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Private Markets Quarterly Investor Letter

third quarter Portfolio Activities

After the registration rounds in May and June, we laid the foundations for the portfolio. In the third quarter, we used part of the committed capital to add to five of our existing investments: Westbridge (UK Buyout), Steadfast (DACH Buyout), J.P. Morgan IIF Global (Infrastructure), Craigmore (Land) and Clarion Gables (Real Estate). The distinct advantage of these additional allocations is that the money can be ‘put to work’ relatively quickly, and the guarantee that these positions remain appropriately proportionate within a growing portfolio. In addition, we made two direct investments in the third quarter [1]. In September, we took a direct share in the UK healthcare services company AJM Healthcare Limited, a logistics and maintenance services provider for mobility aids. This participation is a co-investment in partnership with WestBridge Capital. We also issued a commitment in September for a direct investment in a wind farm in Bäckhammar in Sweden. This participation was completed in mid-October and is a co-investment with KGAL Investment Management, specialists in renewable energy investments. The advantage of these direct investments is that the capital is put to work directly, so that these investments can contribute to the result of the portfolio relatively quickly. In addition, we pay no management fees on these direct investments to the General Partner (GP), which can benefit the expected return.

Most investments are valued at cost price for the first 12 months, and therefore the fund’s reported return is still premature. The fund’s return over the third quarter was -0.5% which is mostly attributable to a negative currency effect and cost charges. Due to the long term investment horizon of the investments in the Private Markets Fund, the real return potential will only be visible within a few years. As we also invest in open-ended funds, a substantial part of the pledged capital is invested immediately. The percentage of invested capital, in relation to committed capital, is expected to rise even further in subsequent quarters as we expect our GPs/Operators to make various new investments in the short term.

In the overview below, we show the portfolio at the end of September 2018 based on the committed capital. At present, we are committing more capital to private equity as it takes more time before the capital is fully requested by the underlying GPs. In terms of requested operating capital, the percentage in private equity is still relatively small.

€58 MILLION IN COMMITTED CAPITAL 

As at September 2018

Source: Kempen Capital management, 30 September 2018

material developments in underlying investments

Ciclad (Ciclad VI) completed three new investments in the third quarter, bringing them to a total of five investments, together worth over €25 million. A sixth investment has been announced for the next quarter, after which the fund will have invested approximately 25% of the total capital. We are positive about Ciclad’s investment pace and the prospects of their new investments, which are spread across various sectors.

Forbion (Forbion Capital Fund IV) had its final closing in September on €360 million, also the fund’s maximum capacity). Forbion announced the first transaction in their fund, a series A funding round in Gotham Therapeutics, a recently established biotech company that focuses on new treatment methods for cancer, autoimmune diseases and neurodegenerative disorders. Headquartered in the US, Gotham Therapeutics carries out most of its R & D activities in Munich, Germany.

Steadfast (Steadfast Capital Fund IV) held its second closing in the third quarter and expects to hold its third and final closing before the end of the year. The first investment its fund IV is also expected in the coming quarter.

Westbridge (WestBridge SME Fund II) also expects a final closing of its fund before the end of the year. In September, Westbridge completed its first fund investment in AJM Healthcare, in partnership with the Kempen Private Markets Fund.

JPMorgan (JPMorgan Global Infrastructure Investment Fund) invested in the American Blackwater Midstream: a chemical and agricultural bulk goods storage company with 2.4 million barrels of storage capacity spread over three terminals in the south of the US. In addition, various expansion investments were made by the platform companies that are part of the JPMorgan portfolio.

Craigmore (Craigmore Permanent Crop Partnership) did not make any new transactions. There are agreements for a few transactions aimed at apple and kiwi fruit orchards, that are subject to final approval at the OIO (Overseas Investment Office). The manager is working towards a final closing of the fund in December 2018.

Clarion Gables (Clarion Gables Multifamily Trust) sold two apartment buildings in Dallas and Houston, but also started developing new buildings in Houston. These transactions illustrate Clarion Gables’ strategy to maintain a young portfolio that meets the current needs of the higher rental segment in the US. The total development portfolio comprises eleven apartment buildings, consisting of 2400 homes with a total development budget of USD 1 billion.

OUTLOOK

Within all Private Markets investment categories, we are actively exploring new investment opportunities to further broaden the portfolio. In Private Equity we are looking at all of our target regions: Benelux, DACH region (Germany, Switzerland and Austria), France, Scandinavia and the UK and explore opportunities within the Late Stage Venture/Growth Capital segment. We are also seeing interesting direct (co-)investments and secondary participations that we are including in our considerations.

Within Infrastructure, we are intending to add a complementary value-add GP to the J.P. Morgan Infrastructure Investment Fund, which has a core-plus profile. We still see excellent opportunities in , smart metering and the development of water technology, for example. Unlike core GPs, value-add GPs have a more future-oriented approach, such as focusing on the infrastructure of the future. As a result, they can potentially benefit more from long-term trends and transitions, such as in the area of sustainable energy and the increase in data traffic.

Within Land we have now made further progress in developing various investment options and are currently looking into a number of US opportunities in particular that could add geographic as well as crop diversification to our portfolio. We expect to be able to complete an additional investment in the coming quarters.

Within Real Estate we have expanded in the niche sector of student housing. We are positive about the investment case and are currently evaluating various GPs/Operators. We note a sharp increase in demand for purpose-built student accommodation, where we observe some European and Asian countries following the earlier trend from the US and UK.



[1] The commitments were given in the third quarter. The deals were closed in September (AJM Healthcare) and October (Bäckhammar).

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2018, 15 November

Private Markets - Quarterly Investor Letter

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Disclaimer

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.

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.

 

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