United Bankers upgrades its guidance after exit from a forest fund

Translation: Original comment published in Finnish on 3/5/2024 at 7:17 am EET

UB announced on Monday that it had sold UB Nordic Forest Fund II, founded in 2015, to the German asset management company Munich RE Group. As a result of the transaction, UB will record a huge performance fee of 18 MEUR, of which 8 MEUR has been booked for previous years and 10 MEUR will be booked for the current year. As a result, UB also raised its guidance and now expects adjusted operating profit to increase clearly (previously to increase). The news is naturally positive for UB, and yet another strong proof of the value creation ability of its forest funds. We will update our forecasts in the coming days.

The annual internal rate of return (IRR) of the UB Nordic Forest Fund II for the investor after costs is 13.3% which can be considered an excellent level in a stable asset class like forest. The transaction is yet another strong proof of the value creation ability of the company's forest funds and it helps remove uncertainty related to the performance fee outlook of forest funds. We discussed the valuations and outlook of forest funds in our last interview with the CEO in connection with the H2 report.

Due to the high performance fees, the transaction has a significant impact on the operating profit of 2024, but the exit from the fund causes a short-term cut in management fees (estimated to be some 1 MEUR p.a.). However, we believe UB has excellent preconditions to recover a significant share of this capital in its other funds. In addition, we consider it possible that the excellent transaction will accelerate the fundraising of the company’s two forest funds that are currently sold. Therefore, we expect the cut in management fees to be short-term.