2015 Year in Review: Private Equity

Transcription

1 2015 Year in Review

2 PRIVATE EQUITY

3 2015 Year in Review: Private Equity Kensington's private equity business was active in 2015 with proceeds from 55 sales and partial sales of companies across our four active funds. New investments during the year were selective with five new fund commitments and two direct investments. Our funds have performed very well with Cambridge Associates continuing to rate Kensington funds well and we distributed over $100 million of proceeds. We reviewed over two hundred opportunities during the year and found the pricing on some to be too rich for our taste, and the earning power of others to be too weak. The investments we did make are solid opportunities with lots of room to grow. For those of you who attended our Annual Meeting in October, you met and listened to Sab Ravalli, the CEO of Prodomax. We are pleased with the investment we made in that company, and are working towards its first acquisition. Its operating performance is ahead of budget. Another investment we made later in the year is in a new entity appropriately called Horseshoe Energy...we have backed an experienced management team in an opportunistic investment in the energy business. We continue to review investment opportunities and to enjoy a terrific environment for the sale of mature investments will again be quite active based on the momentum that developed in

4 VENTURE CAPITAL

5 2015 Year in Review: Venture Capital The past 12 months have seen a strong market for venture capital. The technology industry has outperformed other sectors, driven by its own forces such as the relentless growth and sophistication of mobile computing, cloud services and social media. Today's leading tech stars have strong customer and revenue growth as they launch new business models disrupting established industries. In Canada, most of this activity has occurred in the information technology/digital media sector, which has always been our most active segment. However, we are seeing increasing activity in the clean tech and energy subsectors, particularly for direct investments based in Alberta and British Columbia. In April, we opened a new office in Calgary to focus on these kinds of opportunities and we are delighted with the resulting deal flow. In general, we have been very pleased with the very high quality direct investment opportunities that have crossed our desks at Kensington in We have invested in some of Canada's fastest growing technology companies, including Touch Bistro, Hubba, Influitive and Blue Ant Media. Each of these companies is led by a founder and executive team that has had successful experience building prior companies in their industries. Our ability to access these top tier venture deals is a core strength of our team. 4

6 2015 Year in Review: Venture Capital (2) This has been a very active year for our fund-of-funds program, as we have assembled the core elements of the Kensington Venture Fund portfolio with 10 new fund commitments completed in the past 12 months. Our Fund was launched under the umbrella of the Government of Canada's Venture Capital Action Plan (VCAP), and has been very well received by investors. The past 12 months have also seen a steady flow of successful exits from across our portfolio. Most of the attention in our portfolio has been focused on our new high profile IPO's completed this year Shopify and Stingray but we have also had great results from acquisitions, with 10 of our venture portfolio companies being successfully sold. Of course, not every venture capital investment is successful and we have had our share of write downs as well, but the overall result for the year has been very positive. We thank all of the investors in our Kensington Venture Fund for their continued support and look forward to a successful 2016! 5

7 HEDGE FUND

8 2015 Year in Review: Hedge Fund The global financial markets in 2015 experienced quite a challenging year with hedge fund managers specifically having an even more trying time ensuring that their strategies continued to provide alpha for investors. Despite the difficult year, the global hedge fund market continued to grow and assets under management reached nearly $3 trillion for the first time in history. The big story in 2015 was the continued deterioration in oil prices and other commodities which put many managers under severe pressure. Those managers who incorporated short positions in oil assets and long positions in the US Dollar have seen large positive gains, but only a brave few have set themselves that way. The challenging times have been particularly apparent for domestic Canadian managers as the Canadian Dollar depreciated against its US counterpart by nearly 20% in Outside of North America, returns have been mixed with China showing signs of an economic slowdown and the continued efforts to restore Europe in the wake of the credit crisis. Europe is now beginning to show signs of life after having been hurt so badly in the economic meltdown of Asian markets generally have been strongly influenced by the economic volatility emanating from China. The Shanghai Index moved up by nearly 70% and then down by nearly 50% only rise again by over 20% all in matter of a few months in Mixed economic data out of much of the world was the root source of much of the volatility experienced in 2015, and we saw quite a turbulent market. The US Federal Reserve raised rates in December and will remain biased to do so again going forward (another 1% hikes in 2016). This is in complete contrast to the European Central Bank, the Bank of Japan, China's PBoC and other central banks globally. 7

9 2015 Year in Review: Hedge Fund (2) The Kensington Hedge Fund outperformed both the S&P/TSX Composite Index and the Scotia Capital Hedge Fund Index as of November 30, 2015 on a relative basis however below management's expectations on an absolute basis. Management has made great strides to adapt the portfolio to the current economic environment of 2015 through several strategic portfolio moves, which directly resulted in a slight adjustment to our underlying holdings. Although we have adjusted our holdings, our strategy remains constant on providing consistent returns with a focus of low volatility. Looking forward into 2016, we still expect a challenging investment environment with continued stress on both the global credit and equity markets. Commodity prices will remain under pressure which will provide ongoing challenges to the level of the Canadian Dollar. US equity valuations continue to appear stretched with bond rates looking to move upwards. On the back of further commodity stress, high-yield markets will again be severely tested as spreads have widened dramatically over the past few quarters. We remain of the belief that a balanced approach focussing on lower volatility strategies will continue to provide our investors with healthy absolute returns and we look forward to the upcoming year. 8

10 INFRASTRUCTURE

11 2015 Year in Review: Infrastructure We are pleased to report a year-end review for Kensington's Infrastructure strategy. Infrastructure has become an increasingly popular asset as investors search for income-oriented products in this low interest rate environment. According to Preqin, the average size of unlisted infrastructure funds has grown from $495 million in 2011 to over $1 billion (as of H1 2015). Meanwhile, the average size (enterprise value) of infrastructure deals globally has increased to $626 million. Kensington's strategy is to focus on mid-market opportunities-deals with enterprise values of under $50 million-to avoid competition with large asset managers who have driven returns down. Since we started our infrastructure strategy, we have developed a strong proprietary source of deal flow. In January, we completed the final investment of Kensington Power Income Fund I (KPIF I), just 15 months after the fund's final closing. Kensington's flagship Crowsnest power plant, designed to convert waste heat coming off a TransCanada compressor station into electricity, is set for a strong year in Between January and March 2015, Crowsnest experienced downtime due to equipment failures during extreme cold weather conditions. Since the repairs, the plant has been performing well, with production steadily rising. The Kensington team has been solidifying relationships with TransCanada and BC Hydro; the increased communications ensure more effective uses of TransCanada's heat, coordinated maintenance schedules to reduce unnecessary downtime, and better integration between Crowsnest and BC Hydro's transmission system. December has been a record month so far, driven by increased collaboration with TransCanada and BC Hydro. We look forward to seeing future years of strong performance. 10

12 2015 Year in Review: Infrastructure (2) Looking forward, we are raising our second and third power infrastructure funds. The second fund, KPIF II, is planned to be a partnership with one large institution where the partners source, execute, fund, and manage investments in the infrastructure sector. The third fund is structured in a similar manner as KPIF I, and is scheduled to hold its final close at the end of March In 2015, we have reviewed opportunities in the hydro, wind, solar, energy storage, and thermal generation spaces. Additional opportunities in the pipeline include similar technologies across North America, in British Columbia, Alberta, Saskatchewan, Ontario, Quebec, Nevada, and Idaho. We are also working with multinational companies to expand our deal flow and to provide technical expertise. Finally, we are pleased to announce that Harold Huber has joined Kensington as a Senior Vice-President. Mr. Huber acted as legal counsel for Kensington in his previous role as a Partner at Torys LLP in Calgary. Mr. Huber has over 30 years of experience in the acquisition and development of energy and infrastructure projects in North America, and has a deep understanding of Kensington's Infrastructure business. Harold is based in Kensington's Calgary office. We are excited to develop our portfolio of infrastructure assets, and look forward to a prosperous

13 WESTBORO MIC

14 2015 Year in Review: Westboro MIC A proven track record of 140 consecutive months of dividends We are pleased to report a successful year for the Westboro Mortgage Investment Corporation (MIC). In May, Westboro completed its fiscal year 2015 and 11 th year of strong risk-adjusted returns to investors (see article here). Westboro MIC continues to return a net 7+% annual yield without interruption, averaging over 600 basis points greater than the Bank of Montreal's 5-year GIC rate. Together with Westboro, we have grown the assets under management of the fund to over $120 million (up 23% since January last year). Westboro's target market of the Ottawa & Gatineau and the Kingston & St. Lawrence Seaway areas continue to be highly desirable territories due to the resilient job market and stable real estate sector. The market remains strong for Westboro MIC due to the tightening of underwriting criteria by CMHC and traditional banks. Westboro continues to enhance relationships with its strong broker network in Eastern Ontario and Gatineau who have confidence in Westboro MIC to provide creative financing solutions for their clients. We expect robust growth for Westboro in 2016 with continued strong risk-adjusted returns to investors. 13

15 Kensington is a Toronto-based investment firm that has been investing in alternative assets since Our firm prides itself on our ability to provide investors with access to high quality investments that are not otherwise readily available to them. To date, Kensington has invested over $825 million in private equity, infrastructure, hedge fund, mortgage income, venture capital and also carries on an active financial and strategic advisory business in these sectors. With a strong reputation for integrity, thorough due diligence and an active investing model, Kensington has been able to achieve strong returns for investors throughout our investing programs. Kensington Capital Partners Limited 95 St. Clair Avenue West, Suite 905 Toronto, Ontario M4V 1N6 Phone: (416) Fax: (416) Toll-Free: info@kcpl.ca 14