The effects of our focus on strategy start to show
The most adequate way to characterise 2011 from a private equity point of view seems to be ‘binary’. During the first half of the year, the transaction market in the Nordic region was robust, while it slowed down considerably during the second half. Financing was available throughout 2011, but lenders became more apprehensive towards the end of the year. Excellent companies continued to attract both private equity investors and strategic buyers, however. The Russian M&A market remained active throughout the year, supported by the country’s positive macroeconomic performance.
The main reason for these developments was the turmoil that affected the global economy in general and the Eurozone in particular. It is also clear that the societal developments on globalisation, competitiveness, regulation, transparency and social responsibility have wrought changes in our societies and operating environment. A conclusion today is that while economic turmoil may abate, these developments will remain and thus we need to learn to adapt to a fundamentally different operating environment. The private equity industry will remain crucial for society as it will continue to support growth and build successful businesses, contributing to increased competitiveness, job creation, and innovation, regardless of the economics in the world, regions and countries.
For us at CapMan, our overall goal during 2011 was to implement our strategy that we announced in February 2011. This builds on CapMan’s core strengths: our entrepreneurial partnerships and all capabilities of CapMan. We have focused implementation on four main areas, i.e. performance, simplification, agility, and the combination of all the strengths of CapMan through what we have come to call ‘the power of AND’. Of course, these areas have a degree of overlap, but they give a clear sense of direction. You can find a number of concrete examples of what we have been doing in terms of our strategy throughout this Annual Report.
There is, however, one strategic achievement with a long-term effect that I want to mention: we brought drive, decisiveness and discipline to our entrepreneurial partnerships by giving them more responsibility through autonomy. At the same time, we redesigned the remuneration to further support their development. The effects have been tangible in the partnerships, which now feel a clearer sense of ownership for all aspects of their own performance. We have redesigned the performance criteria and review process that we use to further improve our long-term performance. We have introduced new training modules, to provide support for each individual to master their profession. We continued to simplify our operations when we sold the Real Estate consulting business to its management, and decided to close our Danish office.
Now, with the results at hand, I believe that we did well. The effects of our relentless focus on strategy are starting to show. The most visible achievement is the positive fair value development that we achieved, despite negative market developments and that was primarily attributable to the strong operating performance of our portfolio companies. All in all, the result of our fund investment business improved significantly, while the fund management business, with its two components management fees and carried interest, was slightly negative. Under the circumstances, however, the result of the fund management business was satisfactory. Management fees decreased in accordance with plan mainly due to exits and our decision in 2010 not to make any new investments from the technology fund. We were successful in taking advantage of the exit window that opened during the spring 2011, but were affected when the exit market dried up during the second half of the year.
I am convinced that the measures described above, combined with all the components of ‘the power of AND’, have created a platform for enduring performance – and a platform for further growth. Growth will come through fundraising in our major business areas during 2012, such as our new Nordic real estate fund.
As we continuously need to develop to meet our competitive challenges and achieve our vision of becoming the best performing European private equity firm by 2020, we will need to continue our performance and simplification improvements, our focus on ‘the power of AND’, and enhancing our agility. As our focus was on building our platform for growth during 2011, we can now start using these building blocks to achieve the targets that we have set for 2012.
I would like to conclude my review by thanking our various stakeholders. First of all, I would like to thank all the people at CapMan. The year was challenging in many ways, but we achieved what we set out to do and are well-prepared for the fundraising rounds planned for 2012. I would also like to thank our shareholders for their faith in us. And last but not least, I would like to thank our fund investors for their belief in our people and our funds. Now it is up to us to deliver on our promises!
CEO, Senior Partner