‘Small impact funds set for wave of consolidation’

With the impact investing industry maturing and the stakes being raised by the climate crisis, could the sector be set for a wave of consolidation? Andreas Nilsson of Golding Capital Partners believes so.

Solar panels in Zhejiang Province, China. Green solutions are a key area of Golding Capital Partners' new impact fund. Cao Liancong / Costfoto/Sipa USA

CV

· Managing Director & Head of Impact, Golding Capital Partners March, 2021- present
· Founder, Sonanz, 2015-present
· Advisor Brummer Partners (Bangladesh), 2008-17
· Director, EQT Partners, 2001-7
· Director, UBS, 1996-2001

Andreas Nilsson, the newly appointed Managing Director and Head of Impact at Golding Capital Partners recently moved from Sonanz, the impact boutique firm he started with Nina Freudenberg six years ago, to help the large German asset manager launch its first institutional impact fund of funds.

“I believe this kind of ‘professionalisation’ of impact investing will spread throughout the industry as other start-ups realise they need to join larger houses and that more is needed to grow and achieve impact,” Nilsson tells Impact Investor.

Last week Golding formally launched ‘Golding Impact 2021’ under Nilsson’s leadership, a global private equity impact strategy using a new fund of funds based on environmental and social sustainability targets.

The new fund is aiming to raise €300mn and will focus on companies in Europe, North America and emerging markets with “transformative business models,” according to Nilsson.

Building broadly diversified portfolio

The strategy is to build a broadly diversified portfolio around 15 target funds, with a smaller allocation for selected co-investments. It is targeting a net internal rate of return of 12 to 14%.

Golding is one of Europe’s leading independent asset managers for alternative investments, focusing on infrastructure, private debt, private equity and, now, impact. It manages some €11bn in assets for more than 200 institutional investors including pension funds, insurance companies, foundations, family offices, ecclesiastical institutions, and banks.

Exploring his reasoning, Nilsson says “This was a way for our ‘impact-only company’ to become mainstream, and for us to fulfil our ambitions.” He adds, “We joined Golding because we believe this is where the industry is heading. At Sonanz we were a smaller niche player in a world where larger asset managers are increasingly dominating.”

Why? For Nilsson, there are clear significant attractions to having “a platform that can offer us legal, administrative, and investor relations services. While still leaving us fairly free to pursue investment ideas.”

He adds: “I believe impact investing should be managed and operated with the same degree of rigour applied to other investments specialisms. Golding are experts in giving investors access to specialist asset classes.”

Golding's motivation

Nilsson and Freudenberg were apparently attractive to Golding as a partnership with some track record of ‘exiting’ investments successfully. Their boutique manager Sonanz (based in Munich like Golding) launched a ‘demo fund’ in 2017 “intended to showcase the opportunities in the market, as well as our ability as a team.”

“We were in the process of raising our second fund when Golding approached us, Nilsson says. They are keeping the Sonanz shell “on the side-lines” to manage their first fund.

Golding has a long history in ESG. It became a signatory of the United Nations Principles for Responsible Investment (UNPRI) in 2013, and a member of the Task Force on Climate-related Financial Disclosures (TCFD) this year.

“At Sonanz we were a smaller niche player in a world where larger asset managers are increasingly dominating,” says Nilsson. Golding Capital Partners

Founder and CEO Jeremy Golding says, “We have been monitoring the impact investing sector for several years and want to make a positive and measurable contribution to solving some of society's fundamental problems far beyond the pure ESG concept.”

Golding’s existing process of due diligence of target fund managers will be an important foundation for ‘Golding Impact 2021.’

“We will be piggybacking off the Golding in-house proprietary scoring system which has rated over 100 investment opportunities on 31 specific questions,” says Nilsson. Building on this for the impact fund “we have a specific system we developed at Sonanz which has now been refined at Golding.”

Golding’s institutional client base is also a clear advantage, and one that has recently been enhanced by its expansion into Switzerland. ‘Golding Impact 2021’ is open to institutional investors making a minimum commitment of €5 million.

“We will be targeting institutional investors using the Golding network,” says Nilsson. “Funds of funds are particularly attractive to medium and small-sized institutional investors and family offices that do not have the time and resources to look at hundreds of target funds and who are seeking a broad exposure to different sectors and themes in a single product.”

Key targets

The news fund’s key target areas consist of green solutions looking at access to energy, energy transition and the circular economy (35%), sustainable agricultural technology (35%), and financial services and other sustainable sectors (30%).

Some clues as to future investments come from examining Sonanz’s record. “We can point to a string of successful IPOs and trade sales,” says Nilsson. “Investors who invested in 2017 have seen a 50% uplift in their capital over the last four years.”

Nilsson picks out three historic investments: Apis, a financial services growth fund in Africa and Asia improving financial inclusion, Indian agro-tech fund Omnivore and Kenyan energy fund Kawisafe, which focuses on off-grid solar energy in developing markets with a package of household consumer finance enabling greater uptake.

‘Bangladesh was my boot camp'

Other clues come from Nilsson’s personal background. “Growing up as a young Swedish boy in Brazil made me fully aware of social inequality and this is where the seeds of my interest in this field come from,” says Nilsson.

After a decade in the private equity industry, Nilsson says he “had something of a midlife crisis and realised there were more pressing issues in life than just managing the capital of LPs (Limited Partners, ed.).”

Nilsson decided to take a career break to obtain a PhD in social finance from the Stockholm School of Economics. He also spent two years as a Visiting Fellow at Harvard Business School.

Having an academic background “gives me a greater rigour that is often missing in the world of impact investing,” he says.

He also spent time in Bangladesh. “At this time, corporate social responsibility was dominant, and it was all about companies making donations. I decided I wanted to do something different, and my involvement with Brummer partners in Bangladesh introduced me to a lot of interesting people and interesting investment ideas. Bangladesh was my boot camp.”