Good morning, and welcome to CapMan's presentation of our financial results for the first nine months of 2023. My name is Linda Tierala, and I'm Investor Relations and Sustainability Director at CapMan. We will begin this webcast with a presentation by CapMan's CEO, Pia Kåll, after which we welcome questions from the audience. Pia Kåll will answer the questions together with CapMan's CFO, Atte Rissanen. And if you would like to ask a question, please type it in the chat box in this webcast presentation. You may submit your questions in Finnish, Swedish, and English, and you can do so at any time during this presentation. We will answer the questions after Pia Kåll's remarks. And now, I'll hand over to Pia Kåll, who will present the review of the first nine months for 2023, together with our strategic outlook.
Please go ahead, Pia.
Thank you, Linda. Good morning, and welcome also from my behalf. I'm Pia Kåll, CEO of CapMan, and we'll start by going through the financial results and then moving into the strategy implementation highlights. Starting from the financial development, the market remains uncertain, but we have continued to execute on our strategy and achieved good results in several key areas. Our fee profit continues to grow, at 7% growth compared to last year. We continue to attract new capital. We have raised, in total, EUR 255 million of new capital into our funds across investment strategies. Value creation in our funds continues to be positive across all our investment areas. Our work to integrate sustainability in all of our activities is bearing fruit. Our real estate and infrastructure funds got very good scores in the annual GRESB sustainability assessment.
We also, yesterday, came out with an updated distribution policy that supports our strategy to grow assets under management to EUR 10 billion. Taking a look at the key figures, our turnover is now at EUR 45 million. Under that, you can see a very strong growth in management company business and in our CapMan Procurement Services. Despite turnover being roughly flat compared to last year, we have an increased fee profit. We're now at EUR 8.3 million, a 7% growth compared to last year. Assets under management stand at EUR 5 billion, and we continue to have a strong balance sheet and strong liquidity. Shortly on our business and earnings model, so CapMan is a home for specialized, independent investment teams. Our core business is our management company business that spans investments into real estate, infrastructure, private equity, and credit.
We also have a wealth management service and CapMan Procurement Services. From these businesses, we get management fees and service fees, and from the funds that we manage, carried interest when we realize exits. In addition, we invest our balance sheet primarily in our own funds, and in our results, you see the fair value changes from these investments. Starting with the core, so our management company business, where fee income and fee profit constitute the continuous, predictable business. Here, we have a fee income growth over the last three years of 13% annually, and our fee profit, again, at record levels, more than 30% growth over the last three years annually. We also have a stronger contribution from carried interest over the years.
With a stronger fee income and fee profit, also our cash flow continues to be positive, and we are now roughly on double the level where we were a year ago. Looking at turnover and profitability, on the turnover, you see over the last 4 years, basically quarter by quarter growing business. We're now at EUR 45 million, slightly below last year, primarily because we have less carried interest received this year than last year. On EBIT, on profitability, you see larger swings. We are now at EUR 9.5 million, and the swings that you see across the years is mainly driven by fair value changes in our investments, so not cash impacting. Opening up that EBIT in more detail.
So if we start from the left and look at what it constitutes, our management company business, service company business, and related costs to those take us to a fee profit of EUR 8.3 million, a 7% growth compared to last year. We have received EUR 3 million in carried interest this year. That's primarily from exits from our first growth fund that realized in summer. It's slightly below last year, but we have several exit processes ongoing across strategies, and we expect more carried interest over the next 6-12 months. Fee profit and carry taking us then to an EBIT excluding fair value changes of EUR 11.3 million. fair value changes from our investments for the first nine months, slightly negative, EUR 1.8 million.
That's roughly 1% decline in fair value, takes us then to a total EBIT of EUR 9.5 million. Taking a deeper look on the fair value changes , what's important here is that our own funds have a positive contribution, and all our investment areas have contributed with a positive fair value for the first 9 months. What's driving the total to negative is our investments into external funds, primarily venture capital funds, that are, after 9 months, as a negative -EUR 4.5 million. That's mainly driven by negative development in Q1 and Q2. In Q3, the development turned to slightly positive, but still, for the full period, negative, taking us then to a net of -EUR 1.8 million, which compared to our balance sheet investments is roughly a 1% decline in fair values.
Our balance sheet continues to be good, our financial situation solid. We have an equity ratio of 49%, and looking at cash at bank and undrawn credit limit, we have liquidity of EUR 67 million. This means that a strong liquidity enables us to continue to grow, continue to investments in our business, and we have financial stability in any market situation. Our balance sheet is invested primarily into our own funds, very well diversified across investment strategies. Currently, fair value at EUR 165 million, and we have undrawn commitment of EUR 79 million. Those 79 millions will be drawn over several years and can be compared to the liquidity at the moment of EUR 67 million, showing the strong liquidity position we have. Moving into some highlights from strategy implementation. Our vision is to be the most responsible Nordic private asset company.
We work to integrate our financial value creation with sustainability creation. What it means in practice is that in small and mid-cap companies, we're accelerating growth with sustainable business models. In infrastructure, we're supporting the green transition, and we're promoting sustainable operating models. Within real estate, in the value-add real estate, it's around transforming assets, extending lifespans, and introducing green building practices. In more core plus real estate, it's around improving asset utilization and efficiency, and by merging financial value creation and sustainability, we can create sustainable value for our fund investors, shareholders, and the broader society. Our strategic objectives follow naturally from that vision.
We build on three competitive advantages: to deliver top investment returns from our funds through active value creation, to integrate sustainability as a core theme in everything we do, and to develop CapMan as a home for top performers, where the best people in the industry thrive. When these three things are in order, we can grow, and we can grow by scaling up existing strategies and products, and we can also explore new products and acquisitions. Our ambition is to double our assets under management to EUR 10 billion during this strategy period. Taking a look at some of the progress on these metrics over the last months. We're starting from the fund returns and the transactions. The overall transaction market continues to be slow, and especially so within real estate, where it's been slow for the last year or so.
We have continued to execute both new investments and successful exits from our funds. At the moment, we have done 7 investments during this year. The latest one is from Nordic Real Estate IV , investing into a logistics development project in Sweden, and our infrastructure fund investing in their second data center company. On the exit side, we have executed 4 successful exits during this period, and the latest one also here within real estate, Nordic Property Income Fund exiting a warehouse property in Denmark. On sustainability and integrating sustainability into everything we do, the systematic work across investment strategies is paying off. In this year's GRESB assessment, which is the global benchmark for sustainability within these asset classes, 6 of our real estate funds participated. All of them improved their ratings. 3 of them have now 4 out of 5 stars.
That's the Nordic Property Income Fund, the Hotels Fund, and the BVK mandate. The three other funds also improved their scores and are now at 3 out of 5 stars. Our infrastructure fund continues to have a four-star rating, and they are in the first quartile in their peer group in Europe. When it comes to building CapMan as a home for top performers, I'm very happy to see that employee satisfaction continues at a high level. We just received our employee Net Promoter Scores, again, above target level at 51, and what makes me especially happy is the strong scores across the board when it comes to culture and leadership. Here, the thank you really goes to all of our team heads and everyone in leadership positions within the company who daily create that culture and keep the employee satisfaction high.
Moving then to our growth objective. So we seek to double assets under management to EUR 10 billion. We see continued strong demand for our products across investment strategies. We have so far this year raised EUR 255 million of new capital across investment areas, private equity, infrastructure, and real estate. Our total assets under management remain at EUR 5 billion. That new capital, countered by successful exits done and negative net asset value changes in some of the real estate funds. We see very little redemptions across our funds. It's a testimony to the long-term investor base, where we have a large share of international institutional investors who invest into this asset class regardless of the cycles. When we look ahead for the next coming months and year, we see strong opportunities for growth, and we are launching several of our flagship funds into fundraising.
One of the strengths we have in growing assets under management is that we have a diversified portfolio of investment strategies. with all the time, different funds being open for commitments. Right now, we're preparing for the launch of Nordic Real Estate Four and the Growth Equity III fund, both of those flagship funds within their own investment areas. We're also making good progress on the Social Real Estate new product. With these funds coming to market, it's a good, good, strong opportunity to continue to grow assets under management over the coming six to 12 months. A strong balance sheet is one of the enablers to drive assets under management growth. Growing assets under management is really essential because this is what grows management fees and service company fees, and by extension then, increases profits and shareholder value.
Especially in the current market situation, we see that actively using our balance sheet is a way to accelerate that growth, be it then inorganic or organic. It's a way to attract new investors when we invest into our own funds alongside them. It creates trust. We also see that several investors are interested in both buying stakes in already existing funds when they invest into newer, and when we have invested in our own funds, we can enable that for them by selling out from our stakes. Actively using our balance sheet is a way to really create that assets under management growth.
In addition, when we invest in our own funds, it's not only driving growth, it's also creating value to shareholders because it offers an opportunity for shareholders to get access to a diversified private market investment portfolio and the related attractive returns from those investments. It is with this backdrop to ensure that we drive sustainable growth, that we yesterday came out with a new updated distribution policy. With the new policy, CapMan's distribution policy is to pay sustainable distributions that grow over time in line with group's earnings. The objective is to distribute at least 70% of the group's profit, excluding impact for fair value changes , and in addition, CapMan may pay out distributions from investment operations, taking into consideration the cash flow needed for future investment to fuel growth.
Previously, CapMan's policy was to pay an annually growing dividend, and we believe that over time, looking at these two policies, the impact will be fairly small. The cumulative amount paid out to shareholders will be very similar, but the current updated policy enables us to really capture growth opportunities in the market by using our balance sheet when those opportunities arise. The board of directors also expect to propose to next year's AGM a distribution of EUR 0.08-EUR 0.12 per share to be paid to shareholders based on 2023. If we take a deeper look then into the elements of this distribution policy. CapMan's objective is to distribute at least 70% of group's net profit, excluding fair value changes . This is really tied to the growing assets under management, which by extension, grow our management company and service business and our fee profits.
Our objective is to pay out the majority of those profits to shareholders from the growth that we can achieve. The second part of the distribution policy, that CapMan may pay out distributions accrued from investment operations, taking into consideration the cash requirements for future investments. If you think about our current balance sheet, we have outstanding commitments of EUR 79 million across investment strategies. These are funds that are making new investments, and with a, on average, 4- to 5-year investment period, you can think that on average, 20%-25% of these commitments are called in each year for new investments, and across strategies with these investments, targeting to make at least a 2x return. That's the capital need going in.
If we then look at the distributions, our fair value of our investments at the moment is EUR 165 million, so significantly larger. Here we have roughly a third of the funds that are still investing, making new investments, and requiring capital. We have more than half of the portfolio in funds that are in value creation and exit mode, so seeking to exit their investment and distribute proceeds. with, again, an average 4- to 5-year holding period for different investments, you can assume that on average, one-fifth of exits are realized every year, and that fair value distributed as cash flow. And with this balance and a well-diversified balance sheet, we believe that over the coming years, we will generate notable positive future cash flows.
With the distribution policy, we will pay out all of those proceeds to shareholders that we don't need for future investments and fueling the future growth. So in essence, the distribution policy to pay sustainable distributions that grow over time is the combination of driving growth and paying out the majority of the net profits from that growth, in combination with paying out the returns from our fund investments and that we don't need for future cash flow. The other long-term financial objectives remain unchanged. We're still seeking above 15% growth in our management company and service business, with a strong balance sheet and strong liquidity. To round up, and our outlook for 2023, which we keep unchanged. So we estimate assets under management to grow during this year, and the objective is to grow operating profit, excluding carried interest income and fair value changes .
Thank you, and I'll stop here, and we can over to the Q&A.
Thank you, Pia. Welcome to the stage, Atte. So,
Thank you.
Thank you all for questions that you have already submitted through the webcast so far. I'd like to remind you that if you would like to ask a question, you may submit one through the chat box in the webcast presentation app, and you can present that question in either English, Finnish, or Swedish, and we'll answer all the questions in English. The first question is for Pia, and that's related to the change in distribution policy and why you decided to change the distribution policy now, as you three months ago reiterated the previous distribution policy.
Thanks, Linda. Thanks for the question. So the change in distribution policy is something that the board has been assessing in detail, and the reason to change it now is that we see that right now there are opportunities to utilize our balance sheet for fueling that growth, and growth really is key in creating shareholder value. So that's the basis for the change, and we announced it as soon as the board decision to change distribution policy was done.
There's a follow-up question for you regarding the distribution policy. Does this revised distribution policy enable M&A opportunities, and is this CapMan's objective in the near future?
So absolutely, the distribution policy that we have now, it enables both inorganic and organic growth. And as we have said before, acquisitions is on the agenda, and we are pursuing several different opportunities there. Hopefully can tell about them in not so far distant future.
Then the next question comes from Sauli Vilén at Inderes, who asks if you have made any changes regarding your cost base due to the slowing market?
So with the slowing market, I mean, what we're doing is we continue to be cost conscious, and we have a business model where we have a fairly good visibility for our top line, and that means that we can then also adjust our growth investments when it comes to the cost base to match that top line.
Sauli continues and asks if you could shed any light on the current M&A market from CapMan PLC's point of view, so not from portfolio company's point of view, I would assume, and whether have the price tags in private asset space come down from the sky-high levels we witnessed a couple of years ago?
So for PLC or for the portfolio companies?
For both.
Okay.
That's-
Yeah
that's how I'm-
Yeah
I'm looking at this.
So, and I would say for both, for both us, as CapMan and in our investment strategies, the market right now is quite interesting. If we start from the investment strategies, there is, depending on the asset class, there is a rebalancing of sellers' and buyers' expectations. I think we are with now the interest rate outlooks and the inflation outlook may be stabilizing, getting to a situation where the market starts to move again, and buyers and seller find each other. In the mid-market where we operate, we didn't see that many of those really sky-high valuations even during the past years, so it's more around the market reactivating.
When it comes to CapMan's side, the market at the moment definitely creates opportunities for us, with everyone looking for the best ways to scale and achieve growth in a more challenging fundraising market. So that is definitely one of the things that open opportunities for us.
Thank you. And then, there's a question about the carry outlook. So, what's the carry outlook for funds at the moment? Can you estimate what funds are moving into carry next?
We have several funds that are, some that are in carry and some that are nearing carry, and when they move in is really dependent on when exits realize from those funds. So there's several ongoing exit processes across investment strategies. With the current environment, more difficult even than normal to say exactly when those transactions will happen-
Mm
but when they happen, there will be funds transitioning into carry. So what I can say is that we expect more carried interest over the next 6-12 months.
There's another question from Sauli, from Inderes: what would need to happen in order for real estate product, demand to pick up again? Obviously, your growth is highly dependent on real estate products.
Actually, I would say that, well, it can pick up even more, but it has never really disappeared when we look at our strategies, and there's two parts to it. So in our value-add real estate strategies, where it's really around transforming purpose, kind of use of properties and extending lifespans, developing projects, there the demand has been there all the time, and there's actually the current market creating opportunities with portfolios coming to the market. And then when it comes to the more, more income-related strategies, what we have seen from our investor base is that there's been a continued interest into these funds. For example, our Residential Fund has taken in new commitments during this year, where the institutional investors see that soon we start to be in a market where it's a really good market to buy new assets.
So the demand is there, and of course, anything in the market that happens that accelerates, it's good, but we see growth there also with the current market.
Thank you for that. And then, the next question is regarding new products that you are planning to launch. What's the schedule for, for example, the social real estate fund?
So in the social real estate fund, which I think it's a good example of a new product, so there, hopefully very soon we can have more concrete news on it. But there's clear progress happening, both when it comes to the investment side and the fundraising side in that product.
Hmm. Thank you, and I would like to remind you that if you would like to ask a question, you may do so through the chat box in the webcast presentation. There is a follow-up question from Sauli Vilén at Inderes. He has a question regarding the growth of CaPS, and this question is for Atte Rissanen. So, the growth was flat in the third quarter of 2023 compared to third quarter last year. Is this just due to quarterly fluctuations, or do you see any economic slowdown affecting CaPS?
First of all, I need to state that in the third quarter of last year, in the service business, there were also other items in addition to CaPS impacting. So it's not really full year-on-year comparison if you just take the service business revenue from last year. CaPS is growing year to date on an 18% growth rate, and that has continued now during Q3.
I can just add on the market outlook there. So I think in CaPS you have an interesting situation where what they are providing is procurement services, and in a market environment like we have now, what companies are focusing is really their cost base, and where CaPS can help is on the non-strategic parts of the cost base. So that's creating attraction for their product also in this market.
This question is regarding the fundraising market for Pia. How do you see fundraising developing for the products that are currently in the market?
I think we don't really see a change now compared to, say, the beginning of the year or kind of summer. Fundraising market continues to be slow, so there's interest for our products, and there are new investors joining the open products. For example, infrastructure again grew their fund size. What we see happening is that the processes take longer, the decision-making takes longer, and in some cases, investors have smaller allocations, which means that they join with maybe smaller tickets than what they normally would do, but they're still joining, which means that they are there for top-ups and then for the following funds, which is important for us in driving growth there.
And also related to the updated distribution policy and using actively our balance sheet, one of the things we see right now is that some investors are more interested than before to acquire both stakes from existing funds when they commit to new funds. And with our investments into our own fund, that is some funds that is something that we can enable, so we can sell stakes from already quite mature funds together with investors then coming into our new funds.
Thank you. And there's a question from Sauli Vilén at Inderes. He's asking whether you can describe the investor appetite for private equity fund of funds in the current environment? And I'm assuming he's referring to the CapMan Wealth Services investment program fund of funds.
Yes. So we also, there we see good interest for our fund, and the CWS, CapMan kind of products have been growing also during the third quarter, taking in new capital there, so also there, solid demand.
There are currently no questions in queue anymore. Whether if you would like to ask a question, you may do so by submitting it in the chat box in the webcast presentation. If there are no further questions, then we would like to thank you for your attention and wish you a pleasant day.
Thank you.
Thank you.
Thank you.