Confidence despite a challenging outlook
Now is not an easy time to be an investor in any asset class. Both inflationary pressures and the continuing impact of the Russo-Ukrainian war are affecting all markets and leading to a much more cautious approach to investing, which is reflected in the way we are choosing to deploy capital from Kartesia’s range of strategies since 2013. However, first and foremost, we would like to once again extend our heartfelt sympathy to the people of Ukraine and hope for a rapid end to the conflict.
Companies in all sectors are being impacted by the rapid rise in inflation, which has a knock-on effect on any private markets investor. Inflation is impacting cost items of any P&L, tightening margins and slowing growth. As a result, selectivity when investing in private companies is even more important than it was prior to the Covid crisis, with Kartesia choosing to look at those businesses which can continue to demand high prices for their goods or services, or those with high margins as a way of reducing exposure to inflation. The sector that continues to carry the highest risk is retail, so we continue avoiding investment here as discretionary spending is sure to be impacted in the short to medium-term.
Fortunately for Kartesia and its investors, the floating rate nature of our loans does provide some form of hedge against the base rate increases being implemented by both the European Central Bank and Bank of England which should, we hope, start to bring inflation down to a more manageable level in the medium to long term. However, we are continuing to tightly monitor our entire portfolio to ensure that all investee companies are properly equipped to tackle the issues caused by inflation and are positioned to be able to capitalise on growth opportunities when they should arise. Many of the companies in our portfolio operate in those sectors that have less exposure to inflation and as a result, should evidence growth throughout this current market volatility.
Despite the difficult economic circumstances, we are confident in our strategy and investment approach. This edition of the newsletter proves that Kartesia has been able to continue to invest selectively in some of Europe’s most innovative and exciting companies, while also re-investing in the business itself to ensure we are in the best possible position to provide strong outcomes for all our stakeholders. The opening of our Milan office means we now have a footprint in another key European market and should allow us to originate a host of new investment opportunities in a country full of intriguing privately-owned companies.