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 + 0.6% for the FA fund class in the fourth quarter of 2020. This brings the return for 2020 to -0.4%.
The GIP will enter its fourth year of existence in 2021 and the investment partners, the partners appointed by the GIP for making impactful investments, have taken good steps in investing the capital committed by the GIP. Since its inception, the GIP has neutralized the so-called J-Curve effect* by investing in an impactful basket of green bonds, pending the call of committed capital by our investment partners. This has largely prevented a negative return since inception. GIP's returns are expected to better reflect the value development of underlying investments in the coming years, as the portfolio companies continue to develop, and holdings are sold profitably.
- a J-Curve effect occurs in private markets (Private equity, infrastructure, etc.) funds where the cash flow is negative in the first years due to investments and fund costs, after which the cash flow is positive in the second half of the term of the fund due to distributions and divestments of interests
Developments portfolio
The COVID-19 pandemic is still dominating world news. Although the ultimate economic and social consequences are not yet clear, the Global Impact Pool and its investments continue to develop well so far, confirming the relevance of the companies invested in. The investment partners appointed by the Global Impact Pool prove their worth by being selective with their investments, carefully assessing risks and opportunities.
The GIP ended the year with assets under management of € 108 million. In recent months, the GIP management team has developed a very promising pipeline of new investments, allowing the newly entrusted assets to be invested impactfully.
The overview below provides a brief overview of the most important developments in the portfolio this quarter per Impact theme.
The investments within the theme SME development and decent work developed well this quarter. The theme is widely addressed by the GIP because our investment partners pay a lot of attention to the health, safety and job security of the employees of the portfolio companies in which the investment is made. A significant portion of GIP's investments within this theme focus on digitized financial services (fintech) in developing countries. (See also sub-goal 8.10 of the SDGs: "to expand the availability of financial services and insurance to all"). During theCOVID-19 pandemic, fintech proves itself as a solid solution for financial inclusion because, despite global lockdowns, access to financial services is guaranteed. One of the investments, Tarfin, provided in Turkey is accessible and affordable working capital to farmers, so that they can manage their business in an efficient and sustainable way.
The Indonesian Julo and the Colombian Addi provide small, short-term loans to households with a stable but low income with very limited access to credit. As a result, so-called "loan sharks" are avoided and households build up a credit profile. Over time, this credit profile offers access to a large number of services that can further contribute to the well-being of these households or further growth of a company.
Investments within this impact theme perform as expected and, in some cases, even above expectations, the result of higher than expected growth in demand for services offered.
Our investment partners within this theme have been very active in the fourth quarter, but also in the beginning of 2021, with new investments in high-impact companies. In the fourth quarter, for example, investments were made in the Brazilian Monkey Exchange, a so-called Supply Chain Finance platform that offers small companies access to working capital that would otherwise not be available or at very high interest rates.
One of GIP's sustainable production and consumption investment partners focuses on sustainable agriculture and continued to provide loans during the quarter to cooperatives, among others, that give smallholder farmers access to better-paid markets that offer greater financial and operational stability. Most portfolio companies have shown resilience and activities are returning to pre-COVID-19 levels. However, loans are still issued with caution, with an emphasis on existing relationships. Another investment partner of the GIP focuses on investing in young but promising companies in the field of the circular economy. In the fourth quarter, an investment was made in ThinkIQ, a company that has developed a total solution for tracking materials in the production process, with which food producers in particular can make their production process more sustainable and more efficient. This leads to improved quality, less waste and a higher yield.
With its investments within the theme Climate and energy, the GIP contributes to the transition to more sustainable energy sources. During the quarter, an investment partner of GIP made good progress with the development of wind farms and solar energy parks, adding sustainable capacity to the energy network in the foreseeable future. Yet another investment partner invested in ZeroAvia, a company focused on the development of a hydrogen-powered electric aircraft engine. The engine is an alternative to traditional kerosene-powered aircraft engines and has the potential to drastically reduce CO₂ emissions from the aviation industry.