Hello, and welcome to the Catella Q2 Report 2020. Throughout the call, all participants will be in listen-only mode, and afterwards we'll have a question-and-answer session. Today, I am pleased to present Acting CEO Johan Claesson. Please go ahead with your meeting.
Okay. Good morning, everyone. I hope this format will work. I've never done it before, but let's go directly into the second quarter and the performance of Catella. As you probably have seen, it's nothing to be proud of, really. Not in general, but in certain areas, we are doing very good. In some others, we are doing quite poorly. It has been very challenging, and as I mentioned, especially the winding up of the bank has not gone according to our expectations. It has been very slow and costing more money, but the final outcome will probably be acceptable in the final end. We have had some luck with some of the investments down there, which have improved the numbers. When it comes to the mutual funds, we have had pretty bad performance. We have not been up to the standards.
And that has had an impact on the outflow of assets or investments. I also think we have introduced some kind of cost-reduction programs on the group level. I don't specify it, but I hope it will have some kind of impact from 2021, at least. And also, we are doing some kind of changes in the general approach and strategy of Catella moving forward by selling the mutual fund business. We're selling 70% of it to Athanase Industrial Partners. And we are also doing some kind of improvements in IPM, but I'll come back to that later on. I don't know how much you know about Catella, but on page number two, you can see that we divide the business in three operations: the Corporate Finance, which have made some losses during the quarter. I would say primarily due to Corona. They expect some kind of improvement over the year.
We don't know how long that will take, but the pipeline is pretty good in general. But let's see if I think the spreads in the market have increased between buyers and sellers, which will have an impact. But over time, I think our market position is very strong. When it comes to Property Investment Management, we have had increases of assets in euros, but in Swedish krona due to the soft euro. We have about the same amount of assets in property investments as we had before. I think they are doing well, and the pipeline looks good. Equity Hedge and Fixed Income, I would say that we have failed. And I'm coming back to that as well. Yeah. I go to page number three. Here you can see the aggregated number for assets under management.
We were a couple of years ago, including the wealth management in the bank. We were to about SEK 200 billion or SEK 210 billion. Now we are down to about SEK 150 billion. Revenues have decreased somewhat during the quarter, and operating profits on the 12-month rolling is down as well, and the only thing that probably goes in the right direction is the cash equivalents. We have about SEK 1 billion of cash on the group level, excluding the bank, but that is not available money for the mother. A lot of that are in regulated entities, where we cannot really use the money for whatever we want to do. On top of that comes, as we say in the presentation, about SEK 400 million coming out of the bank, one that has been wound up, and probably another couple of hundred million from the recent sale of Grand Central.
Hopefully, the 140 from Athanase. You could say that the cash situation will, over the next six months, improve considerably. I moved to page number four. Sales and results operations group. I commented a little bit on that before. Property Investment Management was not significantly affected by the pandemic. I think the demand for these kinds of assets will increase, and we could see that we have traction in the market and that we have a fairly good pipeline of new investments coming into our funds or special funds or whatever. I think the biggest problem we have there within the Equity Hedge and Fixed Income Funds and our profits decreased considerably, especially within IPM. It is a problematic situation. We have had outflow of more than 50%, yeah, between the last six to eight months.
Of course, most of that is due to bad performance in the fund. IPM was down 11% until middle of June. Now they are down 4.5%. We have had a considerable recovery during the last seven months. I think I could comment more on that later on. The quarterly numbers are affected by two non-cash issues. One is the write-off of the deferred tax assets, which is due to the fact that since we are lacking any kind of operation in Sweden after we have sold the mutual fund business, where we could use the deferred tax losses in the mother, which is in the order of about SEK 700 million. We took the decision to say that we wrote off those deferred tax losses.
And also, we made a provision in the bank for the expected remaining cost or losses in the bank in the order of SEK 55 million. We believe that will cover the remaining losses in the bank until we have given back the bank license. And we strengthened the liquidity. We took advantage of the various programs in Europe and borrowed SEK 100 million. Of course, we should repay them, but the terms are quite attractive, so we decided to do that. We also have a problem with the tax situation where we have so many different entities. We could not set off the various losses against profits in other entities, which causes quite a high percentage of taxes. And we have to look at that. And there are no easy solutions to that.
Finally, I want to mention that we have invested about SEK 500 million into various kinds of property projects. We come back to that. Now I'm actually on page number seven. I apologize for being a little bit quick here, maybe. Corporate Finance. The market has been challenging. The volumes in the quarter of total transactions in Europe is probably down one-third or probably actually more. We have, however, I think we have done it, handled the situation pretty good. When I talk to the various corporate finance entities, I think we have not even noted we have not decreased the amount of people in the structure we have tried to maintain. We think the people are very competent and knowledgeable, and we think we have a good market position, and we want to maintain that.
So therefore, we have not really done any cost reductions in the Corporate Finance. France have been doing well. I think they will be doing well. Sweden and Scandinavia have lost money, but I think they will recover. They are optimists for the rest of the year, so let's hope that will materialize. We do have an extremely challenging situation in Germany where we are far from profitable. However, given that Germany is the biggest European market in Europe in asset management and in profits in general, I think the importance of being active both in the corporate finance and in property asset management is extremely important. So my preference would be that we try to strengthen the position in Germany, even if that would cost some money. We need to increase our presence in Germany, and I think we have to attract some more.
We have a good structure, good people, but we need to be a little bit bigger. Right or wrong. No decisions are being made, but it's an important signal to the organization in Germany that we are a little bit bullish about the importance of being in the German market. I think that is an important signal. Yeah. So in general, not too bad, even if it is bad. I'm quite optimistic about the Corporate Finance. I put a lot of trust in the management, and I think we have generally very good people in Spain, in France, in Germany, and in Scandinavia and Finland. I think we have done some changes, and I think it's for the better. When it comes to Property Investment Management, I have already commented on part of it.
It decreased slightly in Swedish krona, but that is not really how it should be measured, maybe. Operating profit was about SEK 75 million. That includes a performance fee. And in general, I would say that Catella's future success is purely in delivering return for our investors. I mean, that has to be the key star, and I think we have to that is not necessarily in the short term to only deliver to shareholders, but it's over time the only way to deliver returns to shareholders that we add value for our customers. And I think in property investment, we have been quite successful. We are delivering returns, and we are in the core market. If I define that as providing safe returns in the order of 5%-8%, that is roughly where 80% of the global market is.
The more opportunistic structures where returns are expected maybe between 10 and 20. It's a smaller market, but I think we should be active in that segment over time as well. We don't have any fund structures as far as I recollect now, which are profiling or which are addressing that type of product, except maybe for the new development and projects which I'm coming back to. We have no funds in the Nordics. We are about to launch that. As you probably know or have read, we have decided to invest in SEK 500 million with a 50-50 partnership with the intention of moving that into new logistics funds. So the first property fund in Scandinavia will be a logistics fund. On page number 11, which covers the Equity Hedge Fund and Fixed Income.
The mutual funds have done, in general, there are several of them, as you probably know. I think there's probably 10 or 12 of them with various targets. But in general, we have not lived up to our expectations. Some have done worse. Some have done better. But in general, we are not happy. And that is probably part of the reason why we have lost some assets. However, we have sold 70% of the shares, and let's hope that that will materialize within the next 30-60 days. We are waiting for an approval from the Finansinspektionen as a regulator. I think there are a lot of talented people in the fund, but we have not been creative or dynamic enough.
We have not focused on costs, and we have not lived up to our standards of operational. I shouldn't say competence, but we have not been. We could have done more, and we should have done it much earlier. I think the same applies to IPM. IPM have lost. They were down up to 11%, as I said. They have recovered about six, seven of those. I think that by yesterday or the day before, they were down 4.5%. They have different asset classes, but in general, 4.5%. We have implemented in this Systematic Macro during the last one to two months two or maybe, yeah, one or two new programs which should improve. The one is in FX, and the other one is in emerging market debt. More are coming during the fall. We should have done that much earlier, probably a year or two ago.
We have not been innovative enough, I would say. At the time, a lot of things are going on with the intention to improve the returns in the Systematic Macro. I have pretty good belief in that. I think we had a strategic meeting the day before yesterday, full day, and I think the initiatives that they are taking are promising. We are also setting up a new product which will be launched hopefully during this winter. I don't know if I should disclose exactly what it is, but we have employed a new team in London in order to develop that product together with the Scandinavian team. We have in IPM about 16 people working in the research, and I think the competence is actually high.
I think once again, the problem has been on the operational issue to really implement necessary changes and, so to speak, done the gradual improvements in the product. And I think that's also the feedback we get from the sales that, "Why haven't you done this earlier? I mean, why?" And it's difficult to say why, but I could only confirm that there has been lack on the new initiative side. Let's hope that the development of the Systematic Macro continues to increase. Part of the problem with the long-term Systematic Macro product is that it's long-term. It compares. I'm no expert in this, but it gradually should take advantage of macroeconomic long-term factors. You know that the dollar could go up not because of fundamental macro factors, but the dollar could go up because it's very much event-driven.
It's very much politically driven by China or in that relationship on the global market. And that has had an impact on the fund. The world has not been fundamentally rational during the last 12-24 months, and that has had an impact on the Systematic Macro, which is a long-term rational fund with millions of data being analyzed every day. We will implement as part of the fund, sometimes one factor being a short-term strategy. The short-term strategies have been delivering much better returns during the last 24 months in general in the world, and we are implementing such as well. But we are not ready with it yet. But a lot of new initiatives are being worked with. I think we had a good market position. We have a good reputation, but we have lost very much of that during the last due to bad performance.
And not only us. If you compare to the largest player in the world, which is in this sector, which is Bridgewater, they have not performed better than us. They have actually, my impression is, or my recollection is, that they have improved worse. They have performed worse. So it's more a matter of whether the world is so fundamental today. So the attraction of a Systematic Macro fund is where bigger investors would like to invest. Let's wait and see. We know the trend comes and goes. Then we come to slide 13, and that is Catella's Principal Investments. While all our investments or all our funds in the property investments are within what I would call the core segment, returns 5%-9%, expected returns, we believe that we need to implement more products with somewhat more opportunistic approaches.
So far, we have only done it internally with partners, but over time, we believe that we could add substantial value for other investors as well. If you take the Grand Central, which we sold out, we have delivered to Catella, and I would say substantially more than IRR on that investment. I don't want to disclose the number, but I think that everyone should be proud of what we have done there. I think the other we have two other big projects in that company that is handling that and which is actually driving that is we call it CPM. And they are not the owner, other than they are the development company, and they do that on behalf of Catella as an investor plus to other investors where my family company is one.
That we are one of them is only due to the fact that we initiated these funds and actually financed it on behalf of Catella as well to start with many years ago because Catella management at that time were not in favor of doing it. So then I said, "CA, which is my family company, we finance Catella as well." And I don't think we. I don't know the interest on that, but it's substantially lower than 5% or 5%-7%. I don't remember. But I think it has delivered a lot, and I think the management in CPM is excellent. They have two other major projects. They have the Mönchengladbach project, which is a very attractive project where we could build in the order of, I would say, I don't exaggerate, but 2,000 apartments.
Then we have the Düssel-Terrassen, where we probably could build another 500-1,000 apartments as well, maybe more. They're not ready for zoning, but we are doing during this fall or within the next 30-45 days. But we will deliver them in many phases because it's both from a financial and from other perspectives, it's a huge project. My intention or my hope is that that will be bought by other Catella funds in order for us to, so to say, benefit also for customers to benefit by being part of these projects. We have the Kaktus project in Denmark, which is a huge project. It's 1.1 billion, and we are doing it on our own balance sheet. I think we are still optimistic about it. The market is, I would say, stable, and we believe it could generate a fairly good profit.
And then we decided in June or July to initiate this new project of a 70,000 sq m warehouse with a 10-year lease to PostNord, and with the intention that this is only the first project out of a pipeline. And we will see how fast we could set up a new logistics fund to which we could transfer these assets. Okay. So in general, a lot of challenges. I think most of them have been on the management and operational level in order not to be dynamic and enough in order to implement changes and doing it with speed. And I think that is what we're trying to focus on, with the intention that Catella should be a little bit leaner and a little bit more business-oriented. But it all comes down to delivering value for our investors.
We have to be more commercially driven, and we have to understand where returns for our investors are coming from. And that would be my next focus. Okay. That was my presentation. And maybe I've overrun time, but regardless, I'm open for any kind of questions.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name's announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Patrik Brattelius of ABG. Please go ahead. Your line is open.
Thank you. Thank you. Good morning, Johan. A couple of questions from my side. So if I start with the Equity Hedge and Fixed Income Funds, we saw a negative EBIT or operating profit result this quarter where you mentioned in the report that this was driven by consultancy costs and costs associated with the divestment of the mutual funds. Could you help and elaborate a little bit how large were the costs of divesting mutual funds and how much of this is recurring and how much is one-off effect just this quarter and what is associated to the mutual funds? And how should we think about costs associated to the IPM?
I don't remember that wording, but I'm sure you're right. I would say that if we are blaming the negative results on the transaction costs connected with selling the mutual fund, that's an exaggeration of the numbers. I don't know. Niklas, can we disclose the number? I think the total cost for that is about SEK 7 million to SEK 8 million.
Okay.
That's fees for SEB who helped us in the transaction and some other costs. So the actual situation is that the mutual fund business made money quarter one and lost some money quarter two. IPM is due to these investments. We are both investing and taking on new teams, which costs some. I shouldn't say substantial money. But we're also decreasing the cost level, and we have done some redundancies during quarter two. So there are some connected with that. In general, I mean, the company is. Put it this way. The company is not making any money, especially if you include the extra costs for hiring new people to develop and to implement these new products. But they're not making any money, not in performance fees. So we are still like 4.5% away from performance fees.
Okay. Thank you. And yeah, if we continue on that, then in IPM, we saw outflows in Q1 and Q2, and we are now almost two months into the third quarter. What can you say about the outflows? Has it stopped, or is it continuing?
We haven't seen any continued outflow. I think the fact that performance has increased or improved has helped us in that respect. And we don't really see any negative effects at the time being. Of course, that is no guarantee for the future. And I can only wish that we manage to implement three, four new factors as soon as possible in order to improve the returns in IPM. I think customers ask us, "Why haven't we done things? Why?" And I think they are, according to the salespeople in IPM, interested in the new factors that we implement into the product. And we believe that some of those new factors could be used for other purposes as well, but I'm not going into that.
Okay. So.
We're also trying to implement a new factor, which probably has driven a lot of losses or profits in other programs, which is the event factor. Event factor is, so to say, political or non-political events like COVID or Mr. Trump or Mr. Xi in China or whatever, or what happened in Turkey last year where we lost a lot of money in the Turkish lira and the coup in Istanbul. So we are trying to implement that as a factor as well into the model. That's it.
Great. So if I understand correctly, then this implementation of new programs with FX and emerging market debt that you talked about earlier, that has increased the cost for the segment. And should I then expect, when setting up this new product team in London, that the cost will remain elevated throughout 2020?
I think you'd expect costs to be on this level for the rest of the year and probably next year as well. We have implemented all these new development projects. They do cost money. We also have to rewrite part of the software in order to improve the efficacy of the trading, and that costs money as well. So we are taking out some costs, but we're also adding others, and unfortunately, the new costs are more costly than the ones that we are taking out.
Okay. And.
And that is already in place, and they have been in place for some months now. But we have also other consultants that we have taken on. So I don't think—I think we have to do both cost-cutting as well as investments. The financial situation in the company is pretty good. I think they have a cash of more than SEK 150 million. But it's a very challenging situation. Absolutely. But I'm pretty sure we will come out of it with a much better program, more lean, and also having probably two or three products which will balance the risks in the company. How we could end up having only one product is a mystery to me.
Understand. My next question is regarding what you talked about earlier in the presentation regarding the cash and cash equivalents, and as you mentioned, you expect it to grow, and you're already now at over SEK 1 billion, and you expect it to grow. What are your thoughts looking a little bit into the future? What do you want to use this cash position and how you want to spend it? Is it for M&A, or is it investing in the business, or is this down the line going to be distributed capital for the shareholders? How do you see the use of this?
Regarding the distribution of dividends, we already have a policy on that. That's our intention to keep that one over time. When it comes to investing, yes, we will have to invest. If we are going to grow the Property Investment Management and other type of projects, we need money, and I don't think this is the time not to be cash-rich, and we have opportunities, but we also have challenges, so we want to grow the company, and we believe we could deliver good returns for shareholders over time in this sector, and I think what we are doing within our own projects, I think we are delivering substantially more than 20%, and in the asset management and of properties, I think over time that will deliver substantially more than 20% as well. We have a good platform which we could capitalize on.
Okay. Thank you. I'll stop there for now. Thank you.
Thank you. Our next question comes from the line of Jesper von Koch of Redeye. Please go ahead. Your line is open.
Okay. Hello. Henrik here. Do you hear me?
Absolutely.
Great. I only have two minor questions here. And the first one regarding Property Investment Management. The net contribution to the result in this quarter from European Residential, was it on the same level as last year or higher or lower?
You mean the European Residential fund?
Yes.
You're only referring to that fund. That was delivering roughly about the same numbers or somewhat better.
Okay. And now you're talking in terms of your net result, not the performance of the fund?
Yes, I understand the difference.
Okay. There is no difference, you mean?
I don't understand your question. That's actually my question. That was my question.
Okay.
I understood the question as whether the performance of the CRIM business, which is the European Residential fund run out of Berlin, delivered a lower or higher profit compared to last year.
In Europe, how?
Okay. Why should there be a difference?
Okay, well, I'm not sure what the.
But you must have something on your mind. Are you referring to taxes, or are you referring to additional costs? My best guess—I haven't analyzed it, to be honest with you, from that perspective—but we are quite transparent in how we report the numbers. I don't see any major reason why it shouldn't be the same. That could be cost level. That shouldn't be any big difference.
Great. Thank you. Great. And then just regarding the future situation in mutual funds where you remain a 30% stakeholder. And I understand that you will have a strategic partnership with Athanase in the future regarding these new funds. Will this be an exclusive partnership, or will you partner up with other money managers in this area as well?
Good question. I think the background to why we sold the mutual fund business and why we tried to keep this collaboration with Catella Fondförvaltning is that Catella AB has for many years tried to initiate new property funds within the mutual fund company, but they have not been very supportive of that. So we said, "Why work if people don't collaborate?" Because we believe we have a big market to set up new property funds in Scandinavia. We would like to use the mutual fund operation, which has all the permits, more or less, as an entity to support these new initiatives. What we will do is that we have three new products that we have worked with during the summer, which we will initiate or launch during the fall. We have this new logistics fund.
And we have done that with the support of Athanase because this is how they would like to develop the company as well, with being some kind of platform for other players. Whether this will be a collaboration that would work over time, we don't know. We hope so. And we think they are generally competent, but they haven't been dynamic enough, and that's why they have run into problems. I think we have to be much more dynamic, move faster, look for the more attractive product moving forward. And we believe from Catella's perspective, we want to work with properties. And I think we have had substantial support during the summer for initiating these new products. And whether that will be exclusively for working collaborating with Catella Fondförvaltning or with the mutual fund business, I don't know. It depends on the future.
but the intention from our side is to support the company and grow the company moving forward to create value for everyone.
Okay. Great. Thank you.
Catella, Athanase, our investors.
Thanks. That was all from me for today. Thanks.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. Okay. So no further questions coming through at this time. I'll hand back to our speakers for the closing comments.
Thank you very much for attending this meeting. I hope it was explanatory in some ways. Maybe it raised further questions, but you're welcome to contact me if you have further questions. Thank you very much.