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 1.9% for the FA fund class in the second 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 second 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 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 second quarter the GIP continued its mission to pool capital and scale impact on behalf of its participants. Assets under management grew to €123 million at the end of July. The GIP management team has developed a very promising pipeline of new investments in recent months, and expects to commit significant capital before year’s end. After the second quarter, the GIP committed additional capital to a newly launched 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. Furthermore, the GIP expects to commit new capital to a sustainable infrastructure investment partner that will contribute to the Climate and Energy theme.
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 our portfolio companies continued to increase as a result. Our impact partners invested in a number of companies contributing to the SME development and decent work theme. An example of such a company is Verto, a company that offers a fast, simple and reliable way for SMEs to make payments to their suppliers in over 200 countries and across 39 currencies, with a dominant presence in Nigeria. SME B2B cross border payment remains a significantly underserved market with multiple pain points including visibility, traceability, speed, and cost.
One of the GIP's investment partners within the Circular economy theme focuses on early stage companies that promote responsible production and consumption. Vericool is a leading innovator in thermal and cushioning packaging products, with the goal of providing an alternative to Styrofoam, a large contributor to the world’s waste problem. The company is developing well and sales are improving while costs are being reduced. Another company in GIP’s portfolio is ThinkIQ. This company aims to make manufacturing processes more efficient by using data or AI to optimize existing processes. This ultimately reduces waste and increases the yield from production processes.
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. During the quarter a relatively small onshore wind project in Poland was commissioned, adding 12MW of capacity to the grid. A recently appointed investment partner has a clear focus on energy efficiency and invests in solutions that enable more efficient use of energy resources. One such company is Nordomatic, which is featured as this quarter’s Impact case.
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Luxembourg. Kempen Capital Management N.V. (KCM) is the management company of the Fund. KCM is authorized as a management company and regulated by the Dutch regulator Autoriteit Financiële Markten. The Sub-Fund is registered under the license of KCM at the Autoriteit Financiële Markten and not subject to Luxembourg supervision. The shares of the Sub-Fund are admitted for (public) offering in the Netherlands, the UK, France and Switzerland. The information in this document provides insufficient information for an investment decision. Please read the Key Investor Document (only for the Netherlands) and the prospectus. These documents of the Fund are available on the website of KCM (www.kcm.nl).
The Sub-Fund may have investments in financial instruments mentioned in this document and it may at any time decide to execute buy or sell transactions in these financial instruments. The views expressed in this document may be subject to change at any given time, without prior notice. The information in this document not intended and should not be considered as research, an investment recommendation or as an offer and provides insufficient information for an investment decision.
Although the contents of this document have been compiled with the utmost care, and are based on reliable sources of information, no guarantee or warranty is given and no liability is accepted, express or implied, regarding the completeness or accuracy of the contents.