Private Markets Quarterly Investor Letter
Portfolio activities and forecast
We introduced two new partnerships in the first quarter: we invested circa EUR 5 million in both the RMS Evergreen US Forestland Fund and GSA Coral. In the second quarter we doubled both positions to circa EUR 10 million each, so that the allocations are more in line with the allocation to most other partnerships in our portfolio. An additional advantage of both partnerships is that they are both fully invested, so we immediately put capital to work in attractive market segments.
RMS is fully focused on investing in and managing of forests and it has gained extensive experience in this market. RMS focuses on sustainable forestry in the southeast of the United States, the largest commercial forestry region worldwide. The level of timber prices is still relatively low historically, and we expect a positive growth in the demand for timber in this region – in particular due to the arrival of a large number of new, modern sawmills. GSA Coral is one of the global market leaders in the real-estate niche segment of student housing. GSA is active in Europe and Asia and focuses on both more mature and growing markets for student housing investments.
The third investment we have increased in the second quarter is our commitment in Steadfast Capital Fund IV. Steadfast is a German private equity GP that announced no fewer than four new investments this spring. The additional commitment in this exclusive final closing was attractive, as around 40% of Steadfast’s capital will be invested. Further on in this report, you can read about the various investments that Steadfast has completed.
We closed the second quarter with a negative return of -0.9%. We recorded a positive result of +1.1% in the first quarter, bringing the return for the first half of 2019 to +0.2%. The investments in Infrastructure, Land and Real Estate contributed positively to the return in both the first and second quarter. The private equity partnerships are still in the build-up phase: the costs precedes the benefits (called ‘J-curve effect’) and the underlying portfolio companies are still held at cost in the first year. In addition, fluctuations in currency exchange rates had an impact on the return: positive in the first quarter and negative in the second quarter. In general, we see the underlying investments developing positively in the entire portfolio and we expect this to result in a positive return development in the medium term.
Per 30 June 2019
Source: Kempen Capital Management, per 30 June 2019
Most important portfolio developments
Forbion (Forbion Capital Fund IV) announced one new investment in AM Pharma that will be completed in the third quarter. This means the portfolio will soon consist of five investments. This new Dutch investment develops a drug against acute kidney injury.
Ciclad (Ciclad VI) invested in two new businesses: Kyotherm and Bonioni. Ciclad has now completed nine investments and the tenth investment to be completed in the third quarter has already been announced. Around 45% of the capital has now been invested.
Steadfast (Steadfast Capital Fund IV) announced no fewer than four new investments, two of which were completed in the second quarter: Wilvo and Söhngen. The other two investments will be completed in the third quarter. This means that around 40% of the capital will be invested, and part of it will also be set aside for financing add-on acquisitions.
WestBridge (WestBridge SME Fund II) has not completed any new investments in the second quarter. We do see a full pipeline and also good traction at the three portfolio companies that Westbridge invested in.
AJM Healthcare (direct co-investment) won additional long-term contracts that will positively contribute to turnover and profit growth. Together with our British investment partner an independent chairman is appointed at AJM.
J.P. Morgan (J.P. Morgan Infrastructure Investments Fund) has made no new investments, but it did announce a waiting list for new entrants, given the continuing demand for infrastructure investments.
AMP (AMP Global Infrastructure Fund II) has made no new investments in this quarter, but there have been various activities at all four underlying investments.
Project Bäckhammar (direct co-investment) concluded a long-term financing package with DNB, a Norwegian bank. As a result, the project has been capitalised more efficiently and more in line with the market, which has increased the expected return.
Craigmore (Craigmore Permanent Crop Partnership) announced a new investment on Noordereiland, where a meadow is being developed into a kiwi orchard. The OIO (Overseas Investment Office) has now approved the project.
RMS (RMS Evergreen US Forestland Fund) benefited from an increase in timber prices that was influenced by wet weather conditions.
Clarion Gables (Clarion Gables Multifamily Trust) did not complete any new purchases in this quarter. The fund has successfully refinanced part of its loan capital.
GSA (GSA Coral) is working on six new student complexes in Dublin, Barcelona and Bournemouth. The aim is to let as many of the 2550 beds as possible before the start of the semester.
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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 licence 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 Kempen.
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