PKA AIP / Årsrapport / Annual Report / 2014 by IIP Denmark P/S

X ANNUAL REPORT — 2014

PKA AIP ANNUAL REPORT 2014 â&#x20AC;&#x201D; MMXIV

PKA AIP A/S Rosenborggade 1B DK-1130 Copenhagen Denmark

pkaaip.dk

Regarding charts on pages 17, 18, 19, 24, and 26 all numbers are calculated using a fixed exchange rate at the day of the commitment for each investment.

Where figures are shown as DKK (USD), the USD figures are calculated using a fixed exchange rate of 650.00. Where figures are shown as DKK (EUR), the EUR figures are calculated using a fixed exchange rate of 745.00.

Graphic design Wy Printing Stenby Tryk

CONTENTS

PKA AIP IN 2014

DIRECT

A N D G O I N G F O RWA R D

INFRASTRUCTURE

The year 2014 at a glance

PKA AIP Direct 2012-2014

2014 in review and outlook for 2015

PKA AIP Direct 2015-2017

ABOUT

A G G R E G AT E C O M M I T M E N T

PKA AIP

OVERVIEW

Background

Organization

GLOSSARY

P R I V AT E FUNDS PKA AIP 1 status PKA AIP 2 strategy PKA’s aggregate portfolio

Contents

Courtesy of Anholt Offshore Wind Farm, DONG Energy

P K A A I P I N 2 0 1 4 A N D G O I N G F O RWA R D

PKA AIP in 2014 and going forward

T H E Y E A R 2 0 1 4 AT A G L A N C E

DKK BILLION

FUND COMMITMENTS

PKA AIP was responsible for investing approximately

PKA AIP assisted PKA in making six commitments to

DKK 4 billion in funds and co-investments,

private equity funds across different geographies and

as well as approximately DKK 3 billion in direct

industries.

infrastructure assets.

CO-INVESTMENTS

DIRECT COMMITMENTS

PKA AIP was responsible for making four new co-

PKA AIP advised PKA on two new direct investments:

investments along with selected infrastructure and

Gemini Offshore Wind Farm in Holland and Gode Wind 2

private equity managers.

Offshore Wind Farm in Germany.

ASSET MANAGEMENT AGREEMENT

NEW TEAM MEMBERS

PKA AIP was chosen to perform asset management of

PKA AIP strengthened its organization by adding four

the Gode Wind 2 asset on behalf of an equity consortium

highly-skilled professionals to the team.

consisting of four Danish pension funds.

PKA AIP in 2014 and going forward

2014 IN REVIEW AND OUTLOOK FOR 2015

The year 2014 was an exciting year for PKA AIP,

P R I V AT E F U N D S

characterized by strong team developments and a solid investment pace. During the year, PKA AIP was responsible for

The year 2014 was the final year of the commitment

investing in excess of DKK 7 billion (USD 1.1 billion)

period for PKA AIP 1. It was also the year that our efforts

– more than in any single prior year. Approximately

to increase the capital deployed in co-investments

DKK 4 billion was committed to private funds and

started to show significant traction, with 21% of 2014’s

co-investments, while DKK 3 billion was invested

total commitments going into co-investments.

into direct infrastructure assets. Today, PKA AIP has

Today, a total of DKK 11.6 billion (USD 1.8

approximately DKK 38 billion (USD 5.8 billion) under

billion) has been committed to 24 funds and seven

management, of which approximately DKK 32 billion

co-investments in PKA AIP 1. The program consists of

are in exposure to private funds and co-investments

managers from PKA’s legacy portfolio and a number of

and approximately DKK 6 billion are invested in direct

new strong managers that we are very pleased to have

infrastructure assets.

partnered with. The carefully chosen commitments,

The year 2014 marked the third year of operation since the establishment of PKA AIP in April 2012.

collectively, represent a promising portfolio, which we expect to perform strongly over the decade.

During this period, the team has evolved from three

The four co-investments that were made during

dedicated investment professionals to a broad-based

2014 represent a significant step up in terms of

team of nine employees by the end of 2014. During the

number and value relative to previous years. This has

year, PKA AIP strengthened its organization by adding

been achieved through a structured effort to increase

four highly-skilled professionals to the team across the

awareness about PKA’s co-investment appetite and

areas of office management, finance, fund investment,

through an improved co-investment process, which

and direct asset management. In order to accommo-

has enabled us to become sufficiently flexible and

date current and future team expansions, PKA AIP

efficient to match the process requirements of our

moved into a new office in March 2014, located in

partners.

central Copenhagen.

In 2014, the strong fundraising environment from 2013 continued with significant capital coming into the market. This has supported very short fundraisings for top tier managers and has made it

The year 2014 was an exciting year for PKA AIP, characterized by strong team developments and a solid investment pace.

increasingly difficult to get significant allocations with the best performing managers. From our perspective, the strong fundraising environment has tempted a number of managers, facing easy fundraisings, to increase fund sizes excessively. While time may prove them right, we are concerned with the inherent style drift and potential impairment of investment discipline.

PKA AIP in 2014 and going forward

The year 2014 saw a surge of capital into the

DIRECT INFRASTRUCTURE

European infrastructure market from traditional fund investors and an increasing number of direct

In 2014, PKA AIP continued its strategy of investing in

investors, thus continuing the trend from the year

essential infrastructure in geographies with reliable

before. In many cases, this capital found its way into

regulation and via long-term partner models with

large coveted assets with a perceived low risk. The

strong alignment.

result – according to other market participants –

In May 2014, PKA AIP advised PKA in its commit-

has been a decoupling of the market, whereby core

ment to the Gemini Offshore Wind Farm - a project

infrastructure assets on one side have become more

which was recently awarded “European Wind Deal

competitive, while more complex assets have seen

of the Year” by Infrastructure Journal. PKA invested

a structuring premium included in the expected

EUR 120 million in the subordinated debt tranche in a

returns. At PKA AIP, market developments are closely

process where banks and financial investors provided

monitored, and there is a continuous focus on retaining

a debt financing package totaling approximately EUR

pricing discipline throughout the investment process.

2.2 billion.

OUTLOOK FOR 2015

In September 2014, PKA AIP closed the second direct infrastructure transaction of the year when an equity consortium of four Danish pension funds

PKA AIP expects to continue assisting PKA – and poten-

acquired 50% of the Gode Wind 2 Offshore Wind

tially other institutional investors – in their efforts to

Farm in Germany. PKA AIP advised PKA as the lead

strengthen the focus on alternative investments.

investor in the consortium and was subsequently

In 2015, PKA AIP expects to make commitments

chosen to perform asset management on behalf of the

to private funds and co-investments in the amount

consortium. The agreement is the first of its kind to

of DKK 4 billion. Commitments will be given to

extend beyond the role of advisor to PKA, as PKA AIP

managers with strong performances in a combination

will actively manage the Gode Wind 2 asset on behalf

of existing and new relationships. Within the direct

of four investors in order to maximize the investment

infrastructure space, PKA AIP expects to advise on one

value. In order to cater for this new assignment,

to two investments worth DKK 2-3 billion.

PKA AIP further strengthened its organization in

The current investment strategy will continue to

the beginning of 2015 by adding a dedicated asset

apply with a focus on essential infrastructure assets

manager.

in Northern Europe. To facilitate these ambitious investment programs, PKA AIP will continue to build and strengthen its team during the course of 2015.

In 2015, PKA AIP expects to make commitments to private funds and co-investments in the amount of DKK 4 billion.

PKA AIP in 2014 and going forward

ABOUT PKA AIP

About Om PKA PKAAIP AIP

PKA AIP was established to hive off the man-

BACKGROUND

agement of these alternative investments into an independent unit for the purpose of:

Since 2012, PKA AIP has assisted PKA in the field of alternative investments through private funds,

• Strengthening and professionalizing the selection

and direct commitments in energy, as well as infra-

and management of alternative investments;

structure assets.

• Reducing the costs of alternative investments

PKA is an administrative company that manages

through increased co-investing with funds, as

and develops labor market pensions on behalf of three

well as direct investing in selected energy and

independent pension funds with a total of approx-

infrastructure assets;

imately 260,000 members within the social welfare

• Creating a framework for achieving premium

and health care sectors in Denmark. The total capital

returns relative to investing in publicly listed

amounts to approximately DKK 200 billion.

assets; and

PKA has been active within private fund in-

• Creating greater transparency and meeting added

vestments and direct investments in energy and

regulatory requirements applied to alternative

infrastructure assets since the 1990s. PKA AIP was

investments.

established in April 2012, as PKA chose to spin off the administration of its alternative investment activities

PKA AIP manages PKA’s investments in private

into a separate entity.

funds and co-investments, as well as PKA’s existing portfolio – in total, 118 funds and co-investments. PKA AIP also manages PKA’s direct investments in energy and infrastructure assets, and hence manages four

Since 2012, PKA AIP has assisted PKA in the field of alternative investments through private funds, co-investments, and direct commitments in energy, as well as infrastructure assets.

existing offshore wind farm investments on behalf of PKA. PKA and PKA AIP recently concluded a management agreement for 2015-2017, under which PKA AIP is to advise on commitments totaling approximately DKK 13 billion into private equity funds and co-investments, as well as approximately DKK 7-8 billion directly into infrastructure assets.

About PKA AIP

W H AT W E A R E H E R E T O A C H I E V E Support the creation of a strong financial foundation for the retirement life of pension savers by delivering the best possible risk-weighted returns

O U R A S P I R AT I O N F O R P K A A I P Recognition as Nordic tier 1 alternative investment partner based on results delivered

WHO WE ARE Currently, a growing team of ten professionals with relevant and complementary experience from management consulting, investment banking, and the industry dedicated to achieve the overall purpose of PKA AIP

O U R I N V E S T M E N T M A N D AT E

PRIVATE FUNDS

DIRECT INFRASTRUCTURE

PKA AIP 1: DKK 11.6 bn. (USD 1.8 bn.) invested in 2012-2014

PKA AIP Direct 2012-14: DKK 6.4 bn. (EUR 0.9 bn.)

across private equity, and infrastructure/energy

invested in four offshore wind assets

—

PKA AIP 2: DKK 13 bn. (USD 2 bn.) to be invested in

PKA AIP Direct 2015-17: DKK 7-8 bn. (EUR 0.9-1.1 bn.)

2015-2017 across private equity, and infrastructure/energy

to be invested in essential infrastructure assets

—

Asset under management: DKK 31.5 bn. (USD 4.8 bn.)

Asset management: Gode Wind 2 managed on behalf of

managed across PKA AIP 1 and PKA’s

four Danish pension funds, and Gemini, Butendiek, and

legacy portfolio

Anholt managed on behalf of the three PKA pension funds

OUR INVESTORS The State Registered Nurses and Medical Secretaries’ Pension Fund. The Social Workers’, Social Pedagogues’ and Office Staff Pension Fund. The Healthcare Professionals’ Pension Fund.

About PKA AIP

O R G A N I Z AT I O N

U L R I K PA L L I S Ø B O R N Ø

The current organization consists of ten employees

M.Sc. in Applied Economics and Finance,

Senior Investment Manager with mutually complementary experience from a

Copenhagen Business School

range of professional services, including management

Formerly held M&A and investment positions with DONG

consulting, investment banking and legal affairs, as

Energy, SEB Enskilda Corporate Finance, and Credit Suisse

well as from industry.

Investment Bank

— NISHANDAN GANESALINGAM

ANDERS DALHOFF Managing Partner

Investment Manager

LL.M., Aarhus University and MBA, INSEAD

M.Sc. in Software Development and Technology,

Formerly management consultant with Quartz+Co and

IT University of Copenhagen

attorney-at-law with Kromann Reumert, and Plesner

Formerly consultant with EY and analyst with Nordea and SAS

—

BRIAN SCHLEIMANN NORDLUND

MARTIN VERING DALSAGER

Partner

Asset Manager

M.Sc. in Finance and Accounting,

M.Sc. in Finance, Aarhus University

Copenhagen Business School

Formerly held finance and M&A positions with DONG

Formerly management consultant with Quartz+Co

Energy and Catella Corporate Finance

—

JOHAN BERNT NORDANG

TRINE LISBERG

Investment Director

Finance Manager

M.Sc. in Economics, University of Copenhagen

M.Sc. in Economics and Management, Aarhus University

Formerly held M&A positions with DONG Energy,

Formerly held finance positions with Deloitte,

Macquarie Investment Bank, and Copenhagen Airports

DONG Energy, and Trelleborg Sealing Solutions

—

CHRISTIAN KVORNING

HELLE BRONÉE

Investment Director

Office Manager

M.Sc. in Finance and Accounting, Aarhus University

Clerical training with the business travel industry

MBA, Rice University, Houston, TX

Formerly held personal assistant positions with

Formerly investment consultant with Cambridge

Folketeatret, Quartz+Co, PA Consulting Group, PwC,

Associates in London

Danisco, and Carlsberg

— J A C O B L I S E LY N G S G A A R D Senior Investment Manager M.Sc. in Finance and Strategic Management and CEMS MIM, Copenhagen Business School Formerly held M&A and strategy positions with Dako, Implement Consulting Group, and Macquarie Investment Bank

About PKA AIP

P R I V AT E F U N D S

Private funds

P K A A I P 1 S TAT U S

PROGRAM REVIEW The PKA AIP 1 mandate of DKK 11.9 billion (USD 1.8 billion) has been deployed from 2012-2014. The mandate covers commitments to private funds and coinvestments within two asset classes: private equity and infrastructure/energy. With the new commitments made during 2014, total commitments in PKA AIP 1 reached DKK 11.6 billion. The program consists of 31 commitments of which seven are co-investments. In terms of value, 10% of the commitment has been given to co-investments. For 2014 alone, co-investments made up 21% of the committed value. Of the total commitments, 68% has been committed to private equity, followed by 17% to energy, 11% to infrastructure and 4% to agriculture. The majority of the commitments (53%) are with funds focused on investing in the US and Canada, while 20% are with European funds. 16% are invested in funds with a global mandate, which include funds focusing on emerging markets or US/EU strategies.

With the new commitments made during 2014, total commitments in PKA AIP 1 reached DKK 11.6 billion.

Courtesy of Peak 10, GI Partners Fund IV

Private funds

BREAKDOWN OF COMMITMENTS BY ASSET CLASS

4% Agriculture 11% Infrastructure 17% Energy

68% Private Equity

BREAKDOWN OF COMMITMENTS BY INVESTMENT FOCUS

4% Australia 4% Asia 4% Africa 53% US/Canada

16% Global

20% Europe

Private funds

Out of the DKK 11.6 billion in commitments to PKA AIP

While PKA AIP 1 is now fully committed, many of the

1, DKK 4.1 billon has been called corresponding to 34%

funds in the portfolio are still immature, and three

of the program and 35% of the actual commitments

had not yet drawn their first capital as 2014 ended.

given.

Although it is still too early to evaluate performance,

The total value of the program amounts to DKK

we are satisfied with the progress of the program and

4.3 billion, of which DKK 4.0 billion is the current

note that with 35% of commitments already paid-in,

market value, and DKK 0.3 billion has been distributed.

the investment pace is well above the market median

In total, this corresponds to a TVPI of 1.05.

(benchmarked to the FoF index).

PKA AIP INVESTMENT PROGRAM DKK billion

PIC 0.35

11.9

11.6

TVPI 1.05

4.1

Programme

Commitments given

Paid-in capital

Private funds

4.3 0.3

Distributed

4.0

Market value

Total value created

INVESTMENTS IN 2014 During the final commitment year of PKA AIP 1, six new fund commitments and four co-investments were made by PKA within the mandate. In total, commitments worth DKK 3.8 billion were made during 2014, including a commitment extension to Trackmanager (DKK 0.1 billion).

NEW COMMITMENTS MADE IN PKA AIP DURING 2014 DKK million

Abraaj Africa Fund III

441

Comvest Partner V

442

Exponent Fund III

516

GI Partners Fund IV

550

H.I.G. Middle Market LBO Fund II

382

HGGC Fund II

721

EV Offshore Limited

PPC Industries

SSI

Star West Generation

299

166

Funds

Private funds

Co-investments

FUND COMMITMENTS Of the six new fund commitments, three commitments were given to existing relationships, i.e. H.I.G. (Middle Market Fund II), Abraaj (Africa Fund III), and Comvest (Comvest Partners V). The three remaining commitments were given to the following new managers:

Exponent In December 2014, PKA made a GBP 55 million commitment to Exponent III. Exponent is a UK-based and UK-focused manager. The team targets companies that have strong market positions, but in one way or other are constrained in reaching their full potential.

GI Partners GI Partners is a US-based private equity firm operating in the middle market. Part of their strategy is to target deep value investments with limited downside, while at the same time aiming for significant value creation through strategic and operational levers. PKA has committed USD 100 million to Fund IV.

HGGC HGGC operates in the US middle market and typically targets companies with an enterprise value between USD 100-500 million. HGGC works on creating value by sourcing via its extensive network and by working closely with management in investments, where the previous owner typically roll over part of their ownership. PKA has committed USD 125 million to the teamâ&#x20AC;&#x2122;s second fund.

Private funds

CO-INVESTMENTS PKA committed to four co-investments during 2014. The commitments, which include both the initial funding and capital set-aside for future add-ons and expansions, correspond to 21% of the total commitments to private funds during 2014.

EV Offshore EV Offshore designs and develops cameras for the oil and gas industry in the UK and internationally. EV uses well-known technologies and applies them in the oil and gas industry with its own down-hole video technology. With the use of in-house research and engineering capabilities, EV designs camera systems to work 10,000 meters below the surface in environments up to 175째 C and 15,000 psi in all areas of the world. PKA committed GBP 10.0 million in November 2014 alongside Dunedin Fund III.

PPC Industries PPC Industries is a leading extruder and converter of polyethylene bags, films, and tubing for food and industrial packaging applications. PPC is a manufacturer, which includes extrusion, converting, and printing processes. PPC has two main facilities in the US and Costa Rica. PKA committed USD 15 million in November 2014 along with Kohlberg Fund VII.

SSI SSI is a global provider of technology enabled data collection services and survey research. The customer base includes market research firms, consulting firms, and end-clients including corporate users. The company has 25 offices across 18 countries. PKA coinvested in SSI shortly after the commitment to HGGC Fund II.

Star West Generation

Courtesy of Green Team Group, Adelis Equity Partners Fund I

Star West Generation (SWG) is a 1.7 GW portfolio, consisting of five gas-fired power generation plants located in Arizona and California, which operate within the Arizona, New Mexico, Southern Nevada, and Southern California power markets. PKA committed USD 30 million to SWG in February 2014 along with Highstar Capital Fund IV.

Private funds

P K A A I P 2 S T R AT E G Y

INVESTMENT FOCUS As the commitment period of PKA AIP 1 ended on December 31, 2014, the new mandate, PKA AIP 2, came into existence on January 1, 2015. The commitment target for PKA AIP 2 will be approximately DKK 13 billion (USD 2 billion) over the next three years. PKA AIP 2 will continue the strategy of PKA AIP 1. As the portfolio of PKA AIP 2 starts to build, we expect to see a continued concentration of managers as our ticket sizes are expected to increase (USD 75-125 million sweet spot). Furthermore, we expect to see very limited reliance on fund-of-funds. The primary focus of the program is North America and Europe, but will also include commitments to global mandates and potentially local/ regional funds outside of North America and Europe. To ensure alignment of interests, PKA AIP will mainly invest through independent managers with a single or a few investment products. This helps to ensure that investors commit to a product, which is essential for the managerâ&#x20AC;&#x2122;s future success. PKA aims to increase the amount of coinvestments with managers that PKA has already committed to, and in which PKA AIP already has in-depth knowledge of the team, the strategy, and its value-creation processes. Co-investments offer an opportunity to costefficiently increase participation in investments that PKA is already part of. Typically, PKA invests USD 1550 million in any single co-investment. During 2014, we have worked to improve our investment process to ensure that we continue to be an attractive coinvestment partner.

The commitment target for PKA AIP 2 will be approximately DKK 13 billion (USD 2 billion) over the next three years.

Courtesy of Green Team Group, Adelis Equity Partners Fund I

Private funds

P R I V AT E E Q U I T Y Commitments to new managers in PKA AIP 2 will generally be given to mid-sized funds with total commitments of USD 0.5-2.0 billion for the purpose of: (i) achieving a professional, institutional product without undue reliance on specific individuals; and (ii) enabling PKA to invest at least DKK 400 million per fund. In many cases, companies targeted by funds in this segment are of a size, which is suitable for expansion during the ownership period to make them attractive targets of strategic acquisitions by major competitors. Also, with this, a strong preference for funds taking controlling interests exists. PKA invests in private equity funds with a proven, strong track record and a realized return outperforming both competing funds and listed companies. It is essential that the funds can demonstrate a controllable and repeatable ability to create value by optimizing the portfolio companies and creating growth.

INFRASTRUCTURE AND ENERGY The investment strategy for infrastructure and energy funds will typically target funds larger than USD 500 million. The funds must have one or more strategic and operational value creation angles to their investments so as to generate an attractive return. It is also essential that the strategy builds on initiatives that are controllable and can be reproduced in future.

Private funds

P K A ’ S A G G R E G AT E P O R T F O L I O

– of this, DKK 4.0 billion represents actual change in

P O R T F O L I O S TAT U S

new commitments and terminated funds, while the remainder of approximately DKK 1.0 billion is the

At the end of 2014, PKA’s total commitments to private

result of currency fluctuations impacting the DKK-

funds amounted to DKK 33.2 billion (USD 5.1 billion)

measured market value and outstanding commitments

measured at actual exchange rates. This represents

of particular USD denominated funds.

an increase of DKK 5.0 billion from December 2013

D E V E LO P M E N T I N P K A' S E X P O S U R E DKK billion 31.5 25.9 12.2

23.4 18.2 14.3

19.5

10.2 9.2

6.4

7.1

11.8

12.4

14.2

15.7

2010

2011

2012

2013

6.4

8.0

2009

Remaining commitments

19.3

2014

Market value

D E V E L O P M E N T I N P K A ' S T O TA L C O M M I T M E N T DKK billion

33.2 28.2 15.7

2009

17.7

2010

20.1

2011

24.3

2012

Private funds

2013

2014

Courtesy of Peak 10, GI Partners Fund IV

The total exposure of the portfolio amounted to DKK 31.5 billion (USD 4.8 billion) â&#x20AC;&#x201C; up DKK 5.6 billion since last year. Of the total exposure, DKK 19.3 billion (USD 3.0 billion) was the market value of the investments, while DKK 12.2 billion (USD 1.9 billion) were the outstanding commitments. Of the total market value, 53% is attributed to private equity, and 49% are with funds or co-investments focused on the US.

Private funds

B R E A K D OW N O F M A R K E T VA LU E BY ASSET CLASS

3% Agriculture 12% Energy 13% Infrastructure

53% Private Equity

20% Timber

B R E A K D OW N O F M A R K E T VA LU E BY INVESTMENT FOCUS

2% Australia 2% Africa 3% Latin America 49% US/Canada

6% Asia 19% Global

19% Europe

Private funds

During the year, PKA paid in DKK 3.3 billion (USD 0.5 billion) and received DKK 2.7 billion (USD 0.4 billion) in distributions representing a net cash outflow DKK 0.6 billion. The market value in the same period increased by DKK 3.6 billion from 15.7 billion (USD 2.4 billion) to 19.3 billion (USD 3.0 billion). The total value creation over the year was DKK 3.0 billion. In terms of IRR, this corresponds to a 19.4% IRR for 2014 as a whole. Netting out the currency effect, the return of the portfolio was 9.1% in 2014. Across the full life of the portfolio, the return has been 8.1% across very different risk/return propositions. The total portfolio returns were aggregated across all five asset classes. In 2014, the one-year return on private equity was 20.9%, measured at actual exchange rates and 12.6% at fixed rates. The lifetime return of private equity was 10.3% and 9.7%, excluding the impact of currency fluctuations.

In 2014, the one-year return on private equity was 20.9%, measured at actual exchange rates and 12.6% at fixed rates. The lifetime return of private equity was 10.5% and 9.7%, excluding the impact of currency fluctuations.

Courtesy of Green Team Group, Adelis Equity Partners Fund I

Private funds

Courtesy of Peak 10, GI Partners Fund IV

Private funds

DIRECT INFRASTRUCTURE

Direct infrastructure

PKA AIP DIRECT 2012-2014

have allowed PKA to provide its members with solid

PROGRAM REVIEW

and attractive yields in the current low interest rate environment.

The PKA AIP Direct 2012-2014 program covers the

During the mandate period 2012-2014, PKA

direct energy and infrastructure investments made

AIP has added three offshore wind investments to

by PKA until the end of 2014.

PKAâ&#x20AC;&#x2122;s portfolio, making for a total of four offshore

Since PKAâ&#x20AC;&#x2122;s investment in Anholt Offshore

wind farms. The portfolio is well diversified across

Wind Farm in 2011, PKA has steadily increased its

different wind capture areas and subsidy regimes,

direct investment focus on long-life assets with stable,

and all assets use state-of-the-art components in order

predictable income. Allocations to infrastructure

to maximize production yield.

Courtesy of Anholt Offshore Wind Farm, DONG Energy

Direct infrastructure

PORTFOLIO OF DIRECT INFRASTRUCTURE INVESTMENTS

Asset

Anholt

Butendiek

Gode Wind 2

Gemini

2013

2015

2016

2017

Siemens 3.6 MW-120

Siemens 6.0 MW-154

Siemens 4.0 MW-130

Monopile

DONG Energy

Multi contract

DONG Energy

Siemens / Van Oord

Commercial Operation Date

Wind Turbine Generator

Foundation structure

Main contractor(s)

As of December 31, 2014, PKA’s direct commitments to energy and infrastructure assets totaled approximately EUR 850 million, split across PKA’s four offshore wind assets.

COMMITMENTS TO DIRECT INFRASTRUCTURE 2012-2014 EUR million

2011 Anholt

338

2012 —

2013 Butendiek

100

2014 Gemini / Gode Wind 2

Total

120

288

846

Direct infrastructure

INVESTMENTS

GODE WIND 2 O F FS H O R E W I N D FA R M

During 2014, PKA made commitments to two direct infrastructure assets: the Gemini Offshore Wind Farm

Asset overview

in Holland and the Gode Wind 2 Offshore Wind Farm

PKA invested in its second German offshore wind

in Germany. Along with Butendiek Offshore Wind

project, Gode Wind 2, in September of 2014. Gode

Farm and Anholt Offshore Wind Farm, PKA now holds

Wind 2 is located in the North Sea, approximately

interests in four offshore wind assets.

45 km from the German coastline, and will consist of 42 turbines when completed in the spring of 2016. The project will benefit from the latest wind turbine technology available in the market with the

During 2014, PKA made commitments to two direct infrastructure assets: the Gemini Offshore Wind Farm in Holland and the Gode Wind 2 Offshore Wind Farm in Germany.

6 MW turbine from Siemens Wind Power – giving a total nameplate capacity of 252 MW. The turbines are equipped with the latest gearless solution – the direct drive technology and rotors with a span of 154 meters in diameter. Gode Wind 2 is expected to supply CO2-free electricity corresponding to the annual consumption of some 260,000 German households. The wind farm will have its operational base in the harbor town of Norddeich. Gode Wind 2 is the first of two phases and will be the neighbor of Gode Wind 1, once this project is completed in 2016.

Investment characteristics The institutional investor consortium consisting of PKA, Industriens Pension, Lægernes Pensionskasse, and Lærernes Pension invested EUR 582 million for a 50% stake in Gode Wind 2. DONG Energy holds the remaining 50% ownership stake. DONG Energy is acting as the turn-key contractor of the project and takes the full construction risk for the project. The investor consortium has also engaged DONG Energy as the operator and service provider for the first 15 years of operation. DONG Energy is currently a market leader in offshore wind projects and has a long, proven track record from several German, UK, and Danish projects. Gode Wind 2 benefits from a strong wind regime, which combined with a government-backed fixed price subsidy for approximately the first 10 years, will generate a stable, high cash flow. PKA AIP has been engaged to lead and perform active asset management for the investor consortium of the Gode Wind 2 project throughout the construction phase and will continue when the asset is operational.

Direct infrastructure

Asset progress in 2014

Investment characteristics

The planning and construction of Gode Wind 2 has

PKA joined, along with a number of banks and financial

reached several important milestones during 2014. The

investors, a financing consortium, which has provided

project has secured the necessary permits and signed

a total debt financing facility of approximately EUR

all major supplier contracts. Furthermore, fabrication

2.2 billion to the Gemini project.

of many of the wind farm’s major components is

PKA has provided a junior debt facility of EUR

progressing as planned. The project also has a binding

120 million. The facility has a tenor of approximately

agreement with the local grid operator – Tennet – to

17 years and will provide a high, secure coupon rate

deliver the necessary infrastructure in order to deliver

in this period due to the revenue stream coming

electricity from the wind farm to the shore. During

principally from the government-backed subsidy

2014, the project’s main offshore converter platform is

system for the first 15 years. Aside from PK A,

close to completion, and fabrication of foundations has

Northland Power Income Fund has provided a junior

started and is following the planned schedule. Finally,

debt facility of EUR 80 million. A number of financial

the site has been completely cleared from all identified

institutions have provided the senior debt facility,

underwater objects which will allow the installation

including the European Investment Bank, EKF, Euler

of cables and foundations.

Hermes, and Delcredere|Ducroire.

In 2015, the project will commence the large offshore installation activities; initially, with the

Asset progress in 2014

installation of foundations and thereafter, with

The Gemini project saw good progress in 2014. Fabri-

the array cables, offshore substation, and the park

cation of key components is well underway, including

will finally be completed with the installation and

fabrication of the land cable, foundations, topsides for

commissioning of the wind turbines.

both offshore substations, export cables, and other electrical components. Furthermore, the project com-

GEMINI

menced the horizontal drillings for the export cable.

O F FS H O R E W I N D FA R M

The project expects the commercial operation of all turbines by 2017.

Asset overview PKA entered into the financing consortium of the off-

BUTENDIEK

shore wind project Gemini in May of 2014. With 150

O F FS H O R E W I N D FA R M

Siemens 4.0 MW turbines, the Gemini Offshore Wind Farm will be one of the largest wind farms in the world

Asset overview

in terms of size and production. The site is located in

PKA invested in the Butendiek Offshore Wind Farm

the Dutch part of the North Sea, 85 km north of the

in 2013. Butendiek Offshore Wind Farm is located in

coast of Groningen and benefits from a strong wind

the North Sea on the German-Danish border, 32 km

resource. Once completed in 2017, the wind farm will

off the island of Sylt. The wind farm will consist of 80

supply CO2-free electricity corresponding to the an-

Siemens 3.6 MW turbines resulting in a total capacity

nual consumption of some 785,000 Dutch households.

of 288 MW.

The developer of the project is Typhoon Offshore,

The wind farm is being built by the German

who has contracted Van Oord and Siemens Wind Pow-

developer, WPD, and a number of subcontractors

er on turn-key contracts for delivering the balance

during the period 2013-2015. Once in full operation,

of plant and turbines for the wind farm. The project

the wind farm is expected to produce CO2-free energy

has also engaged Siemens as the operator and service

to cover the annual consumption of 370,000 households

provider for the first 15 years of operation. Gemini

for 25 years.

is owned by Northland Power Income Fund (60%), Siemens (20%), Van Oord (10.0%), and HVG (10.0%).

Direct infrastructure

Investment characteristics PKA invested approximately EUR 100 million in equity

A N H O LT

for a 22.5% ownership interest. Co-investors Siemens

O F FS H O R E W I N D FA R M

Financial Services, Marguerite Infrastructure Fund, and Industriens Pension also acquired a 22.5% interest

Asset overview

each. WPD, the project developer, holds the remaining

PKA invested in the Anholt Offshore Wind Farm

10.0%. The total equity investment amounts to EUR

in 2011. Located between Jutland and the island of

450 million. In addition to the equity investments, the

Anholt, this is Denmark’s largest offshore wind farm.

project has obtained external project financing from

It has a nameplate capacity of 400 MW and consists of

commercial banks and various credit institutions,

111 3.6 MW turbines.

including EKF, the Danish export credit agency.

The wind farm was built during 2012 and 2013.

External financing amounts to EUR 850 million for

It is expected to supply CO2-free power corresponding

total construction costs of approximately EUR 1.3

to the annual consumption of some 400,000 Danish

billion.

households, equal to about 4.0% of Denmark’s power

Butendiek is PKA’s first investment involving

consumption. DONG Energy developed the project and

external project financing. This is also the first time

currently operates the wind farm.

PKA has assumed a construction risk in its direct infrastructure investment program. The project is

Investment characteristics

expected to have an attractive, balanced risk/return

PKA invested EUR 338 million in return for a 20%

profile – in part due to the comprehensive insurance

interest in the overall project. Other investors in the

package and guarantees, which addresses a number of

project are PensionDanmark (30%) and DONG Energy

the construction risks. Due to the production profile

(50%). There is no external project financing.

and the fixed tariff during the subsidy period, the

The project has a scheduled duration of up to 25

return is expected to have low correlation with the

years and is expected to generate stable annual returns

general market.

throughout that period. Due to the production profile and the fixed tariffs during the subsidy period, the

Asset progress in 2014

investment return is expected to have low correlation

The construction of the wind farm has shown

with the general market.

significant progress throughout the year with only a minor delay to some of the components. Highlights

Asset progress in 2014

have been the full installation of all 80 foundations

The construction of Anholt Offshore Wind Farm took

and transition pieces, the installation of the offshore

place from 2011-2013, and since the middle of 2013,

substation, and completion of all the inner-array

the asset has been in full commercial operation. The

cables. The installation of the wind turbine generators

asset concluded its first full year of operation in 2014.

has been slightly behind schedule, which was also the

For the year as a whole, asset output was firmly above

case with the external grid provided by Tennet.

expectations owing to solid average wind speeds and

The first power was produced in February 2015,

strong wind farm availability.

and the park is expected to be in full operation by July

On September 30, 2014, a failure occurred on the

2015.

export cable managed by Energinet.dk. The failure was quickly located, and the grid connection was reestablished on October 6, 2014. Anholt Offshore Wind Farm has been compensated for direct production losses during the period where no grid was available.

Direct infrastructure

PKA AIP DIRECT 2015-2017

criteria as fixed off take prices are agreed with

INVESTMENT

governments for the first 10 to 15 years on all assets,

FOCUS

for example, hence providing owners with good visibility on cash flows in the payback horizon.

From 2015 to 2017, PKA AIP will continue to pursue direct infrastructure opportunities on behalf of

Given the overall investment strategy, PKA AIP has

PKA. The focus is unchanged from 2012-2014 and

set a number of investment screening criteria, which

will, therefore, be centered on proactively pursuing

promote an efficient investment selection:

investments in large infrastructure projects in longterm partnership models in the UK and Northern

• Cash profile: Long maturity cash f lows with a

Europe, in greenfield and brownfield assets.

significant fixed cash component

The common denominator for direct investments

• Ticket size EUR 100-300 million per investment and

pursued by PKA AIP is that the underlying assets are

enterprise value from EUR 250 million

subject to material downside protection through i.a.,

• Geography: Northern Europe and the UK

an economic regulation mechanism or through long-

• Capital: Equity, mezzanine, subordinated debt, or

term contracts with solid counterparts. Downside

senior debt

scenarios with low absolute risk levels and low

• Partnership model with strong alignment and

market correlation, in particular, are prerequisites

operational skills present

for investments in the direct infrastructure program.

• Costs: Low deployment costs per invested capital

PKA’s current offshore wind portfolio fulfill these

unit and low monitoring costs

Courtesy of Anholt Offshore Wind Farm, DONG Energy

Direct infrastructure

PKA AIP seeks investments in projects with like-

will likely include additional essential infrastruc-

minded investors and prefers consortia with strong

ture assets with similar cash flow characteristics and

operational partners, who are aligned in the financial

downside protection.

performance of the project.

As part of the newly concluded management

Typically, PKA targets a 20-49% shareholding,

agreement covering 2015-2017, PKA AIP expects to

and will not take a lead ownership role in the invest-

advise PKA on investments of approximately EUR

ment, which is instead handled by a significant co-

300-350 million per year directly into energy and

owner with strong operational skills and involvement.

infrastructure assets. By the end of 2017, PKA is

Although offshore wind has been the sole invest-

expected to hold approximately EUR 1.85 billion of

ment theme during 2012-2014, the 2015-2017 mandate

energy and infrastructure assets.

EXPECTED COMMITMENTS TO DIRECT INFRASTRUCTURE 2015-2017 EUR million

2015

2016

333

2017

Total

1.000

As part of the newly concluded management agreement covering 2015-2017, PKA AIP expects to advise PKA on investments of approximately EUR 300-350 million per year directly into energy and infrastructure assets.

Direct infrastructure

A G G R E G AT E C O M M I T M E N T O V E R V I E W

Aggregate commitment overview

FUNDS

Fund

Manager

Vintage

Abraaj Africa Fund III

Abraaj Group

2015

Actis Emerging Markets 3

Actis

2008

Actis Energy 3

Actis

2013

Actis Energy 3 - Co-investment vehicle

Actis

2013

Adelis Equity Partners Fund I

Adelis Equity Partners

2013

Amber Trust II

Danske Capital Finland

2005 2008

Antin Infrastructure Partners

Antin Infrastructure Partners Fund II

Antin Infrastructure Partners

2013

Arsenal Capital Partners II

Arsenal Capital Partners

2006 2012

Arsenal Capital Partners III

Arsenal Capital Partners

Audax Private Equity Fund IV

Audax Group

2013

Aureos Africa Fund

Abraaj Group

2008

Axcel I

Axcel

1993

Axcel II

Axcel

2001 2006

Axcel III

Axcel

Axcel IV

Axcel

2011

Axiom Asia Private Capital III

Axiom Asia Private Capital

2012

Brookfield Brazil Timber Fund I (A)

Brookfield Asset Management

2008

Brookfield Brazil Timber Fund I (B)

Brookfield Asset Management

2008

Campbell Opportunity Timber Fund

Campbell Global LLC

2008

Campbell Timber Fund II

Campbell Global LLC

2007

Capricorn Forest Fund

IWC (The International Woodland Company A/S)

2007

Care Capital Investments III

Care Capital

2006

Comvest Partners IV

Comvest Partners

2010

Comvest Partners V

Comvest Partners

2015

Cross Atlantic Partners IV

Cross Atlantic Partners

2001

Danish Climate Investment Fund I

IFU

2014

Danish Microfinance Partners

Maj Invest

2011

Dansk VĂŚkstkapital

VĂŚkstfonden

2013

Danske PE Partners II EUR