Maj Invest Financial Inclusion Fund III K/S

Ledelsesberetning

License as manager with the Danish FSAThe Manager has received a license as manager (in Danish: forvalter) with the Danish FSA (in Danish: Finanstilsynet) and the Manager is under financial regulation and the Danish FSA supervision.Maj Invest Financial Inclusion Fund III has appointed a depositary in accordance with the provisions in FAIF.Remuneration for the financial year paid to management and staff in Maj Invest Equity is disclosed in the annual report of Maj Invest Equity. Information is given at Manager level. The annual report of Maj Invest Equity is available on the website majinvest.com.Carried interestMaj Invest Financial Inclusion Fund III has been established with a management fee structure which is normal in relation to the private equity market. This means that the Manager receives a fixed management fee as well as a share of carried interest depending on the investors’ returns on their investments.No carried interest had been allocated or paid as of 31 December 2022.Market developmentThe financial inclusion sector has proven resilient based on experience from previous crises. It tends to bounce back well in the medium term as it caters to the informal sector that must continue business operations to provide for their basic needs despite macroeconomic challenges. Selectivity in asset selection, valuations, and entry points will be paramount in today’s environment, given the unique combination of disruptions to the global economy (monetary interventions of unprecedented scale due to supply-chain disruptions, conflict in Europe, volatile energy prices, etc.).[1]The Fed hiked rates much faster in 2022 than they have ever done, going all the way back to World War II. The US inflation appears to have peaked in June 2022, with the Consumer Price Index (CPI) showing a sign of downward trend. The market expects the FED funds rate to peak from its current level 4.25%-4.5% to around 5.0% in June 2023 based on the FED Funds Futures. Consequently, the slower pace of interest rates hikes of FED will alleviate the pressure of the central banks in emerging markets to slower the increase in interest rates to sustain parity with the US dollar (USD). In the short term, this situation will strain the purchasing power of the financial inclusion client group, increasing business input costs and financial costs, affecting the financial inclusion industry's performance. As interest rates continue to rise less, capital will still become more expensive. This has a negative impact on valuations in private FI markets, creating an investment opportunity in the FI sector.The terms-of-trade shock resulting from the Russia-Ukraine conflict has had a net positive impact on Latin America's growth outlook. Rising commodity prices will buoy growth in several major markets by incentivizing investment and creating new opportunities for agro-exporters and commodity producers to capture market share abroad. This will create a significant opportunity for the regional portfolio companies to accelerate agricultural loans and contribute further to a sustainable development. Also, recently elected left-wing Latin American governments have included the FI sector among their key priorities, recognizing its potential to maintain household and social living for low-income people along with government initiatives to promote fair competition and improve the national payment system.However, the Peruvian left-wing government, presided by Dina Boluarte, has faced widespread protests since taking office in December following a failed coup by the former president, Pedro Castillo (2021‑22). Thus, political instability, a large informal economy and reliance on a few commodity exports will constrain both market opportunities and long-term growth. However, Peru’s strengths include a low public debt/GDP ratio, large foreign reserves and a credible central bank which may hinder significant currency depreciation.[2]In India, the rupee is expected to depreciate more mildly in 2023 than it did in 2022. This trend will be supported by a resumption of foreign capital flows to India, and other emerging markets, amid slower growth in Western nations. Moderating global commodity prices will narrow India's current-account deficit and inflation is expected to be lower in 2023. This may rekindle investor appetite for emerging market assets, which will be supportive for the rupee.[3] Thus, the stronger USD has decreased the current portfolio companies’ valuation in India. In the short term, the strong USD creates an opportunity to invest in new FI institutions in India.Expecting lower inflation rates and stabilizing interest rates in the midterm will result in a weaker USD, increasing the value of the existing portfolio companies. Further positive effects of financial inclusion will be seen in the broader adoption of technology to enhance client outreach to deliver faster and lower cost-lending processes and more convenient ways for more people to become financially included. Also, a greater supply-chain efficiency in the agricultural sector will make rural India more resilient to climate change. A stronger agricultural sector and declining fertility rates will enhance the loans disbursed to safe agricultural projects.[4]The potential market to make a social impact is significant, with more than 1.4 billion people still counted as financially excluded.[5]