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 strong return of 10.7% for the FA share class during the fourth quarter and a return of 18.3% for 2021. With this last quarter of the year, the GIP completed a four year track record with an annualized return of 4.2% since inception.
The GIP continued its good performance from the previous quarter, as the fourth quarter of 2021 recorded the GIP’s best return since its inception in 2018. The GIP’s private markets investments were the largest contributors to this performance, a result of a more fully invested portfolio and portfolio companies starting to reflect their underlying potential. Detailed performance information is presented below. The GIP investment team is confident that the current portfolio is well positioned to marry 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
The GIP continued its mission to pool capital and scale impact on behalf of its participants during the last quarter of 2021. Assets under management grew to €147 million at the end of 2021, the increase of 17 million over the quarter can be attributed to inflows and valuation uplifts across the GIP portfolio. The GIP management team developed a very promising pipeline of new investments and has been able to commit a significant amount of capital in the second half of 2021. In the fourth 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 of 2021, 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.
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 again showed good developments during the quarter. One of the major solutions for the eradication of poverty is the development of stable and well-paid jobs in local communities. SME business make up the vast majority of worldwide businesses and therefore are essential in providing employment opportunities. Especially in Emerging Markets, however, the development of SME businesses is often hindered by weak institutional systems, high banking (transaction) fees or sometimes even a lack of access to (basic) financial services. This lack of financial inclusion is highly problematic; it is estimated that about one-third of all worldwide adults do not have access to basic financial figures. On a country or regional basis, this percentage can be even more inflated with e.g., a lack of financial inclusion of over 50% in Indonesia, around 20% in India and on average more than 20% in Africa. An investment opportunity which can lower this financing gap for lower income segments is investing in Financial Technology (fintech). Fintech can reach the companies or self-employed individuals that have no access to formal financial services and struggle to receive a credit or gain access to business finance.
Currently, a significant part of the GIP's investments within the SME development and decent work theme focus on investments in 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 have experienced impressive growth during 2021. 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 during 2021, 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. Lula Lend, a South African company providing lending and credit facilities for South African SMEs, 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 providing working capital to smallholder farmers in developing countries. While investments from this partner were challenged during the pandemic, with severe disruption in the agricultural supply chain, most headwinds are starting to fade. This bodes well for the disbursement of loans and thus the impact targeted with this partner. In 2021, $90 million of impactful loans were disbursed, with several new entities being added to the list of investees.
With its investments within the Climate and energy transition theme, the GIP contributes to the transition to more sustainable energy sources. During the quarter, one of the investment partners of the GIP exposed to this theme again made good progress with the development of wind farms and solar energy parks. This will add a significant amount of sustainable capacity to the energy network for the foreseeable future. The impact case on the following page covers the onshore project Ciekocinko, which became operational in 2021. Furthermore, capital was drawn for a new partnership with one of the existing investment partners within this theme. The investments within this new partnership will increase the exposure of the GIP towards the Climate and Energy theme by making investments in European wind farms and solar power plants.