Global Impact Pool Quarterly Investor Letter
Specifically, we aim to address the following impact themes:
- Basic needs & well-being: the provision of basic goods & services for the underserved including water and health & wellbeing;
- SME development & decent work: creating decent jobs with fair employment practices to eradicate poverty;
- Circular economy: Support sustainable consumption and production aimed at doing more and better with less, and;
- Climate & energy: Contribute to abundant clean energy and reduction of CO₂ emissions.
Bearing in mind our mission, there is also the explicit target to generate a market rate financial return.
Impact highlights
Financial return
The Kempen Global Impact Pool (GIP) achieved a return of 1.4% for the FA share class during the third quarter of 2022, resulting in a YTD return of 5.3%. The return over the last 12 months amounts to 16.6%, while the average annualized return over the last 3 years is equal to 7.3%. Since the launch of the fund in the beginning of 2018, the fund realized an average annuallized return of 4.7% for its participants.
In what has been a challenging year for financial markets so far, the balanced investment portfolio of the GIP delivered strong returns during the third quarter and full calendar year. Over the course of the third quarter of 2022, the Private Equity and Venture Capital component of the core impact portfolio faced some headwinds as a result of the challenging macro-environment with e.g. rising interest rates, supply chain disruptions and high inflation. This result, however, was offset by some valuation uplifts taking place at the underlying company level, the strengthening US dollar, and a positive contribution from the Private Debt portfolio of the GIP. The GIP’s infrastructure allocation, which focuses on European greenfield renewables projects, realized slightly positive returns this quarter.
Portfolio developments
The GIP continued its mission to pool capital and scale impact on behalf of its participants during the third quarter of 2022. Assets under management increased to €170 million at the end of September 2022. This increase can be attributed to an increase in the value of the investment portfolio and a slight inflow of client assets. On a net basis, there have been inflows of approximately €2.5 million for the GIP during the quarter. After quarter’s end capital was called from investors in the F-share class which has resulted in inflows in excess of €16 million. This allows the GIP and its investment partners to deploy capital in a market that offers many opportunities at relatively attractive valuations.
During the third quarter of 2022, the team managed to deploy almost €20 million of new capital to the GIP’s investment partners, who have been calling capital in order to fund new investments. Capital was called by nearly all of GIP’s investment partners, with most capital drawn by Trill Impact (Northern Europe Private Equity – broad impact mandate) and Leapfrog (Emerging Markets Private Equity – focused on financial inclusion and health services to low-income customers). Other noteworthy capital allocations went to the newest funds of our German investment partners KGAL (ESPF 5, European sustainable infrastructure) and Quona Capital (Opportunity Fund, Emerging Markets Venture Capital focused on financial inclusion).
The overview below provides a summary of the most important developments in the portfolio this quarter per individual impact theme.
Within the theme of SME development and decent work, our investment partners made good progress by completing new or follow-on investments in portfolio companies. Quona Capital, our investment partner focusing on early-stage fintech companies in underserved economies, called capital to finance the purchase of new and existing companies for the investment portfolio. The most notable additions to the portfolio are Makmur, Kanastra and Mewt, all these companies perfectly align with GIP’s impact target of providing essential, affordable financial and health services to low-income customers. Makmur operates in Indonesia and offers a multi-asset investment application that helps underserved consumers manage money and grow wealth aligned with their personal goals. Kanastra, focussed on the Latin American market, developed a platform through which it offers small companies financing with relatively quick turnaround time and low fees.
The Micro, Small and Medium Enterprises (MSME) market in India has seen rapid digitization over the last few years, but most players serving MSMEs offer standalone products, which has led to massive fragmentation of banking operations. Mewt is a digital interface that aims to simplify banking for MSMEs in India by providing insights in consolidated banking accounts which reduces complexity and provides better visibility into its cashflows.
Trill Impact, our investment partner focused on private equity impact investments in Northern Europe, called capital for a new company: KarrierreTutor. This German company offers digital vocational education and training modules to the unemployed and people at risk of unemployment with the goal to make them more resilient in their workforce participation.
With its investments within the Climate and energy transition theme, the GIP contributes to the energy transition towards more sustainable energy sources.
EIF, GIP’s investment partner that funds early-stage companies focusing on climate solutions, called a significant amount of capital during the third quarter. Funding was used to finance a follow-on investment in Unagi and a new investment in Andium. Unagi, one of GIP’s existing portfolio companies based in the US, produces high-end electric scooters that provide a clean, and often faster, alternative to a car in urban areas. Andium offers a technology that can accurately monitor emissions related to a company’s operations, on top of which the company also provides analytical and reporting services. The focus of this company is on detecting Methane emissions, a gas that is 28 times more potent than carbon dioxide (CO2). Using Andium’s services will allow a company to efficiently reduce its emissions.
KGAL, our German investment partner with two funds in GIP’s portfolio currently, invests in the development of wind farms and solar energy parks in Europe. KGAL continued to make good progress with the development of its assets during the quarter, resulting in a significant amount of capital calls during the quarter. As a result, the GIP’s exposure to the Climate and energy theme increased. This capital was used, among other things, to finance the construction of solar power plants in Italy and Greece and to purchase the turbines for the onshore wind farm Rywald in Poland. All these investments will soon add a significant amount of renewable energy capacity to the network. As mentioned during our last quarterly update, the GIP committed significant additional capital to KGAL’s latest fund during Q3 2022 which reflects our conviction in this investment partner and its exciting pipeline of projects.
The impact case for this quarter focuses on Komet, an Austrian company that produces high-quality water- and energy-efficient sprinklers, regulators and big volume water guns, Komet is a new portfolio company of Trill Impact, the GIP’s partner for Private Equity buy-out investments in Europe.