Exelity

Exelity is a fund that combines investments in shares and what we call financial transactions. The aim is to provide the investor with a well-balanced portfolio that provides the upside of investing in small growth companies in the Nordics and that uses unique credit exposure to create returns in times of more uncertain market conditions.

Investments

Shares: Investments in Nordic growth companies with proven business models

The fund's equity portion invests primarily in small listed companies in the Nordics that show rapid growth and that have good conditions for scaling up their operations with relatively small funds. These are companies that we see as the big companies of the future within their respective industries, but which are in an early part of their growth journey.

The companies in which the fund invests are characterized by a large, but largely unrealized, potential where there are clear triggers and inflection points that can have a major impact on value development. The fund places great emphasis on understanding the companies in depth, where the managers seek a qualitative insight into the long-term prospects. They are not afraid to have a dissenting opinion about the company, as long as the visibility of its earning capacity is large enough.

The fund actively looks for companies with scalable business models and sustainable competitive advantages in industries with structurally growing niches. Passionate and humble company management with high integrity and skillful capital allocation are particularly preferred.

Financial transactions: A unique credit exposure previously only available to institutions

Participation in financial transactions such as guarantees, bridging loans, convertibles, targeted issues, listings and pre-IPOs is a market that was previously dedicated to institutional investors. These have a very attractive potential in relation to the risk taken. By being an actor who can provide liquidity in critical situations in the company's development, you as an investor can get very favorable terms.

With the network that Exelity has built up over many years through the previous careers of its representatives, it is now possible for a private investor to gain access to this type of investment. Historically, this type of financial transaction has shown very high risk-adjusted returns, particularly in environments where the climate for IPOs, corporate deals and capital raisings has been weak.

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Example of a listed share case

The following is a prime example of the type of equity investments the Fund seeks:

  • Software company within a niche with high structural growth driven by legal requirements that make the company's product the standard.
  • High entry barriers and switching costs make the market a duopoly where the company has won the majority of the market.
  • Scalable business model with predictable revenue from royalty contracts of over 5 years with up to 100% gross margin.
  • Contracts worth several billion SEK with 12 of the 15 largest potential end customers.
  • Moreover, the value of the customer relationships above is several times higher because customers typically copy the technology to more models on their platforms, which has been underestimated by the stock market.

THE FUND MANAGER

Victor Westman

Equity analyst at Redeye 2014-2021 with responsibility for covering a variety of Small and Mid Cap companies.

Member 2017-2021 of Redeye's Investment Committee responsible for the management of Redeye's model portfolio Top Picks and the alternative investment fund Redeye High Quality (RHQ). These portfolios are composed based on a selection of Redeye's best investment ideas from the approximately 150 companies that Redeye monitors.

The total return in Redeye Top Picks amounted during Westman's time (August 2017 – May 2021) to over 360%, corresponding to an average annual return (CAGR) of over 50%. RHQ was launched in May 2020 based on the processes and track record of Top Picks. RHQ achieved a net return of over 60% in its first year.

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Risks

  • Liquidity risk

    With its investment strategy, the fund has a liquidity risk as it intends to invest in illiquid assets such as unlisted shares, guarantee issues and direct financing. In the event of strong market movements or trading interruptions, the market price may fall below the issue price. The demand for the subscription of new profit-sharing loans can also affect the conditions for the Fund in the case of disposals of profit-sharing loans and, as a consequence, contribute to a delay in payment. In order to limit the liquidity risk, the Fund intends to ensure that a sufficiently large part of the total assets is invested in larger listed and tradable holdings as well as liquid assets. Liquidity stress tests are carried out on an ongoing basis to ensure that the Fund is capable of meeting larger net outflows of capital.

  • Currency risk

    The Fund's base currency is SEK, but the Fund may make investments of a certain part of the capital in currencies other than the Swedish krona. The fund intends to hedge investments made in currencies other than the Swedish krona with currency-related derivative instruments. As a result, the currency risk is assessed as limited.

  • Counterparty risk

    The fund enjoys the right to use leverage and trade in derivative instruments as part of its strategy. When trading OTC derivatives, counterparty risk arises, which is managed with posted collateral and is regulated by ISDA. The fund requires that the collateral have good creditworthiness, creditworthiness and counterparty risk is mitigated by having the counterparty evaluated and approved by the AIF Manager. The assets must be liquid and valued daily or alternatively consist of liquid funds. Collateral received may not be resold, reinvested or pledged.

  • Operational risks

    As the Fund has a freer investment orientation than ordinary securities funds, it contributes to an increased operational risk in management decisions. Operational risk can also arise on an ongoing basis in management and administration. The Fund evaluates process and system support on an ongoing basis and by reviewing control functions in the Fund.

  • Market risk

    The fund has exposure to market risk through listed and unlisted holdings, direct lending and trading in derivative instruments. Furthermore, the Fund is dependent on and influenced by the market's general interest rate level. Profit share loan owners should be aware when investing that market unrest on the stock market and major changes in interest rates on relevant markets can negatively affect the Fund's return. To limit the Fund's market risk, the risk level and investment limits are checked on an ongoing basis by the unit for fund administration and the risk management function. The fund thus intends to maintain a well-balanced portfolio with a diversified market exposure.

  • Credit risk

    As part of the investment strategy, the Fund intends to provide direct lending of capital to companies. The fund thus takes a credit risk in each individual involvement in direct lending, which can lead to a risk of non-payment of interest, amortization or repayment. To the extent that the Fund deems necessary, the borrower is asked to provide collateral as a guarantee for the credit. If necessary, the security may be foreclosed, also known as pledge realisation, as part of the Fund's work with insolvency management. The fund mitigates credit risk through careful credit assessment and ongoing monitoring of loan commitments. The fund always acts based on the best interest of the profit share loan owners in the event of work with insolvency management.

  • Durability risk

    The fund takes sustainability risks into account in management decisions and ongoing management. The fund follows Fondbolaget Finserve Nordic's policy for responsible investments in accordance with the SFDR and excludes companies involved in products and services in controversial weapons, tobacco, pornography, coal, or uranium mining, companies that violate international conventions and are subject to international sanctions. As part of managing ESG, the Fund has appointed a sustainability officer who participates in the assessment of sustainability risks in the Fund's ongoing management.

    The Fund does not consider the negative consequences of investment decisions for sustainability factors, as the Fund is not expected to be able to obtain sufficient information about its investments to fulfill the information requirements imposed on such funds.

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Fund document

Before an investment in Exelity, it is important that you read the written material about the fund in order to make a well-founded decision, which means that you understand the risks that exist with the fund and that you understand how the fund works. Therefore, you should carefully read the information brochure, the basic fact sheet and the prospectus and its supplements. You will find all relevant documents here.

Financial calendar

  • Exelity Interim Report 2023

  • Exelity Annual Report 2022

  • 2023

    • Exelity Interim Report 2023

    • Exelity Annual Report 2022

Press releases