Golding launches debut impact fund with EUR 300m target

The Luxembourg-domiciled vehicle expects to hold a first close at the end of 2021 or the beginning of 2022.

The fund is targeting returns of 12-14% IRR and will have an investment period of two to three years.

Golding hired Andreas Nilsson and Nina Freudenberg, co-founders of impact fund management boutique Sonanz, to lead its new impact investing strategy in May 2021, as reported.

Nilsson, now managing director and head of impact at Golding, tells Unquote that the Impact Fund has reinforced its strategy since joining the firm. "Our team has been doing this for a number of years so we know the markets very well and know hundreds of managers who we have been tracking. Since joining Golding, we have really formalised our strategy, defining what are we looking for, where we see opportunities, why these opportunities are there, what impact we expect from the investments, and how to monitor this. This was always clear to us as a team, but now we have really formalised it."

The GP has initially classified Golding Impact 2021 under Article 8+ ("light green plus") of the Sustainable Finance Disclosure Regulation (SDFR), but aims for the vehicle to attain Article 9 classification ("dark green") in the medium term.

Golding aims to be carbon-neutral by 2025 and the GP expects to publish its Operating Principles of Impact Management shortly.

The firm said in a statement that this fund will not be its only impact investing product. There is potential for Golding to broaden its impact strategy beyond its first fund-of-funds, Nilsson tells Unquote. "Golding generally brings a strategy with a fund-of-funds in an asset class, before going into managed accounts, customised solutions, and follow-on funds that are not a typical fund-of-funds but might include a co-investment fund, for example. We can also develop the fund into more sector-focused or regional opportunities. So we have a good toolbox for our investment strategy and to adapt to the needs of our clients."

With LPs and GPs alike placing increasing emphasis on ESG, conversations around the topic are starting to coalesce with those around impact strategies, Nilsson tells Unquote. "I see ESG and impact as distinct, but the discussions are sometimes overlapping. People who care very much about ESG are automatically moving into impact territory, so they are converging."

ESG should be core to investment decisions and strategy planning, Nisson says: "Any strategy of any investor should have ESG thinking behind it. The strategy itself should have people thinking about their outcomes, rather than having a strategy and then looking at ESG in the rear view mirror, solving problems that might occur. It's also about how you are making your financial returns – if there are no links between ESG and returns in your strategy, you might end up with investments that are actually not very strong."

Golding manages a series of alternative investment funds-of-funds, covering buyouts, private debt, secondaries and infrastructure, as well as managed accounts for its clients. The GP held a EUR 161m first close for its latest buyout co-investment fund in June 2021, as reported.

Investors
LPs in the fund are likely to be German and European, Nilsson says. Institutional investors must make a minimum commitment of EUR 5m in order to back the fund.

Golding's existing LP base from its other strategies will be potential investors in the fund, Nilsson says: "Golding has a strong network of investors in its other asset classes and we will be looking to discuss their interest in being part of this."

However, Golding also expects new LPs to join the fund. "We also have new investors who have not yet invested with Golding and we can use this opportunity to discuss their interest in impact and get them acquainted with Golding."

Some LPs participating in the fund might be backing an impact strategy for the first time, Nilsson tells Unquote. "We are speaking to some LPs who are new to the field and they want to have a better understanding of the opportunities; they want to learn about the sectors we will be investing in and where the best opportunities are. We really enjoy talking to a new audience and getting them familiar with an exciting new asset class."

Beyond this group, Golding also expects LPs with prior experience of impact funds to commit to the vehicle, says Nilsson: "We have other investors who are very sophisticated and might already have impact investments; those conversations are often very detailed, granular and advanced when it comes to specific ways of measuring impact, business models and sectors."

Investments
Golding expects to invest in 15 funds in total, with the capacity to make additional select co-investments. Golding Impact 2021 will generally make investments of EUR 15m-20m per fund, focusing on growth equity-stage companies and the vehicles that back them.

Golding expects to use the prior experience of the impact team to source co-investment. "We want to be able to pick the ones that fit our investment strategy best," Nilsson tells Unquote. "Having invested in the space actively for the last five years or so, we have a good feeling for where we can do this, so we are optimistic about getting access to the right type of investments."

The fund will deploy around half of its capital in emerging markets, with the remaining half split between North America and Europe.

From this portfolio, Golding expects to back companies in Europe, North America and emerging markets in three sectors: green solutions (35%), which will generally involve energy sector companies focused on the decarbonisation of economic processes or adapting to climate change; food and agricultural technology solutions (35%), such as soil and water quality maintenance companies or companies focused on supply chain modernisation; and financial inclusion solutions (30%), comprising businesses focused on simplifying access to financial services and improving their availability in emerging markets.

"We have specific themes where we believe there are huge opportunities, unmet demand, or problems to be solved, but also significant financial potential," Nilsson tells Unquote. "We even use scientific evidence to connect the themes, business models and products to the expected impact – for example, seeing the evidence that shows that financial inclusion leads to better incomes, better health, or better agricultural outputs, for example."

Nilsson emphasises that forming a clearly defined investment strategy is a prerequisite for the measurement of impact. "We obviously also measure and monitor the impact after investing, but the best way to ensure impact is to set a strategy where this is clearly built in," Nilsson tells Unquote. "We won't just make investments across broad themes and see if they are successful afterwards or not. Before we even invest, we start to set the stage so that we know that what we are reporting on will be impactful. It will never be about just one KPI that we can use to compare and contrast."

People
Golding Capital Partners – Andreas Nilsson (managing director, head of impact); Nina Freudenberg (director).

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