strong interest from investors, target still to have a first close in these during this second half of the year. Also in our income-focused real estate open-ended funds, we see increased activity and dialogue with investors interested in these strategies. And if we look at the numbers for the first half of the year, we have raised a total of EUR 500 million of new capital primarily into our real estate products. It's a testament too that our real estate products are strong performing also in a more challenging market environment. We continue to see good interest from international institutional investors and the balance of roughly half of our assets under management coming from Nordic institutional investors and the other half from Central European, North American investors likely to continue with even more in the future coming from international ones. In our funds, strong performance across all investment areas. We have good investment capacity or dry powder to deploy into new investments, five new investments completed during the first half of the year, in addition to the Midstar acquisition in the hotels fund, logistics in Sweden into real estate and also residential in Denmark. In addition, our Special Situations fund completed a new platform investment into residential care in Finland, and our credit strategy, Nest, also did one new investment. During the first half of the year, we had no platform exit from the portfolio, but several exit processes are ongoing, quite significant ones as well. And already now in July and August, we have signed and announced one exit from the Buyout XI fund and one from the Growth II fund and expect several further exits over the next 6 to 12 months. When it comes to value creation, sustainability continues to be one key element of how we drive value in our assets across our five material teams. Here for the first half, wanting to highlight climate action based in science. During spring, real estate achieved a Science Based Targets initiative validation for their net zero climate targets in line with the Buildings criteria. There, we're one of the first companies globally to achieve this validation. In addition, the share of portfolio companies that have their own SBTi target set is continuing to increase, 17% of the portfolio at the moment where we had two buyout companies getting their targets validated in the first quarter. During spring, we also published our Investment Sustainability Report, where it's easy to see more details across all of these five themes in each of the investment areas and the progress that's been made there. Our long-term financial objectives remain unchanged, targeting growth above 15% with a very strong balance sheet and a distribution policy with sustainable distributions that grow over time. And for the outlook estimate for 2025, it remains unchanged. We estimate assets under management to grow compared to last year and likewise, estimate fee profit to also grow compared to last year. And here, we conclude the financial part of this webcast, and I would like to ask Michael Morgenroth, the CEO and Founder of CAERUS, to join me here on stage, and we will take you through a bit more details around what CAERUS is and what this partnership means. Great to have you here, Michael.

Hello. Welcome.

And really happy to be able to announce this partnership and I'll start with going through a couple of highlights from CapMan's perspective before I let Michael go into the details about CAERUS and the market that we are now entering together. So at the end of July, we closed the transaction where CapMan acquired majority of CAERUS Debt Investments, and Michael retaining 49% ownership in the business. So really a partnership. With this transaction, we are establishing a new investment area for CapMan, Real Asset Debt. It's an investment area that complements our real asset-focused strategies. So it's complementing real estate, infrastructure, natural capital, equity strategies that we have, giving us now an entry into a well-established, growing market of real asset debt. CAERUS, on the other hand, is for us the perfect partner for this, a leading, one of the pioneers in the German market when it comes to real estate debt and with a long -- with this long presence, also what impressed us was very strong, sustainable track record over the cycles. For us, also from a CapMan perspective, and jointly, it is adding now some EUR 700 million of assets under management, but it is a large, attractive market where we see continued growth together. But Michael, if you take us through a bit more of what CAERUS is and your history?

Sure. Well, CAERUS has been founded back in 2012. We are concentrating on Continental Europe with a focus on the DACH and Benelux region. We have been a pioneer in the German market. Back in 2012, real asset debt was not an established asset class, what it is today. So we have come the route to a Luxembourg structure with seven funds raised so far, EUR 2.6 million raised from institutional investors. And as said, the focus is Continental European. So the reason to look for a partnership was to also expand to the Nordics. We have an experienced team of 12 professionals. The Management Board, Bernhard Berg, Peter Anthuber and Matthias Thomas, as responsible for business development. We have been working on the institutional investor side for many, many years. So we know the needs of institutional investors firsthand, and that's probably something which differentiates us from some of our competitors. The real estate debt market, in our opinion and not only in our opinion, is really a growth market and a growth story, which has been strongly demonstrated over the last 10, 12 years. As said, in 2012 when we started, it was a bit like missioning and convincing investors of the benefits of this asset class. In the meantime, it has been developed as an established asset class in institutional allocations. And nevertheless of the developments in the markets in the last few years, I think the polls show a really strong sign from the investor demand as 88% of investors are expected to maintain or increase allocations, which is especially interesting given the fact that a lot of investors have real estate allocations which are on the top levels, which is a consequence of investing in real estate debt as a substitute for bond investments during the low interest environment. The reason why institutional investors are staying to the asset class is what I think the multiple key attractions what the asset class offers which is risk-adjusted returns, which are kind of defensive way to invest in real estate because you have the equity buffer as cushion, you have low correlations with traditional asset classes like equities and government bonds, and you have a stable and reliable income, which is, for institutional investors, one of the most important issues. So for them, it's normally a low volatile strategy. If you are concentrating what we have been done for the last few years on whole loans, which are first ranked secured. That gives you the opportunity to stay in the driver seat even if market conditions are getting tough, so what we have seen in the mezzanine market recently. So -- and the reason why we thought it's good to have a strategic partnership now because normally you would say, it's not the best point in time to sell a stake in your company now. We believe in really big growth in the upcoming years that should be really interesting vintage years for real estate debt for investors. So CapMan, in our view, offered the opportunity to broaden our investor base, which is so far mainly German-based. CapMan also brings for us on the table real estate management capabilities, which gets more and more interesting in terms of renewing assets in terms of ESG and sustainability. And in that case, that's somehow typically for Nordic players and they are much more advanced in sustainability issues like ESG, where we think we can really profit from that knowledge as well as investors are really looking -- still looking to have some improvements on that side. So that have been our thoughts in getting into that partnership.

And it complements very well how we are looking at it also from the CapMan side. So for us, really fitting very strongly with our strategy to continue to focus on real assets and adding an asset class that we were actually missing and a product range that we were missing within real asset debt. And I think we felt from the start of the discussions also a very strong cultural fit between the teams and with the CAERUS team continuing to drive the real estate debt and the real asset debt investment area, important that, that fit is there, but also as we view it, one of the strongest team in the Central European market. It obviously supports our growth objective to reach EUR 10 billion of assets under management, but it also gives interesting opportunities if we look at the midterm, long term with geographic expansion where we can complement not only on the LP side or on the investor side, but also geographically supporting CAERUS towards the Nordics, but then also over time, offering a stepping stone potentially for some of our equity-focused investment areas into Central Europe. So really a win-win from both sides. I'm really looking forward to drive it forward.

Same for us.

CAERUS will be the core of this new investment area, Real Asset Debt, and will operate the same way as our other investment areas. So really the same team continuing to drive the investment operations independently getting the support from our platform expert services and also from our balance sheet then in new fund raisings. And as I said, strongly aligned with our growth strategy and our focus on real assets now adding EUR 700 million in an interesting, growing segment of the market. And aligned with how we have also communicated that we are driving growth, scaling real assets, launching new products and this targeted type of acquisitions or partnerships. Strong complement to what we have in the portfolio at the moment. And with that, I think we are ready to open up for Q&A, and Charlotte and Atte also joining us for questions.

Thank you very much. Now we also have Atte Rissanen on stage, CFO of CapMan. So let's start with questions from the audience.

Sauli Vilen from Inderes. A couple of questions regarding CAERUS. When was your latest fundraising for the fund?

Our latest fundraising was back in 2018.

And then we're currently fundraising.

Yes. And now we are raising a new fund. The reason why we didn't raise in between was COVID at one hand and on the other hand, we had still dry powder to invest. So there was no need to fund raise.

How large was the latest fund back in 2018?

EUR 150 million.

Then about the like, you could say, maturity of your funds, how much of the 700 -- the AUM of EUR 700 million will -- you will repay back to investors, let's say, in next 3 years or so, for example? Just trying to understand like how sticky the AUM is what you got there.

I would say roughly 75% of that.

But then with that said, good to understand the dynamic is different from our equity strategies. So the length of these funds are at least 5 years or more kind of forward. And in these funds, you can recycle the capital several times. So it's not -- even if it's returned, it can also be reinvested and there's some EUR 300 million of dry powder at the moment that's not part of that EUR 700 million that can also be invested in addition. So it's cycling much faster than our equity funds basically.

But is it also like more sticky in that sense that even though it recycles, it still stays under the management?

Yes.

Okay, okay. That's good. What kind of size of the fund are you planning to raise at the moment?

The new one will have a size of EUR 500 million target.

Okay. Then about the cross-selling potential, I'm not sure who will take the question, but I mean how do you see like the Central European market? Like can you help CapMan with their equity products, products there in the real estate space?

Well, yes, I think we have very well -- very good connections to institutional investors. So that's definitely one of the targets to help each other in cross-selling. And I think the product CapMan is offering are really well positioned to find interest of institutional investors.

And it goes both ways actually. So there is a complement when it comes to broadening LP base. So the institutional investors CAERUS have, some of them are known to us, some of them are new, but then also the other way around, we have a more diversified LP base, so supporting CAERUS fundraising there when we join forces. But also when it comes to products and geographical scope, this complementing us having a strong presence in the Nordic market in real estate, being able there to support Michael's team, and then on the other hand, as I said, a stepping stone potentially over time to expand, but then we're talking more midterm when it comes to the equity strategies.

Michael mentioned in the presentation that you were maybe planning to expand to Nordics and CapMan was obviously a platform on that. What kind of expansion are you talking about? Just trying to sell for the Nordic investors? Or what was your original plan for the Nordic expansion?

No, it's both. We already got a lot of financing requests from the Nordics in the years before, but we always think it's more reliable to have special knowledge on the ground, which we hadn't before. Now we got access to really Nordic expertise, which will help us definitely to get the business much more improved in the Nordics, and that goes both ways, investors and deployment.

Okay. That's clear. Then finally, about your track record, you have been doing this like over a decade now. So what kind of IRRs have you been able to produce with your funds?

Well, the bulk of funds had strategies with whole loan deployment, and the results have been also in the low interest environment, normally in the range 400 plus.

But I think it's fair to say that it's above the target returns that you have promised to your investors. So it varies between funds, but they are all of them basically above target returns. So returning to investors what they wanted in a way.

Yes. It's good to note that with credit strategies, it's more about sticking to the strategy, delivering what you promise, then hitting for the high risk, high reward cases and thereby achieving alpha in that case. The consistency is the key in the credit, and I think CAERUS has exhibited that very well.

And the consequence of being very selective and maybe driven by conviction instead of just fee income was that we have been very reluctant in the last 3 years also before interest rates changed. So for example, in 2021, we have only done EUR 30 million new business because we weren't convinced that the risk return relation is favorable towards lenders. So that's one of the reasons why AUMs got down, which has been close to EUR 2 billion before, and it's a cycle. We have advised investors not to invest. We have been criticized for that sometimes. Now they are happy, but they are constrained by other issues. But now we can really recommend to invest because now the risks are not out totally, but the risk return relation and the returns which are offered by raising debt are really attractive compared to other asset classes.