Our goal: to return CapMan to a growth path in 2013
A competitive market ripe with opportunities
The private equity industry encountered its fair share of challenges in 2012. Competitive fundraising conditions in particular impacted CapMan’s operations. There were a record number of funds in the market at year end, and the success rate of funds achieving final close has been the lowest in years. The exit market remained subdued, delaying capital returns to investors which in turn encumbered investors’ ability to make commitments to new funds. Despite a difficult market, we were successful in achieving the first close of our tenth buyout fund. M&A activity picked up during the last quarter of 2012 especially in the Nordic countries, and several industries show signs of growth. The Russian economy also remained on a growth track and our successful operations in Russia reflect this optimism.
The Nordic countries have fared the sovereign debt crisis better compared to the rest of Europe. While financing for transactions was generally available, small and mid-sized businesses experienced difficulties in obtaining bank financing during 2012 due to tightened lending terms of banks. The restrictions in obtaining bank financing enhanced the role of private equity investors as supporters of growth companies. Changes in the regulatory environment provide opportunities for a player like CapMan, which has access to a broad network of investors. While stricter regulations guide the investment allocations of banks and insurance companies, private equity has historically provided better returns compared to the stock market and the asset class plays an important role in supporting return expectations of for example pension funds.
Our strategic overhaul is close to completion
Despite rough conditions, we have consistently executed our strategy, which builds on entrepreneurial investment partnerships. We have continued to improve the teams’ ability to work independently and are completing the business model enhancement process in 2013. A substantial part of the implementation of the strategy is the alignment of compensation with the teams’ achievements. Added business responsibility will provide the investment teams with improved means as well as incentives to maximise the value of their portfolios. Simultaneously, we have implemented significant cost savings at Group level and trimmed operations that do not belong to our core activities. Due to cost savings and new funds under establishment, we expect management fees to cover our operating expenses from the second half of 2013 onwards.
The autonomous investment teams accelerate the creation and offering of new products to investors. As an example the CapMan Credit team provides a foundation for the development of debt financing products beyond mezzanine.
We have incorporated environmental, social and governance issues broadly into our operations, which culminated in our decision to become a signatory of the UN Principles for Responsible Investment (UN PRI). This year, we focus on the integration of responsible investment practices into development and monitoring across all investment partnerships.
The outcome of our efforts often take years to show, which is why our activities should be evaluated over longer cycles than on a quarterly or even annual basis. The dearth of companies going public, the challenging fundraising environment and sophisticated buyers are testaments to the demanding “new normal” of private equity, which CapMan is also a part of. Our net result for 2012 was expected, but not satisfactory. The proposal of the Board of Directors to abstain from paying a dividend is in line with our dividend policy.
New funds play a vital role in 2013
Fundraising for three separate investment partnerships took centre stage in 2012. Fundraising for CapMan Buyout X continues in 2013 and focuses currently on Continental Europe, the United States, the Middle East and Asia, in addition to institutional investors in the Nordics. Fundraising for CapMan Nordic Real Estate and CapMan Russia II funds progresses as well. The establishment of new funds determines the minimum level of our management fees for several years to come, providing a solid foundation for operational planning and growth.
In addition to achieving successful completion of ongoing fundraising rounds, our main objectives for 2013 are improved profitability of the Management Company business and the development of new products. Strong local know-how, excellent investor relationships, and focus on our core business provide a foundation for CapMan to return to a growth track. Value creation at its final stages in several portfolio companies provides opportunities for carried interest as well as capital returns from our own fund investments. Consequently, we expect our 2013 operating income to exceed levels obtained last year.
We appreciate our shareholders and fund investors for demonstrated resilience in an uncertain market. I would also like to extend my warmest gratitude to our employees for their efforts this past year. Together, we are exploring fresh waters.
Interim CEO and CFO
CapMan's Development Programme 2013
Chairman of the Board
”In February 2013, CapMan initiated a growth programme with the objective to return the company to a growth track. Successful fundraising for funds currently in the market constitutes an important foundation for our growth. Balanced results from management fees and improved carried interest income and income from our own fund investments are key components for developing our results in the upcoming years. A low interest rate environment and the awareness of new investor groups for private equity investments provide an opportunity to selectively launch new product areas. The partnership model that we use for our investment activities offers room for growth without deviating from the focus of our existing funds: the generation of healthy returns from investment activities. As part of this programme, we have decided to look for a new CEO, who will support our growth objectives.”