We have compiled a list of questions and answers related to the impact of the ongoing Coronavirus (Covid-19) outbreak on CapMan.
This FAQ was updated on 11 August 2020.
1. How are CapMan’s operations prepared for the Covid-19 situation?
We have taken measures to secure the health and well-being of our employees, our customers and partners and are partially working remotely for the time being. Due to the nature of our business, we are well-equipped and prepared for remote work and have been able to adapt to this situation more or less seamlessly. Although we forego face-to-face meetings in lieu of virtual meetings, our operations continue more or less as usual.
2. What is the financial impact of Covid-19 outbreak for CapMan?
The impact on CapMan’s operating segments can be structured as follows:
Management Company business:
Management fees: Management fees per fund are determined at the establishment of a fund and are paid to the management company, i.e. CapMan, twice per year based on the original fund size, including commitments, over the fund’s investment period (generally five years) following which management fees are determined based on the at-cost value of the underlying portfolio. These fees are long-term and highly predictable, and we see little volatility in the near/mid future.
Future management fees are affected mainly by new funds raising and exits from existing funds. If ongoing fundraising projects are postponed or delayed, management fee growth prospects may be affected. Exits following the end of the investment period reduces the aggregate at-cost price of the remaining portfolio, on which management fees are based. If exits are delayed due to increased uncertainty in the market, management fees remain stable.
Carried interest income: The increased uncertainty, the impact on value creation in the portfolio and delays in exit processes may impact the timing and magnitude of funds to generate carried interest, but it is too early to tell what the impact will be. CapMan does not provide guidance regarding carried interest.
The impact of the Covid-19 pandemic on fees from longterm service contracts is limited for the time being. Transaction-based fees are more susceptible to market risk and are therefore more volatile.
Investment business income is defined in the income statement as the change in fair value of investments and consists of both realised and unrealised changes. The impact has been hardest felt in the Private Equity portfolio, although what the full short and mid-term impact will be is difficult to determine. Because unlisted assets are valued less frequently than listed assets, the impact of short-term market shocks and volatility is in general less pronounced in these asset classes compared to the listed market. However, the effects may in turn take longer to process and the return to so-called normal levels may be further along for unlisted assets. Real Estate and Infra funds have defensive characteristics and may therefore perform better compared to
other asset classes in this market. e.g. listed equities in this market. The tenant base of real estate assets has an impact on how susceptible their valuation is to the Covid-19 pandemic.
All in all, it is still too early to tell what the impact for our business will be, as all depends on the length and magnitude of the ongoing situation. Given the stable and predictable nature of management fees and high level of recurring fees, we are in a relatively good position compared to many other industries and businesses.
3. What is the non-financial impact?
The situation tests our processes and may lead to new ways of collaboration and potentially more cost-efficient business practices across the organisation.
4. Is CapMan taking action to reduce expenses?
Given the current uncertainty, we are conservative regarding our cost structure and explore options to maintain functioning operations while maintaining prudent cost control. If need be, we are ready to adjust our cost structure in line with our income.
5. What is CapMan’s liquidity position and how will the Covid-19 situation impact it?
CapMan had approx. MEUR 46 in cash & liquid assets as of 30 June 2020. Our equity ratio was 50% and interest-bearing net debt MEUR 28. Given incoming management fees and service fees, our cash flow situation is solid, which puts us in a good position to weather this situation.
6. Is CapMan’s dividend policy impacted?
CapMan’s policy, launched in 2018, is to pay an annually growing dividend. We have not made any changes to the policy.
7. Is CapMan’s ability to pay dividends impacted? Will dividend distribution as decided by CapMan’s 2020 AGM be delayed?
The decision regarding dividend and equity repayment distribution, 13 cents per share for 2019, was made at the 2020 AGM and was paid to shareholders on 20 March 2020.
Our ability to execute our dividend policy depends on many things, among others our earnings per share for the period and total distributable earnings. We maintain our dividend policy despite these exceptional times.
8. What is the impact of the Covid-19 situation on CapMan’s private equity strategies and funds?
The situation for portfolio companies is changing by the day, and we expect all companies to be impacted in some way, with some industries being harder hit than others. As revenue and cashflow always drop faster than adaption measures take effect, we have already earlier initiated actions in all portfolio companies. Some businesses may need additional liquidity in the interim. The increased uncertainty also impacts the transaction environment with delayed exit processes as a result. In terms of new investments for the Growth II and Buyout XI funds, the teams are proceeding with the current pipelines.
9. What is the impact of the Covid-19 situation on CapMan’s real estate strategies and funds?
The effects will vary depending on the segment. Hotels, cinemas, restaurants and events venues are likely to suffer a large short-term fall in income. Shopping centres and high streets will see decreased footfall and spending. Leasing decisions will be delayed as tenants assess the impact on their business. Office markets in Nordic capital cities have limited quality space, and companies tend to take a longer-term view on their workplace strategies. In this unprecedented time, we may renegotiate leases and step in to support tenants at risk. Deal flow may be slowing down, especially related to international transactions. Fundraising for CapMan Nordic Real Estate III proceeds as planned.
10. What is the impact of the Covid-19 situation on CapMan’s infra strategies and funds?
The asset class is relatively defensive to external shocks like pandemics, but it is not totally isolated from the general economy and society. Three out of the fund’s four existing assets (district heating in Oslo and Loviisa and fiber-to-the-home platform FiberCo) are not strongly affected by the virus in their short-to-medium term revenues. Concession-based ferry business Norled has seen some impact in terms of passenger volumes and adjustments of operations. There are some delays in the launch of auction processes and lengthening of bilateral negotiations. However, it is anticipated that most counterparties will remain responsive and actively working on the projects. The Infra team is actively working on achieving a final close for the fund.
11. What is the impact of the COVID-19 situation on CapMan’s credit strategies and funds?
Short-term impact is likely to remain small to moderate. Long-term impact is less pronounced than for PE funds, but the solidity of the portfolio companies and their economic situation has an impact on debt payments, especially in cases of liquidity crunches or defaults.
12. How will the Covid-19 situation affect management fees?
13. How will the Covid-19 situation affect ongoing fundraising?
The situation may lead to delays in the fundraising process, with delays in both first and interim closes. It is still too early to tell what the impact will be. The underlying appetite for private assets strategies remains strong, and due to the characteristics of the asset class, investment decisions are likely to be strategic rather than opportunistic in nature.
14. How will the Covid-19 situation affect service fees?
15. Will the Covid-19 situation affect how and when funds start generating carry? Are some funds more affected than others?
See 2. As there may be more volatility related to private equity funds, we expect the effect to be more pronounced in these.
16. How will the Covid-19 situation affect CapMan’s fair values?