The rating certifies KGAL’s very high quality and competence in asset management in the segments aviation, real estate and renewable energy. The aviation segment is rated AA (AMR), while the real estate and renewable energy segments are rated AA- (AMR).
KGAL is one of the established providers in the closed-end funds sector that has asserted and further developed its position in Germany, even after the introduction of the German Capital Investment Code (KAGB). Since 2013, the company has concentrated on the institutional sector and has been able to significantly expand its business in all segments evaluated in this report.
The KGAL group, based in Grünwald, was founded in 1968. The company’s original objective was to finance national customers’ real assets through leasing and has since developed into one of Germany's leading lessors in the real estate segment. KGAL entered the closed-end fund sector in 1990 with the launch of a closed-end aviation fund. Today, the company is one of the leading investment and asset managers in the sector. KGAL also has a well-established, in-house technical asset manager, as a result of the joint venture with Lufthansa - German Operating Aircraft Leasing, or GOAL.
Furthermore, the consistently above-average industry experience and company tenure at the top and second management level should also be noted. Clear allocation of responsibilities and rules of representation in case of absences have been established. The quality of investment processes and risk management meet very high standards.
The IT and process infrastructure is being continuously developed to form the basis for even more efficient processes. The IT solution developed in-house, which ensures fully integrated reporting, is already being used in the renewable energy sector. The real estate and aviation segments are to be fully integrated this year. With regard to digitalisation, KGAL and its own Fintech team are developing an online platform as well as investment products, which is viewed positively by Scope. However, it is still at a very early stage of development. The fact that KGAL does not conduct its own independent research limits the evaluation.
The track record of the individual segments are above industry average. KGAL is facing the challenge of acquiring suitable assets in the current challenging market price environment due to the successful raising of capital.
KGAL has been active in the aviation segment since 1979. To date, it has completed more than 800 transactions for 81 private placements and other investment vehicles as well as for 58 retail and three institutional funds. Including the three portfolio funds for institutional investors, the aviation funds’ cumulative investment volume to date amounts to more than EUR 7.4bn.
The entire aviation value chain is covered in-house, which is one of the positive rating drivers. GOAL acts as KGAL's exclusive technical asset manager in the aviation segment. It was established in 1998 as a joint venture between KGAL GmbH & Co. KG and Deutsche Lufthansa AG. KGAL holds a majority stake of 60%. To date, more than 250 aircraft and engine transactions have been completed as part of the venture. With a fleet of 65 aircraft, GOAL is currently the largest operating lessor in Germany and one of the 50 largest aircraft leasing companies in the world.
The operating funds' active portfolio has so far made attractive annual distributions.
KGAL has launched a total of seven alternative investment funds, 26 retail funds and 125 private placements in the real estate segment. To date, properties have been acquired for more than EUR 20bn.
The investment focus for office real estate is the top 20 cities in Germany and major European cities such as London, Paris and Vienna. In the commercial real estate sector, the focus is currently on district centres with mixed use as well as retail parks in Germany and its neighbouring countries. Meanwhile, the primary focus in the residential segment is on core investments in A-locations. Property management has been outsourced, which makes sense in Scope's view. Service providers are managed individually. Bonus-malus policies are not implemented for all of these, although in Scope’s view this would be preferable.
An above-average return is currently attainable for institutional products. Exits completed to date also achieved an above-average result with a pre-tax IRR of 10.4%, following an average investment period of eight years.
KGAL has been active in wind energy since 2003 and made its first investments in photovoltaics in 2005. At the end of 2017, the total renewable energy portfolio amounted to over EUR 2.4bn, split into EUR 1.1bn in wind energy and EUR 1.3bn in photovoltaics. The portfolio is spread across Europe over 63 solar parks in Germany, Spain, Italy and France and 68 wind farms in Germany, France, Finland and Sweden as well as two hydropower plants in Italy and Norway. With this portfolio, KGAL is one of the largest asset managers in the renewable energy segment across Europe.
The overall portfolio is comprised of two AIF, seven retail funds, eight private placements and other investment vehicles. Due to the buy-and-hold strategy and the corresponding long-term fund maturities, no fund exits have yet been realised for the closed-end retail funds launched to date.
Three of the four funds which invest in German photovoltaics were able to significantly exceed their planned pay-outs, as the electricity revenues were higher than expected. However, for the three retail funds, which invest primarily in Italian and Spanish photovoltaic systems, the pay-outs made were significantly below their predicted values due to the changed conditions for feed-in tariffs in these countries. The impact on institutional vehicles was lower due to the diversification of the funds.
Investment vehicles for institutional clients also achieved attractive results.
Important notes and information
Scope Analysis GmbH (subsequently ‘Scope Analysis’) publishes management ratings of asset management companies, as well as issuers of funds and investment certificates. These management ratings are not “credit ratings” within the meaning of Regulation (EC) No. 1060/2009 on credit rating agencies as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013.
Furthermore, management ratings provided by Scope Analysis are neither recommendations to purchase or sell financial instruments issued by the asset management company, the issuer of investment funds or certificates, nor do they contain any judgement of the value of such financial instruments. Moreover, the ratings provided by Scope Analysis do neither constitute individual investment advice, nor do they take account of the specific investment objectives, investment horizon or asset situation of individual investors. In preparing and publishing its ratings, Scope Analysis does not act as an investment advisor or portfolio manager to any client.
Where the term asset management company is used, it also includes capital management companies, investment companies, management companies and investment advisory companies.
The publisher responsible for preparing and distributing this management rating is Scope Analysis GmbH, Berlin, Germany, Local Court of Berlin (Charlottenburg) HRB 97933 B, Registered Office: Lennéstraße 5, 10785 Berlin, Germany, Managing Director: Dr Sven Janssen.
The present management rating was generated and written by: Stephanie Lebert, Associate Director, Lead Analyst.
Management rating history
This management rating is the first rating of the quality of this asset management company by Scope Analysis.
Information on interests and conflicts of interest
A description of the precautions taken by Scope Analysis, especially to prevent and avoid conflicts of interests regarding the preparation and distribution of management ratings, can be found in the Scope Analysis GmbH’s “Conflicts of Interests Policy” at www.scopeanalysis.com.
The rating was prepared independently by Scope Analysis GmbH, however, for a fee as set out in the mandate from the asset management company.
Principal sources of the management rating
The following principal information sources were used to produce the management rating: website of the asset management company - detailed information provided on request - annual financial statements - data supplied by external data providers - interview with the asset management company - external market reports - press reports/other published data.
The information contained in the ratings is derived from sources that Scope Analysis deems to be reliable; it has been compiled in good faith. Nevertheless, Scope Analysis cannot give any guarantee that the information used is correct, nor can it assume any liability for the correctness, completeness, timeliness or accuracy of the information.
Before publication, the client had an opportunity to review the rating and the key factors leading to the rating decision (rating drivers), including a summary of the underlying rating rationale. The rating was not revised following this review.
Scope Analysis produces its independent and objective ratings with the necessary professional diligence as of a specific date, on which the rating is published. Future events must therefore be deemed to be uncertain. Forward-looking statements are based on estimates, so a rating does not constitute a factual claim; it merely expresses an opinion, which may subsequently change and may then be reflected in an altered rating. Consequently, Scope Analysis does not assume any liability for damage resulting from decisions taken based on any rating it produces. In the event of simple or minor negligence by Scope Analysis, or a legal representative, employee or agent of Scope Analysis, liability for the infringement of material contractual obligations shall be confined to the foreseeable and typical damage incurred. Moreover, liability is excluded in the event of simple or minor negligence; this shall not apply in the event of loss of life or limb or impairment of health.
Similarly, if the management rating is a solicited rating, Scope Analysis shall not bear any liability in accordance with the principles of a contract with protective effect for the benefit of third parties. The parties involved should only regard such ratings as one factor in their investment decisions; they cannot replace their own analyses and assessments. The rating therefore only comprises the expression of an opinion with respect to quality and does not under any circumstances constitute a judgement of the risk-return profile of an investment, nor does it constitute any statement as to whether the parties to an investment could generate any income, recover the capital invested, or assume any specific liability risks. The content of ratings and rating reports is protected by copyright and otherwise by law. Product and/or company names cited in such ratings and rating reports may be registered trademarks. A copy of the ratings or rating reports published by Scope Analysis on its website may be saved to one computer only for non-commercial and personal, internal use. Any additional, unauthorised use such as modification, reproduction, transmission, transference, dissemination, sale or storage for subsequent use of the content of the ratings or rating reports is strictly forbidden. Unauthorised use can result in claims for damages or injunction.