Golding Capital holds EUR 65m first close for debut impact fund

The fund is domiciled in Luxembourg and is forecasting a net IRR of 12-14% with a final close on the horizon by the end of 2023, as reported by Unquote. 

The fund-of-funds is currently classified under Article 8+ (light green plus) in accordance with the Sustainable Finance Disclosure Regulation (SFDR), with a view to reaching classification as an Article 9 fund (“dark green”), according to a press release.

Head of impact investing at Golding, Andreas Nilsson, said in a press release that the decision to launch the fund was driven by the increasing interest seen from investors in “tangible impact solutions that go beyond ESG-compliant securities investments with their various exclusion criteria and actively support transformative entrepreneurship.”

Nina Freudenberg, director at Golding, told Unquote that the GP expects a continuing high level of interest in sustainability to drive the fundraising momentum. Demand from LPs has been high as they are developing strategies to incorporate more sustainability into their portfolio, she said.

The fund is led by Nilsson and Freudenberg with two other junior members on the team. Nilsson has experience in private equity spanning 10 years and co-founded impact investing boutique Sonasz. With a background in health politics, Freudenberg started her career as a consultant at Boston Consulting Group in Munich and then joined Sonasz.

Both co-managers have been observing the impact private equity market since 2014 and have cultivated a large network of fund managers. “The fund landscape we focus on is very diverse and growing rapidly,” said Freudenberg. “On the one hand, we see fund managers with a dedicated focus on sustainability that were founded with a clear sustainability mission. On the other hand, many of the large established GPs are setting up sustainability funds. Hence, a fund-of-funds approach makes sense in this evolving field to be able to allocate to the best managers and diversify across sustainability themes.”

Golding has developed an impact management system that incorporates the “latest relevant industry standards,” according to Freudenberg. At the core of this system is the “theory of change” – a tool that many fund managers use to evaluate the expected environmental and/or societal effect targeted by an investee and to hold them accountable over the course of the holding period. Impact pathways describe the logical relationships between the resources invested and the desired outcome of an initiative.

It is essential to highlight the impact expectations prior to investing, as well as, establish a preliminary set of output indicators and impact metrics to be measured post-investment and ensure these goals are aligned with the impact objectives of the fund, Freudenberg said.

Golding has a range of alternative investment fund-of-funds covering private debt, buyouts, secondaries, infrastructure, co-investments and ventures. Its latest co-investment fund held a first close in June 2021 on EUR 161m against a target of EUR 200m, according to Unquote Data.

Investors
Golding Impact 2021 is open to institutional investors making a minimum commitment of EUR 5m.

The fund has received commitments from new and existing institutional investors, based in Germany (where it has traditionally had a strong LP base), Sweden and Switzerland, said Freudenberg. Sweden-based SEB-Stiftelsen is among the sponsor’s first group of backers. The relationship with the LP started while Freudenberg was at previous firm Sonanz, where SEB-Stiftelsen was the cornerstone investor, said Freudenberg.

The LP base is made up of mainly pension funds, she said, adding further that the fund currently has fewer than 10 investors.

On the way to the final close, the sponsor is seeking to attract more institutional investors primarily from Europe, said Freudenberg.

Investments
Golding Impact 2021 will invest in funds targeting companies based in Europe and North America (50%), as well as emerging markets (50%). Its European emphasis will largely comprise western Europe, while its emerging markets investments are likely to include India, South Africa, East Africa, Brazil and Mexico, said Freudenberg.

The fund’s split geographical focus will allow Golding to address a range of issues specific to different countries, according to Freudenberg. "When you look at the world, the main challenge is climate and environmental consumption,” she said. “People in the western world consume too much and we have to reduce consumption. In the global south, people are striving for better living consumption. It is important that when they grow, they do it in a sustainable way and do not make the same mistake as us, and this is why we focus on both geographies.”

The strategy of the fund is to build a diversified portfolio across sectors, regions and development stages. It will target around 15 growth-stage private equity funds, with a smaller allocation of around 10%-20% for selected co-investments. The fund will make four investments per year, said Freudenberg.

The vehicle will target managers with fund volumes of EUR 50m-300m, investing around EUR 10m-20m per fund.

The vehicle will invest in funds whose underlying companies have business models centered around renewable energy and resource efficiency (35%), sustainable agricultural technology (35%) and also financial services (30%), said Freudenberg.

Within its three core sectors, the fund will focus on the impact themes of green solutions, food and ag-tech solutions and financial inclusion solutions, she said.

Within green solutions, Golding will seek funds targeting companies providing solar home systems, solar-powered appliances and solar hybrid mini-grids. It will also back solutions such as building optimisation and retrofit, grid and energy storage technologies, transport and efficient mobility solutions, Freudenberg said.

Another focus of the fund is the circular economy, including alternatives to plastic and chemicals, and biodegradable solutions. It will back solutions such as waste reduction and resource efficiency, manufacturing, and end-product processing that integrates waste back into value chains. This includes waste reduction, reusable products solutions recycling and material recovery, said Freudenberg.

The fund’s sustainable food and agriculture focus includes alternatives to pesticides or solar-based cooling systems for farmers in emerging markets. The sponsor is seeing interesting fund managers globally, as well as in Europe and North America. “Golding focuses on commercial applications of agricultural science, technology and innovative practices to boost farm resilience and sustainability,” Freudenberg said. This will encompass advanced inputs and processes that preserve the environment, such as improved seeds, sustainable inputs and innovative farming practices, she added.

Inefficiencies around food value chains in emerging markets – both at farm and supply chain level – will also be a part of the fund’s food and agriculture investments. The sponsor plans to invest in funds looking at digital solutions to minimise waste and contribute to improving farmer incomes and resilience. This includes digitally-enabled farm management and advisory, supply chain management solutions and shared equipment, said Freudenberg.

Within its focus on financial services, the fund will target funds investing in digital payments, digital lending platforms and digital insurance providers. Such businesses have started to increase access to finance for individuals and micro, small, and medium-sized enterprises, according to Freudenberg.

Limited access to finance and banking services for individuals and companies undermines development and social sustainability in emerging markets, she said. “Many of the world's poorest populations are either unbanked or underbanked, in part due to low accessibility and affordability of financial services. This low access to financial services, in turn, negatively impacts their income resilience and undermines their access to essential products and services.”

Freudenberg told Unquote that the vehicle has invested in two target funds to date. The first investment was in a fund that targets European companies in the growth phase with business models that mitigate climate change. The target fund has already invested in seven portfolio companies that are active in areas such as the energy transition, sustainability in agriculture and transport and the decarbonisation of industrial production, according to the press release.

The second target fund focuses on financial technology companies that aim to provide access to financial services in emerging markets. This fund has invested in 16 portfolio companies to date, according to the press release.

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

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