Pka aip ar mmxv 2015 web by IIP Denmark P/S

ANNUAL REPORT

— 2015

PKA AIP ANNUAL REPORT 2015 â&#x20AC;&#x201D; MMXV

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

pkaaip.dk

Unless otherwise stated all figures are in fixed DKK, calculated using the exchange rate at the date of 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.

The pictures in the Direct Infrastructure section are by courtesy of MHI Vestas Offshore Wind (page 31), Gode Wind 2 Offshore Wind Farm, DONG Energy (page 35), Gemini Offshore Wind Farm (page 36), Butendiek Offshore Wind Farm (page 37), and Anholt Offshore Wind Farm, DONG Energy (page 38).

Graphic design Wy / wy.dk Printing Stenby Tryk

CONTENTS

PKA AIP IN 2015

P R I V AT E

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

FUNDS

The year 2015 at a glance

PKA AIP 2 Private Funds

The year in review

PKA AIP 1 Private Funds

Outlook for 2016

PKA’s aggregate portfolio

ABOUT

DIRECT

PKA AIP

INFRASTRUCTURE

Organization

PKA AIP 2 Direct PKA AIP 1 Direct

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

Contents

PKA AIP IN 2015 A N D G O I N G F O RWA R D

PKA AIP in 2015 and going forward

T H E Y E A R 2 0 1 5 AT A G L A N C E

N E W I N V E S T M E N T M A N D AT E

P R I V AT E F U N D C O M M I T M E N T S

PKA AIP embarked on the first year of its new

PKA AIP assisted PKA in making eight commitments

three-year PKA AIP 2 mandate for private funds and

to private equity funds across different geographies and

direct infrastructure.

industries.

DKK 47 BILLION

PERCENT CO-INVESTMENTS

PKA AIP is monitoring a portfolio of DKK 47 billion on

PKA AIP ensured that a groundbreaking 35% of all

behalf of PKA. PKA AIP advised DKK 7 billion worth of

private fund commitments in 2015 were made via

new investments during 2015.

co-investments.

DKK 3 BILLION

NEW TEAM MEMBERS

PKA AIP advised PKA on its DKK 3.3 billion direct

PKA AIP added two members to the private funds team,

investment into the UK offshore wind farm Burbo Bank

one member to the direct infrastructure team, and one

Extension.

office manager.

PKA AIP in 2015 and going forward

THE YEAR IN REVIEW

The year 2015 was the first year of PKA AIP 2, the

P R I V AT E F U N D S

second three-year investment mandate to be deployed on behalf of PKA. The PKA AIP 2 mandate sets out an overall deployment ambition of approximately DKK 20

Our efforts to increase the commitments to co-

billion (USD 3.2 billion), of which DKK 13 billion (USD

investments started to materialize significantly

2.0 billion) is reserved for commitments to private

during 2015 - the first of three years to deploy DKK

funds and co-investments in PKA AIP 2 Private Funds

13 billion (USD 2.0 billion) into private funds and

and DKK 7.5 billion (USD 1.2 billion) is reserved for

co-investments. The fund commitments and co-

direct investments in infrastructure assets in PKA AIP

investments made in 2015 total DKK 3.9 billion.

2 Direct.

In aggregate, 35% of the commitments were to co-

The mandate is a strong testimony to PK A’s

investments, which is well above the long-term target

long-term commitment to alternative assets and is

of 20% and is a number with which we are particularly

among Europe’s largest programs of its kind. The PKA

satisfied. As of December 31, 2015, the PKA AIP 2

AIP team is equally proud and humbled to continue

Private Funds is 30% committed.

the exciting work of building on the successful

Over the past two years, we have worked to

track record. This new ambitious mandate is a clear

design a co-investment process that allows us to make

expression of PKA’s satisfaction with the platform and

co-investments with our existing managers in their

strong results delivered to date.

sweet spot in a short and efficient manner, providing

During the year, PKA AIP was responsible for

maximum transparency on the process to our GPs and

investing and committing DKK 3.9 billion (USD 0.6

enabling participation in tight processes. We take the

billion). Approximately DKK 2.5 billion (USD 0.4

robust number of opportunities which have emerged

billion) was committed to private funds, and DKK

as a sign that the managers in our portfolio appreciate

1.3 billion (USD 0.2 billion) was deployed as co-

our process. We have laid out our co-investment

investments. The completion of the investment in

approach in State of The Market 2015, recently

Burbo Bank Extension in February 2016 was the result

published by Evercore. The article is available online

of long term relationships with our partners DONG

at pkaaip.dk.

Energy A/S and LEGO parent company, KIRKBI A/S.

In the market, we continue to see strong

The investment was a significant joint effort among

competition for access to the best managers. As a

the parties in a process that ran for the greater part

result, terms have continued to tighten in line with

of 2015.

previous years. During 2015, we have also observed

We were joined by four new team members

that the duration of the fundraising processes has

during 2015 to help us achieve our purpose, i.e.

shortened, compared to what we have experienced in

support the creation of a strong financial foundation

previous years. This continues to put pressure on our

for the retirement life of pension savers by delivering

investment process and necessitates that we run our

the best possible risk-weighted returns.

screening and diligence processes efficiently. Despite demand/supply dynamics shifting to become more favorable to GPs, we have seen significant motion in the industry toward more openness and transparency

During the year, PKA AIP was responsible for investing and committing DKK 3.9 billion (USD 0.6 billion)

in terms of fee and expense disclosure. One of the important steps towards greater transparency was the release of ILPA’s fee reporting template in January 2016. We welcome, and have actively supported, the development of this template, which we hope will become the industry standard.

PKA AIP in 2015 and going forward

We continue to find the risk/return proposition

DIRECT INFRASTRUCTURE

attractive in select offshore wind assets but will, in the future, look increasingly outside this sector for

The year 2015 saw the launch of the PKA AIP 2 Direct

additional opportunities.

program, which is an extension of PKA AIP’s current

We believe that the successful partnership

direct investment program. The program covers the

model developed with DONG Energy and others is

period from 2015 to 2017 and is intended to invest DKK

applicable also for other partners and types of assets.

7.5 billion (EUR 1.0 billion) in direct infrastructure

A testemony to this is the strong collaboration with

assets thereby more than doubling PK A’s current

institutional investors such as KIRKBI A/S and other

portfolio.

Danish pension funds.

In 2015, significant resources were commited

OUTLOOK FOR 2016

to assessing, structuring, and negotiating the DKK 3.3 billion (EUR 440 million) investment into Burbo Bank Extension Offshore Wind Farm, along with LEGO

New year – same strategy. In 2016, we will continue

parent, KIRKBI A/S. The transaction was completed in

to execute the strategies for both private funds and

February 2016, making it the first commitment in the

direct infrastructure investments.

PKA AIP 2 Direct program. The addition of the asset,

Hence, in the private funds program, it will be

located seven kilometers off the coast near Liverpool,

about managers driving controllable and repeatable

marks another important milestone for PKA in its

value creation, as well as co-investments with the same

efforts to bring down CO2 emissions while continuing

managers, when possible. The mid-market continues

to provide strong, stable cash f lows to the benefit of

to be our focus area. We expect to deploy around DKK

PKA’s pension savers. The investment also confirms

4.2 billion (USD 0.6 billion), opportunities permitting.

the strong partnership in place with DONG Energy,

In the direct infrastructure program, we

which will retain a 50% equity stake and construct

continue to look for essential infrastructure assets,

and operate the asset. Following the investment, PKA

with long-term, stable, and regulated cash f lows,

AIP 2 Direct will be 44% committed.

in collaboration with strong partners. A lthough

The year 2015 was the first full year in which

offshore wind assets continue to be a good fit with our

PKA AIP acted as the asset manager for Gode Wind

investmentstrategy, we expect to see other assets in

2 on behalf of a Danish pension fund consortium.

the portfolio with similar attractive characteristics in

Construction of the asset was completed in late 2015

the coming years.

and it delivered the first power to the German grid

Team-wise, we have one planned addition for

in February 2016. In August 2015, Butendiek – PKA’s

the remainder of 2016, bringing the aggregate team to

2013 commitment to a 288 MW German offshore wind

14 individuals.

farm – was completed with the commissioning of its 80th turbine. In the past year, the Nor thern European infrastructure market has continued to see strong demand for high-quality assets. In the search for stable yields in a low interest rate environment, institutional investors have increasingly looked for alternatives higher up the risk/return curve. Five to ten years ago, offshore wind under construction was for utilities only. Today, many institutional infrastructure investors have come to appreciate the attractions of investing in offshore wind. As a result, demand for these types of assets has increased, and return margins have tightened.

PKA AIP in 2015 and going forward

New year – same strategy. In 2016, we will continue to execute the strategies for both private funds and direct infrastructure investments

ABOUT PKA AIP

About Om PKA PKAAIP AIP

O R G A N I Z AT I O N

In 2015, we welcomed Martin Dalsager to the direct

CHRISTIAN KVORNING

infrastructure team and Christian Kvorning and Brian Schwartz to the private funds team. In addition,

Investment Director

Anne-Marie Von Holck started as office manager.

M.Sc. in Finance and Accounting, Aarhus University

To co-front the direct infrastructure invest-

MBA, Rice University, Houston, TX

ments, Kasper Hansen, a seasoned former investment

Formerly Investment Consultant with Cambridge

director for 3i, signed with PKA AIP late in 2015 and

Associates in London

joined as partner on March 1, 2016.

—

During the spring of 2016, Steffen Risager will join the private funds team and Lasse Helstrup will

NISHANDAN GANESALINGAM

join the direct infrastructure team.

Investment Manager M.Sc. in Software Development and Technology,

IT University of Copenhagen Formerly Consultant with EY and Analyst with Nordea and Scandinavian Airlines

— MANAGING PA RT N E R

B R I A N S C H WA RT Z

—

M.Sc. in Mathematics and Economics,

ANDERS DALHOFF

Formerly private equity Portfolio Manager with Pensam

Managing Partner

and North Sea Capital and Risk Manager with DONG Energy

Investment Manager University of Copenhagen

LL.M., Aarhus University and MBA, INSEAD

—

Formerly management consultant with Quartz+Co and attorney-at-law with Kromann Reumert, and Plesner

TRINE LISBERG Finance Manager M.Sc. in Economics and Management, Aarhus University

DONG Energy, and Trelleborg Sealing Solutions

T H E P R I V AT E

STEFFEN RISAGER

FUNDS TEAM

Senior Associate

Formerly held finance positions with Deloitte,

—

M.Sc. in Applied Economics and Finance,

—

Copenhagen Business School. Formerly M&A analyst with Handelsbanken

BRIAN SCHLEIMANN NORDLUND

Corporate Finance

Partner M.Sc. in Finance and Accounting, Copenhagen Business School Formerly management consultant with Quartz+Co

—

About PKA AIP

LASSE HELSTRUP Investment Manager M.Sc. in Economics, Aarhus University. Formerly Manager with EY and KPMG,

THE DIRECT

and Analyst with TDC

INFRASTRUCTURE TEAM —

KASPER HANSEN Partner M.Sc. in Applied Economics and Finance, Copenhagen Business School Formerly Director and Investment Professional with 3i

OFFICE

private equity fund and Vækstfonden

MANAGEMENT

—

JOHAN BERNT NORDANG

ANNE-MARIE VON HOLCK

Investment Director

Office Manager

M.Sc. in Economics, University of Copenhagen

Clerical assistant training with a

Formerly held M&A positions with DONG Energy,

specialty in administration.

Macquarie Investment Bank, and Copenhagen Airports

Formerly held administrative assistant and clerical positions with Capinordic and Saxo Bank

— U L R I K PA L L I S Ø B O R N Ø Senior Investment Manager M.Sc. in Applied Economics and Finance, Copenhagen Business School Formerly held M&A and investment positions with DONG Energy, SEB Enskilda, and Credit Suisse Investment Bank

— MARTIN VERING DALSAGER Senior Investment Manager M.Sc. in Finance, Aarhus University Formerly held finance and M&A positions with DONG Energy and Catella Corporate Finance

—

About PKA AIP

P R I V AT E FUNDS

Private Om PKA Funds AIP

P K A A I P 2 P R I V AT E F U N D S

The program will predominately be composed

THE PROGRAM

of private equity funds, but it will also include infrastructure and energ y funds. The pursued

The year 2015 was the first investment year of PKA

infrastructure and energy funds are those that target a

AIP 2 Private Funds – the DKK 13 billion (USD 2.0

return similar to that of private equity buyouts.

billion) program to be invested on behalf of PKA from

PKA AIP 2 is a global program with the mandate

2015 to 2017. The program includes both direct fund

to invest in all parts of the world. However, our strategic

commitments and co-investments with managers,

dedication to managers doing control investments has

already in the PKA AIP programs.

the geographical implication that most commitments

It is the objective to create a portfolio of funds

will be to North American and European funds. We

and co-investments, which will create controllable

do expect though that PKA AIP 2 Private Funds, once

and repeatable returns superior to those of the listed

fully invested, will include both global funds and one

markets. To do this, we look for mid-market buyout

or more funds dedicated to regions outside of North

managers – typically with funds between USD 0.5-2.0

America and Europe.

billion – who have a clearly articulated strategic and

INVESTMENTS IN 2015

operational approach to value creation. To ensure alignment of interests, PKA AIP will mainly invest through independent managers with a single series of

During 2015, commitments in aggregate of DKK 3.9

funds. This helps to ensure that we, as investors, commit

billion (USD 0.6 billion) were completed in PKA AIP 2

to a product, which is essential for the manager’s future

Private Funds. Co-investments amounted to DKK 1.3

success. Fund commitments are typically given in the

billion (USD 0.2 billion), corresponding to 35% of the

range from USD 75-125 million, while co-investments

total commitments in 2015 – and well above the long-

are between USD 15-50 million.

term target of 20%. Co-investments are a cost-effective way of deploying capital in the private market and have been high on our agenda for some years. Therefore, it is with satisfaction that we see such a step-up in our

The year 2015 was the first investment year of PKA AIP 2 Private Funds – the DKK 13 billion (USD 2.0 billion) program to be invested on behalf of PKA from 2015 to 2017

co-investment activity.

During 2015, commitments in aggregate of DKK 3.9 billion (USD 0.6 billion) were completed in PKA AIP 2 Private Funds. Co-investments amounted to DKK 1.3 billion (USD 0.2 billion)

Private funds

PKA 2015 FUND COMMITMENTS

PKA 2015 CO-INVESTMENTS

Aquiline Financial Services Fund III

Oregon Clean Energy Center PKA completed a co-investment of USD 50 million in

Genstar Capital VII

Oregon Clean Energy Center along with I Squared Capital. Oregon Clean Energy Center is a greenfield

Audax Private Equity V

CCGT project in Oregon, Ohio, with a capacity of up to 970 MW.

Arsenal Capital Partners IV Eurofiber PENM IV

A EUR 40 million co-investment in Eurofiber – the largest independent fiber network owner and

Dansk Vækstkapital II

operator in the Netherlands – was completed with Antin Infrastructure Partners Fund II in January.

MI Financial Inclusion Fund II Amedes Sustain Solutions I

A EUR 45 million co-investment was completed along with Antin Infrastructure Partners Fund II in Amedes, one of the leading providers of medical diagnostic services in Germany, in July.

Ascensus A USD 40 mi l lion co-investment with Aqui line Capital Partners in Ascensus was completed in October. Ascensus is a leading independent financial technology services firm, serving the small/micro end of the retirement and college savings markets in the United States.

Active Day The last co-investment in 2015 was a USD 15 million investment in Active Day/Senior Care along with Audax Private Equity Fund IV in December. Active Day/Senior Care is a leading provider of adult daycare health services and in-home personal care in the United States.

Private funds

PROGRAM REVIEW During the first investment year of the PKA AIP 2 Private Funds program, 30% of the total program was committed. Based on the DKK 3.9 billion (USD 0.6 billion) committed to funds and co-investments during 2015, it is fair to say that PKA AIP 2 Private Funds follows in the footsteps of PKA AIP 1 Private Funds with 75% of the committed value given to private equity and 25% given to energy and infrastructure. Looking at the commitments made so far, 84% of the committed capital has been given to funds focusing on investments in US/Canada, while funds with a European focus accounts for 16%. No commitments have yet been made to funds focusing on regions outside US/Canada and Europe.

84% of the committed capital has been given to funds focusing on investments in US/Canada, while funds with a European focus accounts for 16%

Private funds

B R E A K D O W N O F C O M M I T M E N T S I N P K A A I P 2 P R I V AT E F U N D S BY ASSET CLASS

25% Energy/Infrastructure

75% Private Equity

B R E A K D O W N O F C O M M I T M E N T S I N P K A A I P 2 P R I V AT E F U N D S BY INVESTMENT FOCUS

16% Europe

84% US/Canada

Private funds

During 2015, DKK 1.1 billion (USD 0.2 billion) was paid

and expense drag, usually seen in newer private fund

in, measured at fixed currencies, corresponding to

portfolios. As a result, the paid-in capital is almost

30% of the total commitments that year. Because PKA

equivalent to the market value of DKK 1.1 billion. No

AIP 2 Private Funds is at a very early stage, the portfolio

distributions were made during 2015, leaving the total

has not yet seen a pickup in value. Nonetheless, the

value equal to the market value. The result is a year-

high proportion of co-investments reduces the fee

end TVPI of 1.0x.

P K A A I P 2 P R I V AT E F U N D S I N V E S T M E N T P R O G R A M DKK billion in fixed currencies

12.5

PIC 0.3

3.9

TVPI 1.0

1.1

1.1 Market value

Programme

Commitments given

Paid-in capital

Private funds

Total value created

P K A A I P 1 P R I V AT E F U N D S

PROGRAM REVIEW PKA AIP 1 Private Funds consists of 31 commitments made during the years 2012-2014, totaling DKK 11.6 billion (USD 1.8 billion). Of the 31 commitments, 24 are fund commitments, amounting to DKK 10.4 billion (USD 1.6 billion), which corresponds to 90% of the total PKA AIP 1 Private Funds commitments. The first PKA AIP Private Funds program also includes seven coinvestments with different managers. In total, DKK 1.2 billion (USD 0.2 billion) has been committed to coinvestments. The main part of PK A AIP 1 Private Funds was committed to private equity, corresponding to 68%. 28% of the committed value went to energy and infrastructure funds, while the remaining 4% was committed to agriculture. Funds with investment focus in US/Canada accounted for 54% of the commitment value, while 19% of the value was committed to funds with a European investment focus. Funds with a global investment mandate amounted to 15%, and the remaining commitments were given to funds focusing on investments in Asia, Africa and Australia, together representing 12% of the PKA AIP 1 Private Funds commitments.

PKA AIP 1 Private Funds consists of 31 commitments made during the years 2012-2014, totaling DKK 11.6 billion (USD 1.8 billion)

Private funds

B R E A K D O W N O F C O M M I T M E N T S I N P K A A I P 1 P R I V AT E F U N D S BY ASSET CLASS Based on fixed currencies

4% Agriculture 28% Energy/Infrastructure 68% Private Equity

B R E A K D O W N O F C O M M I T M E N T S I N P K A A I P 1 P R I V AT E F U N D S BY INVESTMENT FOCUS Based on fixed currencies

4% Australia 4% Asia 4% Africa 54% US/Canada

15% Global

19% Europe

Private funds

In 2015, contributions to PKA AIP 1 Private Funds

billion (USD 0.1 billion), resulted in a total value of DKK

amounted to DKK 1.6 billion (USD 0.3 billion) in fixed

6.3 billion (USD 1.0 billion), corresponding to a TVPI of

exchange rates, bringing the total contributions to

1.1x. Including impact from currency, the TVPI is 1.25x.

DKK 5.7 billion (USD 0.9 billion). In actual exchange

Nonetheless, the relatively high exposure to energy

rates, contributions reached a total of DKK 5.8 billion.

assets have dampened the short-term return, as some

This means that close to half of the total PKA AIP 1

of those assets are currently facing difficult market

Private Funds commitments has now been paid in.

conditions. Though it is still early to conclude anything

The market value of DKK 5.8 billion (USD 0.9

regarding the PKA AIP 1 Private Funds investments,

billion), combined with total distributions of DKK 0.5

expectations for the program remain high.

PKA AIP 1 INVESTMENT PROGRAM DKK billion in fixed currencies TVPI 1.1x

6.3 0.5 5.7

TVPI 1.1x

4.4 0.3

4.1

5.8 TVPI 1.0x

2.1

2.1 4.1

0.1

TVPI 0.9x

0.5

2.1 0.4 0.4

Paid-in capital

Total value 2012

Paid-in capital

Total value 2013

Paid-in

Paid-in capital

Total value 2014

Market value

Private funds

Paid-in capital

Total value 2015

Distributions

Private funds

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

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

By the end of 2015, PKA’s aggregate portfolio consisted of 131 active funds and co-investments with a total commitment value of DKK 37.1 billion (USD 5.7 billion)

By the end of 2015, PKA’s aggregate portfolio consisted of 131 active funds and co-investments with a total commitment value of DKK 37.1 billion (USD 5.7 billion), measured in fixed currencies. 119 funds represent commitments of DKK 34.5 billion (USD 5.3 billion), equaling 93% of the total commitments in value. The remaining 7.0% is made up by commitments of DKK 2.6 billion (USD 0.4 million) allocated to 12 coinvestments.

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

37.1 32.3 28.5 24.3 20.1 17.8

2010

2011

2012

2013

Private funds

2014

2015

Looking at the active funds in the PKA portfolio

Since 2010, the market value of PKA's portfolio has

the commitment value is allocated across five asset

increased by DKK 7.7 billion (USD 1.2 billion), ending

classes. The majority of the commitments is found in

up at DKK 19.5 billion (USD 3.0 billion) by the end of

private equity with 66%. Infrastructure and energy

2015 at fixed exchange rates. Remaining commitments

are represented by a total of 23%. Timber makes up

have increased by DKK 6.2 billion (USD 1.0 billion) and

9.0%, while agriculture adds up to 2.0%. Because the

currently stand at DKK 12.4 billion (USD 1.9 billion).

current investment strategy implies a focus towards

The result is a year-end exposure of DKK 32.0 billion

private equity, as well as infrastructure and energy, the

(USD 4.9 billion). Measured in actual currencies,

commitments to timber will decrease, as the mature

market value per Q4 2015 is DKK 22.4 billion (USD 3.4

timber funds will begin liquidation. Across the PKA

billion), while remaining commitments add up to DKK

portfolio, funds focusing on investments in US/Canada

13.9 billion (USD 2.1 billion).

account for 47% of the commitments. Funds with a European focus add up to 24%, and funds focusing globally amount to 19%.

D E V E LO P M E N T I N P K Aâ&#x20AC;&#x2122; S E X P O S U R E ( A C T I V E F U N D S ) DKK billion in fixed currencies

32.0 29.4 26.4 12.4 23.0

11.2 10,4

18.1

6.3

19.0 9.1 6.8

18.2

19.1

16.0 11.8

12.2

2010

2011

13.9

2012

2013

Remaining commitments

Private funds

2014

2015

Market value

In 2015, DKK 3.7 billion (USD 0.6 billion) was paid in, while distributions added up to DKK 2.9 billion (USD 0.4 billion), and market value increased by DKK 1.3 billion

In 2015, DKK 3.7 billion (USD 0.6 billion) was paid in, while distributions added up to DKK 2.9 billion (USD 0.4 billion), and market value increased by DKK 1.3 billion (USD 0.2 billion)

(USD 0.2 billion). For the year â&#x20AC;&#x201C; which was characterized by large contributions to newer funds â&#x20AC;&#x201C; the return was 3.2% at fixed exchange rates and 11.6% at actual exchange rates. Across the life of the portfolio, the TVPI is 1.25x and the IRR 6.5%, net of currency effects. Including the impact from exchange rates, actual TVPI landed at 1.36x, and the inception-to-date return was 8.7%. The aggregate returns are comprised of several different asset classes with very different return and risk profiles.

Private funds

DIRECT INFRASTRUCTURE

Direct Infrastructure

PKA AIP 2 DIRECT

The investment criteria for PKA AIP 2 Direct are as

THE PROGRAM

follows:

The year 2015 saw the launch of the PKA AIP 2 Direct

• Cash profile: Long maturity cash f lows

program, which is an extension of the PKA AIP 1 Direct

with a significant fixed cash component

program. PKA AIP 2 Direct covers the period from 2015

• Ticket size: DKK 0.6-3.0 billion (EUR 70-400

to 2017 and is intended to deliver DKK 7.5 billion (EUR

million) per investment

1.0 billion) worth of infrastructure assets to PKA’s

• Geography: Northern Europe, including

current portfolio.

the UK

The focus for PK A AIP 2 Direct is to build a

• Financial instrument: Equity, mezzanine,

portfolio of infrastructure assets, characterized by

subordinated debt, or senior debt

long duration, stable, and contracted cash flows with

• Partnership model: Strong alignment with

material downside protection, controllable risks,

an operationally skilled asset manager

and strong governance structures. To achieve this,

• Costs: Low deployment costs per unit of

we look for infrastructure assets located in Northern

invested capital and low monitoring costs

Europe, including the UK, where regulatory regimes

INVESTMENTS

have historically been stable. We enter into long-term partnerships with utilities and asset managers with a stake in the long-term performance of the assets,

During 2015, PKA AIP worked on its first investment

which helps to ensure alignment with PKA.

in the PKA AIP 2 Direct program, which resulted in PKA’s DKK 3.3 billion (EUR 440 million) investment in Burbo Bank Extension Offshore Wind Farm in the UK. Following the investment, PKA AIP 2 Direct is 44%

PKA AIP 2 Direct covers the period from 2015 to 2017 and is intended to deliver DKK 7.5 billion (EUR 1.0 billion) worth of infrastructure assets to PKA’s current portfolio

committed with approximately DKK 4.2 billion (EUR 560 million) of outstanding capital, to be invested during 2016-2017.

Direct Infrastructure

In February 2016, PKA AIP finalized the investment in

BURBO BANK EXTENSION

Burbo Bank Extension. The asset is under construction

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

and will be located in the Bay of Liverpool, UK, seven kilometers from the shore, and will have a capacity of 258 MW split across 32 turbines. The project will be using the MHI Vestas 8 MW turbine technology and will contractually be split between DONG Energy and MHI Vestas. Burbo Bank Extension is expected to provide CO2-free energy to some 230,000 UK households. The project is being constructed and operated by DONG Energy and is expected to become fully operational during the first half of 2017. PKAâ&#x20AC;&#x2122;s investment into Burbo Bank Extension was done along with KIRKBI A/S (The Lego Group parent). Each party acquired a 25% stake in the asset for a consideration of approximately DKK 3.3 billion (GBP 330 million). The seller, DONG Energy, has retained a 50% stake in the asset and will act as constructor, O&M operator, and power offtaker, thus ensuring a high degree of alignment. The asset benefits from the UK Contract for Difference (CfD) subsidy regime under which, a fixed offtake price is set for the initial 15 years of the investment, resulting in predictable, stable cash flows for the asset.

Asset

Commercial Operation Year

Capacity

Number of Wind Turbines

Wind Turbine Generator

Foundation structure

Burbo Bank Extension

2017

258 MW

MHI Vestas V164-8.0MW

Monopile

Main contractors

DONG Energy / MHI Vestas

Project Partners

DONG Energy, KIRKBI

Direct Infrastructure

PKA AIP 1 DIRECT

The majority of PKA AIP 1 Direct was committed

PROGRAM REVIEW

to equity investments, corresponding to 86%, while 14% was committed to junior debt. Investments in German

The PK A AIP 1 Direct program covers the direct

offshore wind assets corresponded to approximately

energy and infrastructure investments made until the

45%, while the largest, single asset was Anholt, making

end of 2014. The program is fully invested with total

up 40% of the total commitments.

commitments of DKK 6.3 billion (EUR 850 million) split

A l l investments in the PK A A IP 1 Direct

across four offshore wind assets: Anholt Offshore Wind

program are managed by PK A AIP on behalf of

Farm in Denmark (Anholt), Butendiek Offshore Wind

PKA. For Gode Wind 2, PKA AIP is conducting the

Farm in Germany (Butendiek), Gemini Offshore Wind

investment management on behalf of PKA, as well as

Farm in Holland (Gemini), and Gode Wind 2 Offshore

Industriens Pension, LĂŚrernes Pension, and LĂŚgernes

Wind Farm in Germany (Gode Wind 2).

Pensionskasse.

BREAKDOWN OF INVESTMENTS IN PKA AIP 1 DIRECT EUR million

100 / Butendiek 120 / Gemini 338 / Anholt

288 / Gode Wind 2

All investments in the PKA AIP 1 Direct program are managed by PKA AIP on behalf of PKA

Direct infrastructure

ASSETS IN PKA AIP 1 DIRECT

Investment

Year

Asset Type

Geography

Investment Type

Currency

Commitment

Ownership stake

Anholt

2011

Offshore wind

Denmark

Equity

DKK

2,520,000,000

20.0%

Butendiek

2013

Offshore wind

Germany

Equity

EUR

100,000,000

22.5%

Gemini

2014

Offshore wind

Holland

Junior debt

EUR

120,000,000

Gode Wind 2

2014

Offshore wind

Germany

Equity

EUR

288,000,000

24.8%

Direct infrastructure

INVESTMENTS Significant milestones were achieved during 2015, when the construction of two of the offshore wind farms in the portfolio were completed. Butendiek became operational in August 2015 with the commissioning of its 80th and final turbine. Gode Wind 2 finished its construction works in December 2015, and became operational in February 2016.

Significant milestones were achieved during 2015, when the construction of two of the offshore wind farms in the portfolio were completed

Direct Infrastructure

Asset overview GODE WIND 2

PKA invested in its second German offshore wind

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

project, Gode Wind 2, in September 2014. The project is located in the German North Sea, approximately 45 kilometers from the German coastline. Gode Wind 2 consists of 42 of the new 6.0 MW wind turbines from Siemens Wind Power, totaling a capacity of 252 MW. The wind turbines are equipped with a gearless solution (the direct drive technology) and rotors with a wingspan of 154 meters in diameter. Gode Wind 2 became operational in February 2016 and provides CO2-free electricity to approximately 260,000 German households every year. The wind farm shares its operational base in the German harbor town of Norddeich along with the DONG Energy and Global Infrastructure Partners owned project, Gode Wind 1. Gode Wind 2 benefits from the site’s ideal wind resources which, combined with a German government-backed fixed price subsidy regime, will generate a stable revenue stream.

Investment characteristics The ownership of the Gode Wind 2 project is split equally between DONG Energy and an institutional investor consortium consisting of PKA, Industriens Pension, Lægernes Pensionskasse, and Lærernes Pension. The consortium invested EUR 582 million for a 50% stake in the project. DONG Energy is acting as Asset

the turnkey contractor on the project and takes the

Gode Wind 2

main risks relating to the construction. DONG Energy Commercial Operation Year

also acts as the operator and service provider of the

2016

project for the first 15 years of operation. PKA AIP has Capacity

been engaged as investment manager on the project on

252 MW

behalf of the investor consortium. Number of Wind Turbines

Asset progress in 2015 Wind Turbine Generator

DONG Energy completed its offshore construction

Siemens 6.0 MW-154

works during 2015, and by January 2016, all 42 wind Foundation structure

turbines were installed. Gode Wind 2 was energized

Monopile

in February 2016, when the offshore grid connection Main contractors

was commissioned. The project has been constructed

DONG Energy

with a minimum number of incidents related to Project Partners

health, safety, and environment, and has, since the

DONG Energy, Industriens Pension, Lærernes Pension, Lægernes Pension

commencement of the offshore installation phase, been on track according to the master time schedule.

Direct Infrastructure

Asset overview GEMINI

Consisting of 150 Siemens wind turbines with a

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

capacity of 4.0 MW each (600 MW in total), Gemini will be one of the largest wind farms in the world in terms of size and production. The site is located in the Dutch part of the North Sea, 85 km north off the coast of Groningen, where it benefits from a strong wind resource. Once completed in 2017, the wind farm will annually supply CO2-free electricity, to some 630,000 Dutch households. The developer of the project is Typhoon Offshore, who has contracted Van Oord and Siemens Wind Power on two turnkey contracts for delivering the balance of plant and wind turbines. Siemens is acting as the operator and service provider for the first 15 years of operation. The equity sponsors are the Canadian-based fund Northland Power Income (60%), Siemens Financial Services (20%), Van Oord (10%), and HVG (10%).

Investment characteristics The total debt facility provided to the Gemini project amounts to approximately EUR 2.2 billion, of which PKA has provided a junior debt facility of EUR 120 million. The facility has a tenor of approximately 17 years and will provide a high, secure coupon rate in this period. Northland Power Income Fund has also provided a junior debt facility of EUR 80 million. A number of financial institutions have provided the Asset

senior debt facility, including the European Investment

Gemini

Bank, EKF, Euler Hermes, and Delcredere|Ducroire. Commercial Operation Year

2017

Asset progress in 2015 Capacity

The Gemini project has initiated and completed

600 MW

several offshore work streams during 2015. The Number of Wind Turbines

onshore and offshore grid connection as well as

150

the export cable are completed and energized. The Wind Turbine Generator

offshore substations are both in place. The installation

Siemens 4.0 MW-130

of the 150 foundations is successfully completed and Foundation structure

the inner-array cable installation is well underway. In

Monopile

2016, all 150 wind turbines are expected to be installed Main contractors

and most of them will also be commissioned. The

Siemens / Van Oord

project is focusing on health and safety throughout Project Partners

the installation and on keeping the number of

Northland Power, Siemens Financial Services, Van Oord, HVG

construction-related accidents to a minimum.

Direct Infrastructure

Asset overview BUTENDIEK

PKA invested in Butendiek in 2013. The wind farm is

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

located in the North Sea around the German-Danish border, approximately 32 km off the island of Sylt, and consists of 80 Siemens 3.6 MW wind turbines, resulting in a total capacity of 288 MW. Every year until decommissioning, the wind farm will be supplying green and CO2-free electricity to cover the annual consumption of some 300,000 German households.

Investment characteristics PKA invested approximately EUR 100 million for a 22.5% equity stake in the project. The co-investors, Siemens Financial Services, Marguerite Infrastructure Fund, and Industriens Pension, also acquired a 22.5% stake each, while WPD, the developer of the project, holds the remaining 10%. Marguerite and WPD have since transaction close divested part of their investment. In addition to the equity investment, the project has obtained external project financing from several commercial banks and various credit institutions, including EKF. External financing amounts to EUR 850 million for total construction costs of approximately EUR 1.3 billion. Butendiek marked the first investment involving external construction financing for PKA, and the first investment with full construction risk. The project is now completed and significantly derisked, resulting in an attractive and balanced risk/ Asset

return profile. The operational phase of the project

Butendiek

is serviced by Deutsche Windteknik (a subsidiary of Commercial Operation Year

WPD) together with Siemens Wind Power for the first

2015

5 years of the operational phase. Capacity

288 MW

Asset progress in 2015 Number of Wind Turbines

The Butendiek project was completed in August 2015

with the commissioning of the 80th turbine, marking Wind Turbine Generator

the start of the operational phase. Construction was

Siemens 3.6 MW-120

completed within the expected total construction Foundation structure

budget and no further project financing was necessary.

Monopile

Despite some delays on the delivery and installation Main contractors

of wind turbines, the completion of the project was

Multi-contract

only one month later than originally expected. Since Project Partners

the beginning of October, the amount of produced

Siemens Financial Services, Marguerite, Industriens Pension, WPD

electricity generated by the Butendiek-project has been above the expected level.

Direct Infrastructure

Asset overview A N H O LT

PK A’s investment in Anholt in 2011 marked the

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

beginning of PKA’s direct investments within green energy and infrastructure. Located between Jutland and the island of Anholt, the asset is the largest offshore wind farm in Denmark. It has a capacity of 400 MW coming from the 111 Siemens 3.6 MW wind turbines. Construction was completed by DONG Energy in 2013 within the expected time schedule. Anholt has the capacity to supply green and CO2-free electricity corresponding to the annual consumption of approximately 420,000 Danish households every year until decommissioning. This is equal to around 4.0-5.0% of Denmark’s power consumption and can, from time to time, along with the other Danish wind farms and depending on weather conditions, cater for the full electricity demand in Denmark. DONG Energy developed the wind farm.

Investment characteristics PKA invested EUR 338 million in return for a 20% stake in the overall project. The investment was completed, along with PensionDanmark, holding 30%. DONG Energy has retained a 50% ownership stake in the project. Since the commencement of the operational phase in 2013, the project has generated a stable cash f low and return due to a favorable wind resource at the site, combined with the Danish governmentAsset

backed subsidy regime. DONG Energy is acting as the

Anholt

operator of the asset along with Siemens Wind Power, Commercial Operation Year

Capacity

who will service the 111 wind turbines until 2018.

2013

Asset progress in 2015

400 MW

Despite being curtailed during two export cable Number of Wind Turbines

outages – one unplanned and one planned – the

111

project delivered a solid output in 2015. The outage Wind Turbine Generator

periods were fully compensated by the grid operator

Siemens 3.6 MV-120

Energinet.dk, and did, therefore, not affect the financial Foundation structure

result of Anholt. The operational performance in the

Monopile

non-curtailed periods was well above expectations Main contractors

in 2015. The owners are continuously focusing on

DONG Energy

improving the performance of the project and the Project Partners

ongoing service and maintenance program.

DONG Energy, PensionDK

Direct Infrastructure

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

Aggregate commitment overview

FUNDS

Fund

Manager

Vintage

Currency

Abraaj Africa Fund III

Abraaj Group

2015

USD

Actis Emerging Markets 3

Actis

2008

USD

Actis Energy 3

Actis

2013

USD

Actis Energy 3 - Co-investment vehicle

Actis

2013

USD

Adelis Equity Partners Fund I

Adelis Equity Partners

2013

SEK

Amber Trust II

Danske Capital Finland

2005

EUR EUR

Antin Infrastructure Partners

2008

Antin Infrastructure Partners Fund II

Antin Infrastructure Partners

2013

EUR

Aquiline Financial Services Fund III

Aquiline Capital Partners

2015

USD

Arsenal Capital Partners II

Arsenal Capital Partners

2006

USD

Arsenal Capital Partners III

Arsenal Capital Partners

2012

USD

Arsenal Capital Partners IV

Arsenal Capital Partners

2016

USD

Audax Private Equity Fund IV

Audax Group

2013

USD

Audax Private Equity Fund V

Audax Group

2016

USD

Aureos Africa Fund

Abraaj Group

2008

USD

Axcel I

Axcel

1993

DKK

Axcel II

Axcel

2001

DKK

Axcel III

Axcel

2006

DKK

Axcel IV

Axcel

2011

DKK

Axiom Asia Private Capital III

Axiom Asia Private Capital

2012

USD

Brookfield Brazil Timber Fund I (A)

Brookfield Asset Management

2008

USD

Brookfield Brazil Timber Fund I (B)

Brookfield Asset Management

2008

USD

Campbell Opportunity Timber Fund

Campbell Global LLC

2008

USD

Campbell Timber Fund II

Campbell Global LLC

2007

USD

Capricorn Forest Fund

IWC (The International Woodland Company A/S)

2007

USD

Care Capital Investments III

Care Capital

2006

USD

Comvest Partners IV

Comvest Partners

2010

USD

Comvest Partners V

Comvest Partners

2015

USD

Cross Atlantic Partners IV

Cross Atlantic Partners

2001

USD

Danish Climate Investment Fund I

IFU

2014

DKK

Danish Microfinance Partners

Maj Invest

2011

DKK

Dansk Vækstkapital

Vækstfonden

2013

DKK

Dansk Vækstkapital II

Vækstfonden

2016

DKK

Danske PE Partners II EUR