Welcome to the Catella Q3 presentation for 2023. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the CEO, Christoffer Abramson, and CFO, Michel Fischer. Please go ahead.
Good morning. Welcome to Catella's 2023 third quarter report. This is Christoffer Abramson, CEO of Catella Group, and with me today, Michel Fischer, Chief Financial Officer and Head of Investor Relations. As usual, we'll go through the main events of the quarter and the financial performance, and after the initial presentation, we will take questions on the phone and online. And of course, our financial reporting and presentations materials are available on the web. So let's start on page three with a brief overview of Catella. We operate in three property-focused business areas: Investment Management, Principal Investments, and Corporate Finance.
We now manage nearly SEK 160 billion in our pan-European Investment Management platform, and about 70% of our assets under management are managed in property funds, and the other part in a significant number of asset management mandates across Europe. Principal Investments is where we invest our own equity into a broad and diversified portfolio of European investment projects, often together with partners. Corporate Finance is our real estate advisory and brokerage arm, with leading positions in large European markets. And Corporate Finance is also an important internal advisor to our other business areas, Investment Management, and Principal Investments. So with that brief introduction, I'd like to go ahead and start the quarter presentation with a market summary on page four.
So, the European real estate transaction volumes were at even lower levels than what we saw last quarter, and frankly, at levels we haven't seen since the global financial crisis. The drop in transaction volumes is also significantly higher than what we experienced during the GFC. We're now seven quarters in and down 83%, which is obviously quite dramatic. Our house view is that the global economy has entered into a macro environment with high and volatile inflation, low productivity growth, and higher nominal interest rates, at least compared to the last decade.
In this new setting, we are seeing sort of a higher for longer interest rate environment, maybe, compared to the last, sort of financial correction, some 15 years ago, which causes continued downward pressure, specifically on riskier asset classes as the market continues to adapt. Real estate has come a bit more heterogeneous as an asset class, and we believe that valuations are set to to diverge further between different types of assets. In the short- term, segments with index rents and somewhat higher yield levels and low equity valuations are expected to outperform. And we believe that prime locations with high ESG credentials will then outperform in the long- term.
Our view is that for the first time in quite a while, a decade or so, market conditions now favor more active asset management over passive investing. In this challenging market, Catella's pan-European offering of vertically integrated local experts and asset managers is well-positioned to help our clients succeed, even in a very, very tough environment. Well, not great market backdrop, let's move on to page five for a summary of our key operational highlights of the quarter. To start, we're very excited to have closed the acquisition of Aquila Group in France in September. And we are now starting to really work together with the team on integration, on deals, and on synergies. Besides adding SEK 15 billion to assets under management, Aquila adds significant synergies to Catella.
We now have the opportunity to internally manage our French fund assets over time, and we have the presence in France with an attractive Investment Management proposal in the current volatile market. Additionally, we now have a partner for principal investments in France and for, of course, for France being part of our pan-European investment strategy. And finally, it adds a new source of capital through the retail fund platform, Axipit. Retail investments is a source of capital that continues to show the stability even in the current market conditions, and the cash-on-cash focus suits actually a higher yield environment with all our local entities across Europe well-positioned to source transactions. Our focus is always on long-term value creation for our shareholders, and besides the acquisition of Aquila, we've made additional progress during the quarter.
For example, the divestment of the Infrahubs platform reduced our exposure to speculative development projects and frees up additional capital for other growth investments. With a strong liquidity and a strong financial position in general, we continue to evaluate how to grow the company through investments in digitalization, capital raising, M&A opportunities, and of course, opportunistic investments. So, we talked about Investment Management. We show an increase of assets under management of nearly SEK 10 billion in the quarter, mainly driven by the acquisition of Aquila and finalized development projects entering as assets into funds. The growth, however, is suppressed by exchange rate effects, as the Swedish krona appreciated in the quarter.
So if we take out the currency effects and the acquisition of Aquila, we're pretty much flat quarter-over-quarter, which, in this market environment, frankly, is pretty good. In the U.K., we signed a full-fledged asset management mandate for three locations of Transport for London, on top of the advisory mandate for their entire portfolio we communicated in the second quarter, which is excellent progress and an exciting mandate. Looking ahead, the increased fixed income, the pipeline of development projects, continued committed capital, and strong relationships with our investor base provides a solid foundation for this business area, even though, of course, in the near- term, with muted transaction levels, variable revenues will probably remain lower than the prior year. So let's turn to Principal Investments.
As I mentioned, we finalized the sale of the Infrahubs platform, where the divestment had a positive impact on profit after tax of SEK 28 million. So even though we continue to make progress at the right pace, in our opinion, in our development projects, we expect that divestments of completed projects will be limited in 2023. At the same time, we see more opportunities for new investments that meet our return requirements as market prices continues to adjust and more opportunistic investment opportunities arise. And lastly, for Corporate Finance, we continue to have a solid pipeline of transactions, both big and small.
But in order to realize more of these, not all, of course, but also not zero, in the near future, we need to return to a more normalized transaction market, and it's difficult to predict when this is likely to occur. There are some bright spots. Demand for valuation services have remained stable throughout the year and continues to be very strong. And we carried out a pretty significant transaction in Finland, where our market share now is quite substantial. So, doing the best with the current market situation. Let's move to page six for a summary of the group's consolidated results.
So, year-over-year revenues increased by SEK 26 million, mainly driven by principal investments and accrued income from logistics projects and rents from standing assets, and a final management fee from a project that was sold in prior years. EBIT ended at SEK 32 million, compared to SEK 74 million last year, which was mainly an effect of lower variable revenues in Investment Management. Going to Investment Management specifically, AUM has increased by almost SEK 17 billion over the last 12 months, and as I mentioned, quarter-over-quarter, apart from the acquisition of Aquila Group and exchange rate, it's broadly unchanged. Look, we continue to see resilience here of the underlying business model, with fixed fees growing by 14% and solid profitability despite a slower transaction market.
I would like to point out, however, that in the third quarter, specifically the Investment Management, EBIT was negatively impacted by, temporarily increased, costs, which has now been reduced, on the salary side. Also, an increase on management fees from the group, which has been corrected to the right levels, which is then offset at group level. So, it's impacting, Investment Management negatively, but on a group level, it's actually favorable on a net net basis, and natural cost inflation continuing across Europe. We still believe that, with the return to normalized levels, is the, the guidance that we give on roughly where the underlying earnings, sit in Investment Management remains the same, and with Aquila, should be even stronger, whereas we have not reported earnings for Aquila in the third quarter.
In Principal Investments, apart from the sale of the Infrahubs platform, no divestments were realized during the quarter. And, you know, like we've mentioned, we're looking ahead. We'll focus on developing our current pipeline of projects and on pursuing co-investments, even more of those, aimed at generating new asset management mandates and revenue streams across Europe. And finally, for Corporate Finance, the transaction volumes, as I mentioned, down 60% year-over-year, 83% from the peak across Europe, and continued to deteriorate in the last quarter, and which naturally affected revenue and led to a slightly negative EBIT in the quarter.
It continues to be difficult to precisely predict how and when deals will be realized, but, you know, a marginally negative EBIT in a seasonally weak quarter is not a terrible result in this market environment, and we look positively at the fourth quarter. So, we move to page seven to discuss Investment Management in a little bit more detail. We love this chart. Since the inception of Investment Management, we have delivered a strong average annual growth rate of 22%. AUM has increased by SEK 17 billion over the last 12 months, broadly flat quarter-over-quarter, of course, but with Aquila on board, with another SEK 15 billion, we also have a more diverse capital base and added additional competencies to meet opportunistic investor demand, not just in France, but in pan-European strategies.
And as I said earlier, for the first time in a long time, market conditions now favor the more active local management over passive investing, which ideally suits our model, and we can take opportunities of a challenging market with our vertically integrated local experts and asset managers. So on page eight, the underlying AUM growth drives increased fixed fee income, and this is our key underlying Investment Management metric and the main long-term profit driver in Catella. As you can see, our fixed fees have increased by 45% since 2020. And again, it's worth noting that we have not included Aquila Group in the third quarter.
This quarter's EBIT ended 70% lower than last year, but, you know, we had a last year, we had a non-recurring revenue from Catella Asset Management Denmark, with the sale of a project called GreenPoint , which accounted for about SEK 34 million of EBIT that year. And you add up the lower acquisition fees and disposal fees and no performance-based fees in the current quarter, that's pretty much... that's SEK 70 million on the downside, simply from lower transaction activity. Whereas at the same time, those have decreased, the underlying fixed fee revenue increased by 14%, which really shows the long-term resilience of our business model in the long run. Of course, with a muted transaction market, it's very hard to generate significant variable revenues, but this is a long game.
Catella is a long-term investment play where we look at strong and stable AUM growth with increased fixed fees and cost leverage. Operating expenses were a bit high in the quarter. We hadn't really gotten our salary numbers down, which has now been actioned. We've taken some actions, which on top of that took some restructuring costs in the quarter. We had some dead deal costs on the M&A side, and as I mentioned, increased management fees from the group. So these are all factors that should revert to trend going forward. And I think the underlying earnings on a quarterly basis, without many transactions, is still at the numbers we have indicated before, and not at the 26 level we have seen this quarter.
Looking ahead, we have already carried out cost reduction measures in Q3 and continued to do so in Q4 to substantially reduce fixed expenses from early 2024. So page 11, Principal Investments. The investment portfolio now consists of 10 active projects in logistics, residential, mixed use, office, and retail. And besides the 10, we also have some smaller investments in pre-development phases and co-investments, where we co-invest alongside growing asset management mandates. Our investments are spread across six European countries, and we intend to increase both the geographical spread and the diversification of the portfolio with more co-investment mandates. New for this quarter is that we have included our other co-investments in the principal investment business area. As this is growing in importance, it becomes part of our core operations.
We invest in new ideas generated within the organization, such as our funds in Sweden, which is listed real estate, and funds in the U.K., which are listed REITs, and also shortly, the retail fund recently launched by Axipit, called Upêka. Our investment in Pamica is also included in the business area. Catella was one of the first investors in Pamica, and additional investments were made this year in the latest investment company, Pamica 4. As we've communicated previously, we see that these types of strategic growth investments, both the co-investments to generate mandates, but also seed investments in these types of funds, might increase going forward as part of a strategy to diversify our investment and generate additional income streams.
Operating profit in Principal Investments during the quarter was mainly driven by rental income from Kaktus in Denmark and accrued income from logistics projects in Metz and Barcelona, in France and Spain, respectively. Besides the sale of the Infrahubs platform, we had no substantial transactions, and in the current market environment, we really don't expect divestments on a big scale during 2023. Our strong financial position, however, continues to give us the flexibility to be patient and hold on to our cash flow positive properties, and then be ready to utilize our liquidity in pursuing new investment opportunities as they emerge. Now, focus on Corporate Finance, page 13. Aside from a few large and complex portfolio transactions across Europe, the traditional core transaction market was even weaker in Q3.
And at record low levels. We continue to have a solid pipeline. We've made some good deals, but the comparative numbers are obviously very hard. But we continue to have a strong market position in our five markets. However, it's really hard to tell when and how, and if some of, or how many of these in the pipeline will materialize. Transaction pipeline is solid, and it's not so much of an execution from our side, it's more of a buyers and sellers meeting, and when will they meet? The majority of our revenue stemmed from traditional buy and sell-side brokerage in the quarter, which of course, was down significantly year-over-year than the overall market.
At the same time, the demand for valuation services remained very strong, as the revaluation of assets is even more critical for most players in the current market. In total, revenues fell SEK 12 million year-over-year, and EBIT with the same number. But again, as I said, seasonally, the third quarter is not particularly strong, and we think we performed okay, and we've continued to take some cost measures that will reduce the cost base going forward. So I'll now hand over to Michel, who will share a brief financial summary beginning on page 15.
Thank you. Sorry. Thank you, Christoffer, and good morning, everyone. As Christoffer started with, when excluding the addition of Aquila and taking unfavorable FX translation effects into account, AUM ended at similar levels as last year. In this sluggish environment we are currently experiencing, this is something we are pleased with, as it has provided a solid fixed revenue growth in the mid-teens over the last year and reached SEK 225 million in the quarter. Despite the increase in fixed fees, it does not compensate for the decrease in variable fees, where we see a substantial change driven by the slow transaction market and some valuation effects. If we look at EBIT for Investment Management for the quarter, it ended below our baseline, as Christoffer already discussed.
In parts, this was driven by tough comparables from same quarter last year, but also an increase in operating expenses, where we have made adjustments that you will see in the following quarters. The same goes for Corporate Finance, where some redundancies have been carried out, but they are not yet reflected in the P&L. One additional comment on the EBIT is the other business area, other, which mainly comprises of HQ operations and internal elimination. The reduced loss of SEK 8 million, compared to SEK 15 million last year, is in part driven by lower personnel costs on group level, as well as increased charges to the business areas from group. If we then move on and take a look below the EBIT line, the main reason behind the negative profit is the financial net. The interest on our bond, maturing in 2025, amounted to SEK 27 million.
Additionally, FX translation effects from a strengthened Swedish krona against the euro and the Danish krona resulted in a negative SEK 37 million in effects from currencies. This was partially offset by the divestment of Infrahubs, which generated a positive SEK 28 million in the financial net. If we then move on to page 16, looking at our financial and liquidity position, we continue to have a strong balance sheet and equity ratio. Year-over-year, our cash position, however, is lower, and that is due to the reason that we have chosen to replace expensive junior financing with an internal shareholder loan in development project Kaktus. We've also made some additional investments through shareholder loan contributions in our development pipeline.
To conclude and also reiterate what we previously said, the liquidity we have provides us the flexibility to replace external financing with internal shareholder loans, and thus using our cash where it makes most sense. At the same time, we have additional financing available, which we will make use of when we see new investment opportunities meeting our required return targets. With that, I'll hand back over to you, Christoffer.
Thank you, Michel. So, before we conclude and open up for Q&A, I'd like to briefly summarize the quarter from our perspective here on the final slide 18. Now, the market environment is of course tough, but we continue to leverage on our track record and competencies of navigating in all kinds of markets. This market with continued geopolitical, macro, real estate valuation uncertainties, et cetera, we are well- positioned to add value for clients and shareholders through active asset management and investment strategies. Also, you know, in this type of market, it might be good to be a little bit boring, to use maybe a bad word, but, you know, we have not taken big levered bets.
We have a solid balance sheet, a solid liquidity, and our core business model, which we like to continue to point out, relies on steadily increasing fixed revenues. Something that continues to deliver stable, albeit now unspectacular results, but there's a stable increase, and that's the growth story that, that we'd like to tell, and that's what we're driving every day in the business. We are a long-term value creator, and we build the future of Catella by investing our stable returns, plus, when they occur, more variable transaction profits in long-term value creation within the organization through M&A opportunities, and which most recently shown by the strategic acquisition of Aquila Group. And with that, I would like to thank you all for listening and open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Emil Jonsson, from DNB Markets. Please go ahead.
Good morning, and thank you for the presentation and for taking my questions. Starting off, when looking at net inflows in Investment Managements, there are a lot of moving parts. You got acquisitions and divestments, and finalized projects, and FX, and so on. But if you adjust for this and you look at the actual in and outflows, did you have positive or negative sort of net inflows in terms of new capital that came in from investors versus capital that investors pulled out?
Well, without going into exact details, a very, very, very minor negative. And simply because capital inflows at the moment are virtually zero across the industry. We have added, obviously AUM by completing projects and utilizing committed capital that already sits as net asset value in our funds, but not treated as AUM. But on the positive note, the outflows are also virtually immaterial, which I think is a sign of strength. And as I've discussed on previous earnings calls, you know, that it's an ongoing, virtually daily communication and discussions with our investors to make sure that they understand the long-term position and, and keeping their capital in as the best course of action.
And that's been successful so far, and we have good positive dialogues and very, very immaterial outflows, which again, in this market is not bad.
All right. That makes sense. And, these cost cuts that you mentioned, am I correct in the understanding that you've made efforts during the quarter to cut expenses in both Corporate Finance and in Investment Management? Is that correct?
That's correct. That's correct. The biggest, if we say, active redundancies and cost measures have been in Investment Management, whereas in Corporate Finance, it's a little bit more of not rehiring and focusing efforts on real revenue-generating personnel. But yes, it's a little bit across the board. Nothing hugely dramatic, but significant enough that it'll make a pretty material positive impact in 2024.
Okay. And, what kind of cost measures have you taken in Investment Management? Does that have to do with staff or is it something else?
Mainly staff, but we're also looking at cutting a lot of consultancy spend, optimizing and centralizing IT spend, pausing some spend on investments. What we're focusing on in growth is growth investments, in capital raising, in digitalization, artificial intelligence, in new products. That's where we want to spend money. That's revenue generating on a long-term basis. Whereas we're... You know, as you do, you know, when markets are very strong, there's a tendency, especially in a decentralized organization, that you run a lot of great projects, but you know, maybe the ROI isn't always the best, and now we've taken stock and cut back on a lot of that. So, focusing on core growth, revenue-generating personnel.
So there were some redundancy costs in the third quarter. There'll be some more in the fourth quarter. But that's a strong positive for 2024 and beyond. Obviously, redundancies are never a positive experience, but also necessary in this market.
All right. Thank you. And, just to make sure that we're on the same page, how significant do you think these cost measures will be? Or if we compare to current sort of run rate cost levels in Investment Management and Corporate Finance, are we talking like a 5% reduction or a 25% reduction?
We can't really, as you know, give guidance on future results, but it's one of those numbers. But it's not an immaterial number, but clearly, you know, we only have 500 people across the group. We just added 20 or so with Aquila. So, you know, with the headcount reductions that we make, it's about reducing where it matters, and it's about not rehiring until the market recovers, and it's about pausing or reducing spend that does not generate revenue in the short- term. So it's gonna have a material impact, but, you know, material is put relative.
Until variable revenues come back or become stronger, it's obviously not gonna offset that entire drop if we compare year-over-year, but going into 2024, we'll be in a much leaner position, I should say.
Okay, thank you. Moving over to Principal Investments. Right now, it says the total capital invested in Kaktus is about SEK 1.7 billion. Am I correct in assuming that if the property were to sell for, say, SEK 2 billion, then that SEK 300 million difference would go almost entirely to you? Is that correct?
We own 93% of Kaktus, give or take, so yes.
Okay, so, so 93% essentially of, of that difference?
Yeah.
All right. And, given what you knew at the end of Q3, would you have been surprised if, let's say, the Kaktus property sold for over SEK 2 billion?
Well, I would have been very surprised if it sold right now because we haven't gotten LOI, so that would have surprised me a lot. But, you know, I can't comment on the market pricing. I think, you know, the... It's 495 spectacular sort of micro living units with a really unique long-term location. And if you can see it real- time today with the sort of green overpass and the connection to the city, it's a great long-term buy for someone. But, you know, in today's market, it's the transaction market is, it takes a long time. So that's all I can say about that.
All right. What are the latest developments on the corporate tenant you're trying to sign for Kaktus? Has that developed any further during the quarter?
Yes, it has. I think we're in pretty good position to secure the last tenants in the corporate base, basically, of the building, which, of course, will make it a lot easier to put the property on the market as a completed and a fully rented asset.
Okay. And if we think more sort of big picture for next quarter, there's a lot of seasonal variation at play here. You know, Q3 is a pretty slow quarter overall. When looking at, let's say, transaction activity in Investment Management and Corporate Finance, do you, from where you stand, do you think we'll see sequentially higher activity in the next quarter?
I hope so. It's you know... Look, the market is in an unusual period. But, of course, fourth quarter is usually higher than the third. It's harder to predict this year because in most, or at least in a strong market, you have pretty strong visibility of a lot of players wanting to make significant transactions before year-end. In this particular market environment, I'd say that it's a lot more driven by the bid-ask spread and whether views are met on valuation rather than getting transactions done by year-end. So it's harder to predict this year, although you know, it would be very unusual if the seasonality wasn't sequential. But today, it's really hard to predict. But the pipeline is pretty good.
I wouldn't bet my on real high transactional levels in our Investment Management business. That would be unusual in this environment.
All right. Thank you. And just one last question. What's the plan for the outstanding bond once it matures? Do you intend to just roll it over, or do you plan on doing something else with it?
I mean, of course, we're evaluating different options, and this is nothing we can comment upon. We would need to comment it to the entire market at the same time.
What I would say, Emil, is that bond matures in the late spring of 2025. That gives us quite a long time to plan ahead on how we would like to structure our financing going forward. We have SEK 1.7 billion invested on our balance sheet in real estate projects at cost. Compare that to a SEK 1.25 billion bond and SEK 1 billion in cash... you know, it gives us a pretty good sense of flexibility, and the ability to plan for this. And I think our balance sheet is pretty strong. You know, looking at what our equity level is and how the market looks at the company, I think that's in a strong position.
As you know, or probably know, that the bond is trading at a pretty reasonable level. I think the refinancing, how we decide to pursue that, it seems like we have a strong interest, at least from the credit investors.
All right, that makes sense. Well, that's the end of my questions. But thank you very much for the presentation and for taking my questions.
Great. Thank you, Emil.
The next question comes from Patrik Brattelius from ABG. Please go ahead.
Thank you. Can you hear me, guys?
We can. Good morning, Patrik.
Good morning. Yes, my first question will touch upon a previous question there, but can you quantify the temporary effects impacting the Investment Management segment there?
Round numbers a little bit. We shouldn't go too, too detailed here, but, the management fees, that's, what?
Mid, mid-single digits.
Yeah, mid-single digits. We had a little bit of that deal cost and redundancy, then we're probably up to low double digits. The point is, you know, on a sort of normalized level, it still is at that, you know, minimum 40 level, I would say, on an ongoing, low, extremely low transaction basis. So, that's, like I said, I think our guidance around that or that segment's run rate at very low transaction levels hasn't changed, but this quarter had a couple of unusual effects.
Thank you. So yeah, it's. Then you talk about basically the fixed within the segment.
Right. Mm-hmm. Right.
You're right there on slide nine that the measures that you're taking there for cost reduction will be visible in 2024.
Yeah.
Is it possible to quantify that effect to any degree?
No, that would be a guidance, I guess, to future earnings, so.
Yeah. And then, Patrik, it wouldn't make sense at this point in time to do so, since we're taking additional actions as well, and will do in Q4. So I think it will be more relevant for us to get back to you and your colleagues in our Q4 earnings call.
Where, where we're obviously also report the employee number.
Yeah.
Okay, fair enough. And then if we go over to Aquila Group, you write it's no contributions on income this quarter.
Mm-hmm.
But if you were to include it in the quarter for a full quarter, how would that have impacted your income and operating profit all else equal?
Well, we closed the deal in September, so let's show that in Q4.
Yeah.
It's, you know, it's an EBIT positive business. It's a strong platform. The key for us is not what it brings in this quarter or next. Their key really is, you know, we now have a value add opportunistic, really expert team with a great track record and client base in France and beyond. We have the retail fundraising, which has begun. The fund is launched, and we're gonna ourselves seed invest in it, which we're very excited about. And we can now, you know, work with the rest of our French businesses. That's what matters.
This is not about the current quarter or next. It's about the coming two years and adding to our organic growth via this acquisition.
Fair enough. Then my last question is regarding Principal Investments. The operating profit in the quarter stood at SEK 21 million, and when we read in the notes, you write that it's primarily by rental income from Kaktus and Catella Project Management.
Mm-hmm.
So are there any one-offs in this line, or should we expect that as long as you haven't divested Kaktus and Catella Project Management, that this will be the run rate level going forward?
Not quite. There's just... Yeah, there's one minor one-off from a performance fee from a previously sold project. I can't remember exactly. It's SEK 6 million or something like that. So-
Okay.
Maybe it's SEK 15 million, at a run rate, currently.
Okay. Thank you. That was then all for me. Thanks so much.
Okay, great. Thank you, Patrik.
The next question comes from Jesper von Koch from Redeye. Please go ahead.
Hi, guys, and thanks for the report and for taking my questions. So, let me just start with the Investment Management, and I don't know if I missed it in the presentation, but the number of employees was sequentially up from 307 to 323. But you mentioned that it's temporarily heightened. Could you just elaborate on that?
Yeah. The redundancy impact is not shown in that number yet, so that number will come down. It's you know, the hiring has been sequential, so we haven't really... You know, it's, like, slowing or steering and turning a moving train a little bit, so it's gonna show as an impact in the fourth quarter. So I'm not sure what the exact number will be at the end of the fourth quarter, but the terminations and the redundancies have occurred since, so that number is gonna come down. Obviously, adding Aquila is in-
Yeah
is in this quarter, so that's 20 or 18 or 20 of that uptick.
Okay, perfect. Regarding performance fees, for your funds, do you have, like, high watermarks in all or some of the funds? Like, do you have to return to all-time high and then reach a specific, like, return rate?
Sure. Not all, but most. And, you know, as you well know from the public funds, it's not likely in the short- term. It's, that's gonna be really hard for us or any other player. But I would like to point out that, you know, what's interesting about adding Axipit, that fund platform in France, albeit it's very small today, but it's raising capital and it continuously invests. And so our starting point there is at a really nice yield. And that's gonna be, you know, a good timing to be ahead of the competition with the going-in yield as we grow that platform. So that's one thing to point out on the fund side.
All right, good. And then, how far have you come in terms of, like, rotating your fund assets to, like, sustainable real estate? Like, and do you have a specific share of, like, sustainable assets that you aim for?
Well, if you look from a pure proportional basis, you know, some of our biggest funds are Article 9 funds or Article 8 with substantial high ESG credentials. So, and as you know, at the end of 2022, we made a large exit from our couple of our funds to rotate out some older assets, which we are now investing in new, albeit slowly, because of the current market environment. But yes, going forward, you know, that's a very singular focus, not because of needing to meet those metrics, but frankly, if you look at the long-term value potential in assets today, we firmly believe that the right locations and ESG credentials is gonna be the right, is gonna be the long-term play.
Managing those is something that we're gonna do even more actively. So but yes, it's a pretty high proportion, and we obviously still have significant liquidity in the funds that we need to continue to invest. But, you know, we're not, just like everyone else is being patient, we are being patient, and we'll only invest those in assets that where the sellers are at the market level.
All right, good. And then moving on to Principal Investments, how do you think about timing for new investments? Like, is it worth awaiting new investments until Kaktus has been divested in order to, like, reduce your risk exposure?
No, I don't think. We don't look at it that way. I mean, obviously, with Kaktus on our balance sheet right now, it, the ability for us to invest in something equally big or a collection of big assets is limited, but that's not our business model. We look at continued smaller longer-term bets and opportunistic investments, which we continue to make. I mean, there might be small, and they don't really pop up on the reporting, but we look at them ongoing. We've made some small co-investments, and we continue to have aggregation mandates where that adds up. And we look at new opportunities, you know, every week. But yeah, I mean, we clearly need to divest Kaktus to make a real big push. That's clear.
I mean, we don't want to necessarily, you know, take on more leverage in the short- term. But, we have liquidity and our, you know, our ideal ticket size is maybe, you know, SEK 20 million -SEK 40 million , SEK 50 million in any singular investment. And, you know, that takes time to build up and show up on our reporting, but that's how we want to operate.
All right, good. And then, if you could just give us a status update for Jönköping, like discussions with buyers and so on.
Looking pretty good. Looking pretty good. Again, timeline of getting transactions across the finish line takes a bit longer than it used to, but you know, we're pretty confident.
Okay, that's promising. Then one last question from my side is about buybacks. I mean, if you think about it, I mean, wouldn't it be, like, better ROI than anything else, and you have it under your own control? I know that you have, like, your main owner with almost 50% and so on, but could you just, like, elaborate on how you think about the issue?
Well, I'm glad Michel got the last question. We think about it.
As you know, we have the flexibility, but if, when, and how we decide to, I mean, that's, that's nothing we can comment on in a quarterly earnings call.
Yeah. You know, look, the liquidity we have, we see the market with a lot of opportunity, and that's gonna increase. So utilizing that in creating co-investments with great management mandates attached to them. And I think it's related to your Kaktus question earlier. I mean, until that is sold, we probably have a reasonable level of liquidity to work on our opportunistic investments rather than buyback in the short- term. But it's something that we look at continuously.
Okay. Okay, great. Thanks so much, and good luck going forward.
Thank you, Jesper.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. Well, thank you, everyone. We have no more comments from our side. We appreciate the number and quality of questions and for your attention, and we'll speak to you next quarter. Thank you.
Thank you.