Fee income comprises:

1. management fees from funds and services, and
2. other service fees.

Fee income includes management fees related to CapMan’s role as a fund management company, fees from other services closely related to fund management, and fees from wealth advisory services.

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 may also decrease 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 on the asset class. 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 approximately 1%.

Carried interest refers to:

The distribution of the profits of a successful private asset 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.

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.

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.

CapMan also makes direct investments into its funds under management alongside its customers.

CapMan also invests actively in the private assets asset class from its own balance sheet, mainly in its own funds. CapMan typically commits 1-5% of the original fund size depending on the size and demand for the fund in question, in addition to CapMan’s own investment capacity. The objective of CapMan’s own investments is to support the growth of the fee generating business and create attractive returns to our shareholders.

Realised returns are e.g. exit proceeds and interest. Fair values changes depend on the development of underlying assets and their peer group as well as general market conditions. Investment returns can also be negative.