Algebris holds EUR 200m first close for debut Green Transition Fund

The Luxembourg-domiciled vehicle has a EUR 400m hard-cap that it intends to reach over the next 12 months. Algebris could extend the fundraise by 12 months if needed to reach a maximum of EUR 500m, managing director Valerio Camerano told Unquote.

The fund is an Article 9 fund under the SFDR. Its impact investment strategy has three themes: energy transition; circular economy; and smart cities and agritech.

Algebris launched a new business unit in Milan in 2021 with the aim of making investments in Italy’s transition towards "a greener and more sustainable economy", according to the statement. The fund will be headed by Camerano and investment directors Francesco Becchelli and Matteo Tarchi, all of whom joined Algebris from their various executive roles at Italian multi-utility company A2A.

“Algebris wanted to diversify into the green transition topic and their founder wanted an industry approach, so he was looking for a team with sound industrial roots and understanding,” Camerano said of the background to the fund launch. “I was looking for an experience in the private sector and alternative investment, so it was a happy coincidence. The strong ingredients we have are our industrial background and our ESG commitment – we are confident in delivering this value.”

The GP first structured the fund in September 2021, Camerano said. This involved making a Luxembourg filing and securing the ability to market the fund globally. “We have recruited for the team, so we now have seven people, and we are ready to scale up the team as appropriate as we raise the fund,” he said.

“It’s an interesting moment to go into the PE space, given the growth perspectives for SMEs, the underlying ecology trends and underlying institutional support due to the Green Deal in Europe, and the strong orientation in terms of client and investor preference,” Camerano added.

The topic of green transition lends itself well to emerging managers, Camerano told Unquote. “We are a first-time fund, but not a first time team – we’ve been working together for almost 10 years now,” he said. “And I think that genuine green transition funds can only be first-time funds at the moment, given that this is such a new area. It’s not centred on renewables now, it’s more about emerging trends such as hydrogen, batteries and energy communities. These are early-stage technologies and business models, and they mean there is no space for a second or third vintage fund in this space.”

Given the importance of the green transition, Camerano expects to see an increasing number of generalist PE players focusing on this. “Generalists will be increasingly interested in being present in the green transition, which is a good sign – it means that we are choosing the right domain, but we feel we’re certainly a first mover and we will be totally focused on green topics.”

Algebris had AUM of USD 17bn as of 31 May 2022 across its credit and equity strategies. It has typically invested in non-performing loans secured by high-end, residential real estate assets in Italy. Algebris has offices in London, Milan, Rome, Dublin, Luxembourg, Boston, Singapore and Tokyo, with a team of 140 people.

The announcement comes amidst a flurry of impact and “green” fundraises in the European private equity market. Tikehau Capital launched a EUR 1bn impact fund in partnership with consumer conglomerate Unilever in May 2022 while Switzerland-headquartered Unigestion registered its first climate impact fund in June, as reported. Also in June, secondaries and fund-of-funds manager LGT Capital closed its first dedicated Article 9 impact fund on USD 550m in June, as reported.

Venture capital and growth are also seeing their fair share of impact fundraising, with Seaya launching a EUR 300m sustainable VC fund in May, and Convent Capital holding a first close for its Agri Food Growth Fund in April 2022, as reported.

Investors
The fund’s LP base currently comprises Italian and European institutional investors, according to the statement.

“The first close took around six months and we have been able to attract new investors, so the LPs are not all existing ones from Algebris’ other strategies,” Camerano said. “We deliberately decided to focus mostly on Italian investors for the first close, although some of them do invest internationally. Most of the international marketing will be done in the next 12 months as we have built a diversified investor base that will allow us to follow on now beyond Italy’s borders, including attracting US investors.”

Investments
The fund will target businesses with proven earnings potential, resilient business models and sustainable long-term strategies, according to the statement. The fund expects to make 60-70% of its deals in Italy, with the remainder allocated to deals in Southern Europe, the UK or the US, Camerano said.

The fund will generally invest in growth buyouts, making minority or majority investments with tickets of EUR 30m-50m and an expected average ticket size of EUR 30m, Camerano told Unquote.

“We will be mainly using the capital to sustain growth but it will also contribute to buy out existing shares,” Camerano said. “Up to 10% of the fund can be deployed into late-stage venture capital, but 90% will be invested in mature companies with a structured business and revenue model. We would not go for technology bets and don’t consider ourselves a cleantech fund.”

The GP is currently developing the deal pipeline for the fund, Camerano told Unquote. “We are working on our first deal now and we are also following two or three deals in the circular economy space, involving companies working on recycling, regeneration and reuse of materials,” he said. “We’re also looking at bioplastic, as well as companies involved in strengthening the electrical grids, power systems and batteries to secure the growth in consumption and electrification.”

People
Algebris Investments – Luca Valerio Camerano (managing director); Francesco Becchelli, Matteo Tarchi (investment directors).

[Editor's note: This article was updated on 13.07.22 to include comments from Algebris.]

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