CD Private Equity Fund III (ASX:CD3) posted a net loss of $9.01 million for FY26, weighed down by foreign exchange losses and fair value declines. Despite near-term challenges, the Fund sustains strong long-term performance and liquidity.
- FY26 net loss of $9.01 million driven by $8.22 million fair value loss
- Unrealised foreign exchange loss of $11.9 million from stronger Australian dollar
- Net tangible assets per unit fell from $1.87 to $1.61
- Fund holds 71.2% interest in US Select Private Opportunities Fund III LP
- Distributions of $0.14 per unit paid, with $8.28 million cash on hand
Losses Amplified by Currency Movements
CD Private Equity Fund III (ASX:CD3) swung to a net loss of $9.01 million for the year ended 31 March 2026, reversing a $18.56 million profit in the prior year. The primary culprit was an $8.22 million fair value loss on its investment in the US Select Private Opportunities Fund III LP, which included an unrealised foreign exchange translation loss of $11.9 million. This FX impact stemmed from a materially stronger Australian dollar against the US dollar, eroding the AUD value of the Fund’s US dollar-denominated assets.
The Fund’s net tangible assets (NTA) per unit declined from $1.87 to $1.61 during the year, factoring in distributions of $0.14 per unit. The foreign exchange headwind accounted for 64% of the movement in the LP investment value, overshadowing positive underlying portfolio valuations. This dynamic reflects the Fund’s concentrated exposure to US private equity and the volatility introduced by currency fluctuations.
Portfolio Activity and Cash Flow Management
CD3 holds a 71.2% stake in the US Select Private Opportunities Fund III LP, which invests across 57 active portfolio companies within 13 underlying funds. During FY26, the LP completed five portfolio company realisations, generating cash inflows totaling approximately US$8.7 million. Notable exits included U.S. Urology Partners and Lion Beverages.
Capital calls during the year amounted to US$2.3 million, primarily for follow-on investments and partnership expenses, consistent with the Fund’s late investment phase. The Fund distributed $0.14 per unit, or $10.08 million in total, supported by these realisations. Since inception, distributions have accumulated to $2.179 per unit.
Liquidity remains robust with $8.28 million in cash at the Fund level and US$3.66 million cash held by the LP. The Manager emphasises prudent capital management, maintaining sufficient liquidity for operational needs while avoiding excess cash retention.
Long-Term Performance and Investment Outlook
Despite short-term headwinds, the Fund’s long-term track record remains solid, with a post-tax annual return of 11.9% and an internal rate of return of 12.5% since inception. The total value to paid-in multiple stands at 2.37 times, underscoring value creation over the Fund’s lifespan.
The LP’s portfolio, weighted towards technology-enabled businesses, is positioned to benefit from AI-driven growth trends. However, exit timelines have extended, with portfolio companies held an average of 6.6 years. Managers are opting for selective, asset-by-asset realisations to maximise value rather than forced sales amid market uncertainty.
With the Fund approaching its 10-year anniversary, the focus remains on disciplined execution and capital preservation. Of 81 companies realised since inception, 55 returned multiples of 2x or greater, highlighting the portfolio’s underlying strength despite near-term valuation pressures.
Governance and Risk Oversight
K2 Asset Management Ltd continues to oversee the Fund’s operations with a strong governance framework aligned to ASX recommendations. The Board comprises four directors, including one independent member, supported by compliance and risk committees. The Fund’s accounting and valuation policies adhere to Australian Accounting Standards, with Deloitte Touche Tohmatsu providing an unqualified audit opinion.
Key risks include foreign currency exposure, private investment illiquidity, and macroeconomic uncertainties. The Fund does not hedge currency risk, exposing investors to AUD/USD volatility. Deferred tax liabilities reflect anticipated US tax obligations on unrealised gains.
No material events post-reporting period were noted, and the Fund maintains a going concern status with adequate capital to meet commitments.
Bottom Line?
CD3’s FY26 results highlight the challenges of private equity investing amid currency swings and extended hold periods, but its strong long-term returns and disciplined capital management provide a buffer as it navigates an uncertain exit environment.
Questions in the middle?
- How will ongoing AUD/USD fluctuations affect CD3’s near-term NAV and distribution capacity?
- What is the timeline for realising remaining investments as the Fund approaches wind-down?
- How might evolving AI trends materially impact the Fund’s technology-heavy portfolio?