Global Impact Pool Quarterly Investor Letter
Specifically, we aim to address the following impact themes:
- Basic needs & well-being: the provision of basic goods & services for the underserved including water and health & wellbeing;
- SME development & decent work: creating decent jobs with fair employment practices to eradicate poverty;
- Circular economy: Support sustainable consumption and production aimed at doing more and better with less, and;
- Climate & energy: Contribute to abundant clean energy and reduction of CO₂ emissions.
Bearing in mind our mission, there is also the explicit target to generate a market rate financial return.
The Kempen Global Impact Pool (GIP) achieved a return of 6.0% for the FA fund class in the third quarter of 2021.
The GIP entered its fourth year of existence in 2021 and the investment partners, appointed by the GIP for making impactful investments, have taken good steps investing the capital committed by the GIP. Since its inception, the GIP has neutralized the so-called J-Curve effect* by investing in an impactful basket of green bonds, pending the call of committed capital by our investment partners. This has largely prevented a negative return since inception. GIP's returns are expected to better reflect the value development of underlying investments in the coming years, as the portfolio companies continue to develop, and holdings are sold profitably. The third quarter of 2021 marked the best quarter in terms of performance since the GIP’s inception. The GIP’s private markets investments were the largest contributor to this performance, a result of a more fully invested portfolio and portfolio companies starting to reflect their underlying potential. The GIP investment team is confident that the current portfolio is well positioned to benefit from impactful investments with solid financial returns.
- a J-Curve effect occurs in private markets (Private equity, infrastructure, etc.) funds where the cash flow is negative in the first years due to investments and fund costs, after which the cash flow is positive in the second half of the term of the fund due to distributions and divestments of interests
Over the course of the third quarter the GIP continued its mission to pool capital and scale impact on behalf of its participants. Assets under management grew to €130 million at the end of September. The GIP management team developed a very promising pipeline of new investments and has been able to commit significant capital in the second half of 2021. As mentioned in the second quarter update, the GIP committed additional capital to a new fund by GIP’s investment partner for early stage investments in fintech companies that fuel financial inclusion in underserved, emerging markets. The investment will strengthen the GIP’s exposure to the impact theme of SME development and decent growth. In the third quarter the GIP also committed new capital to its investment partner focusing on investments in sustainable infrastructure, increasing its exposure to the energy transition impact theme. Finally, in the fourth quarter, the Pool committed capital to an Indian asset manager, specializing in reducing the financial inclusion gap in India through the provision of loans to underserved households or SME’s. This investment will be discussed in more detail in the fourth quarter update.
The overview below provides a brief summary of the most important developments in the portfolio this quarter per Impact theme.
Investments within the theme of SME development and decent work developed well this quarter. A significant part of the GIP's investments within this theme focus on (digitized) financial services (fintech) in developing countries. Financial inclusion is an important goal in itself, but also in achieving other SDGs such as no poverty, zero hunger and innovation. It is has become evident that the COVID pandemic has accelerated the trend of digitization. In particular, in financial services and e-commerce, a large number of GIP’s portfolio companies are benefitting from this trend and are experiencing impressive growth. The number of underserved people reached through the GIP’s portfolio companies continued to increase as a result. Zepz (formerly known as WorldRemit), the company enabling cross-border payments at low fees, performed extremely well in the third quarter as it raised new equity capital at a premium valuation, adding significantly to the returns of the GIP. Furthermore, several follow-on investments were made in fintech start-up companies, all reflecting good performance and higher valuations. Ula, the Indonesian company focused on empowering small store owners across Southeast Asia through digital commerce & fintech capabilities, was one of the companies to receive additional capital to further expand its business.
One of the GIP's investment partners within the Circular economy theme focuses on early stage companies that promote responsible production and consumption. One particular investment by this investment partner is a company called For Days, a zero-waste circular fashion brand. 100% of For Days products are recyclable. They plan and design for the end of a product’s life at the beginning to make sure what is returned to them can go into future products. Please refer to our Impact Case for this quarter to read more about For Days’ contribution to a more circular fashion industry.
With its investments within the Climate and energy transition theme, the GIP contributes to the transition to more sustainable energy sources. During the quarter, an investment partner of the GIP made good progress with the development of wind farms and solar energy parks, which will add sustainable capacity to the energy network in the foreseeable future. One of the most exciting investments in our portfolio within this impact theme is the investment in ZeroAvia. ZeroAvia is producing the world's first commercial, zero-emission aviation powertrain. Initially targeting 20-seat airplanes, ZeroAvia’s hydrogen electric powertrain is designed to be retrofit into existing aircraft. The company recently announced partnerships with Alaska and United Airlines to support the company’s mission to replace dirty jet fuel with clean hydrogen power, validating the progress the company has made since its start.