Earnings model

Income from the value of the unlisted market

CapMan’s income is derived from the value and yield development of unlisted Nordic and Russian companies and Nordic real estate and infrastructure assets, as well as fees from fund management and services.

Fee income comprises management fees from funds and other service fees.

As a fund manager, CapMan receives management fees during a fund’s entire period of operations. This fee is typically based on the fund’s original size during its investment period, which is usually five years. Thereafter the fee is typically based on the acquisition cost of the fund’s remaining portfolio. Total management fee income increases with new fundraising, and therefore the success of fundraising represents an important indicator for any analysis of CapMan. The level of management fee income declines as exits are made. The fee base also decreases when the investment periods of individual funds end, and the basis for calculating management fees switches from a fund’s original size to the acquisition cost of its remaining portfolio.

Annual management fees are usually 0.5-2.0% of a fund’s total commitments, depending whether the fund is a real estate fund, a mezzanine fund, or an equity fund. In the case of real estate funds, management fees are also paid on committed debt capital. The average management fee percentage paid by CapMan-managed funds is approx. 1%.

Other service fees include fees from CapMan’s service business comprising purchasing scheme (CaPS), fundraising advisory services and other services related to fund management, among others.

CapMan aims to ensure that its fee income cover the Group’s operating expenses. The latest fee guidance is presented in the most recent interim report.

Carried interest refers to the distribution of the profits of a successful private equity fund among fund investors and the fund manager responsible for the fund’s investment activities. In CapMan’s earnings model, carried interest means a share of a fund’s cash flow received by the fund manager after the fund has transferred to carry. The fund transfers to carry after a preferential annual return, typically 8% p.a., has been achieved for the fund.

The recipients of carried interest in the private equity industry are typically the investment professionals responsible for a fund’s investment activities. In CapMan’s case, carried interest is split between CapMan Plc and funds’ investment teams. The table of funds published in CapMan’s interim reports details CapMan Plc’s share of a fund’s cash flow if it is in carry.

CapMan applies a principle where funds transfer to carry and carried interest income are based on realised cash flows, not on a calculated and as yet unrealised return. As the level of carried interest income varies, depending on the timing of exits and the stage at which funds are in their life cycle, predicting future levels of carried interest is difficult.

The timing of carried interest income is less predictable and is best analysed by monitoring the overall development of a fund’s portfolio rather than that of its individual portfolio companies. In the case of funds yet to enter carry, analysis should focus primarily on the performance of a fund’s overall portfolio rather than that of its individual investments. As funds typically make 10-15 investments, their success is not dependent on any one investment. Particular attention should be paid to

  1. The ratio of paid-in capital and distributed cash flow to investors, and
  2. The fair value of a fund’s portfolio.

Information on these factors is reported quarterly in CapMan’s interim reports, and by analysing this information one can estimate the amount of capital and return to be paid needed for a fund to transfer to carry.

In the case of funds that are already in carry, their carried income interest potential can be evaluated by reviewing their portfolio and their individual investments. In practice, an analysis of the latter can help estimate how much of a portfolio’s remaining fair value is associated with each portfolio company and what its impact on carried interest will be. When analysing individual investments, it is important to remember that when a fund is in carry CapMan will receive carried interest income from all of its cash flows, including those generated by investments sold below their original acquisition cost. This is because fund investors have already been repaid the capital they originally invested, together with their preferential returns.

Please see our FAQ for more information about carried interest.

Operatings segments

CapMan has three operating segments: Management Company, Services and Investments. The Management Company business includes the management of CapMan’s private equity funds, which invest in portfolio companies, real estate and infrastructure assets. The Services business includes CapMan’s Procurement Services and CapMan’s share of Scala Fund Advisory. Investments comprise CapMan’s own investments in the private equity asset class, including investments in own funds.