Galway eyes ag and water after $265m Oaktree partnership

Oaktree Capital Management has established a $265 million “broad-based funding partnership” with Galway Sustainable Capital, a speciality finance company that has identified sustainable agriculture and water among its target sectors.

Galway – which maintains offices in Denver and Washington, DC – was founded last year and announced a deal in late July that includes a multi-year, multi-tranche credit facility and a minority equity investment from Oaktree, which declined to comment.

President and co-founder Trent Yang likened Galway’s structure to a “miniature Berkshire Hathaway” and told affiliate title Agri Investor the decision to structure as a speciality finance company was inspired by the speed and flexibility the approach offered, which can avoid the typical year-plus fundraising process for a new firm raising a traditional fund.

“We didn’t want to create a PPM and have a very narrow set of ideas of how we invest and how we will be focused for the next 10 years,” said Denver-based Yang, who served as vice-president for private equity at AMG National Trust Bank for almost eight years before joining Galway in early 2021, according to his LinkedIn profile.

The firm has raised at least $15 million for a vehicle called Galway Sustainable Credit, according to regulatory filings in July and earlier this year. Its investors include Cordillera Investment Partners, a San Francisco-headquartered firm focused on “niche, uncorrelated assets” with a portfolio that includes agricultural lending and “water-advantaged permanent crops”.

Yang said Galway targets mid-teen returns by offering flexible debt and equity to yield-oriented companies that accelerate the transition to environmental and social sustainability. In addition to sustainable agriculture, land and water, Galway targets distributed renewable energy, energy efficient and green buildings.

The firm will seek initial investments of between $10 million and $50 million and hopes to maintain ongoing relationships with companies deploying important technologies at various stages of their growth, Yang said.

“We can tap a lot more capital than the headline numbers as we grow because we are making partnerships with these companies that might require $100 or $150 million over the next 12 to 24 months,” he explained.

Yang estimated about 30 percent of Galway’s investments through its Oaktree partnership are likely to involve ag, as he noted that the sector’s profile within sustainability has elevated over the past five years.

“Being environmentally-conscious is increasingly an important part of how our food choices are being made,” he said. “Controlled environment agriculture is a place where we think a lot of that transformation is happening. Once we’ve identified that, we will then go look for developers and companies to partner with.”

Galway’s current three-company portfolio includes San Francisco-headquartered foodservice provider Food Service Partners and Vandalia Produce, an indoor farming company headquartered in West Virginia.

“Ag is especially interesting because out of all the sectors we are in, ag has the most amount of low-cost debt available,” Yang said, adding that about 80 percent of Galway’s investments are likely to be preferred equity. “Understanding how to work with that kind of capital [specialised low-cost debt offered by lenders like CoBank and Rabobank] is very important for entrepreneurs as well as other capital providers.”

Oaktree’s investment in Galway is among the Los Angeles-headquartered firm’s first ESG-focused investments, according to Yang, who described the current level of investor interest in environmental technology as the most promising of any time over the past 15 years.

“We believe the market is still very early in this overall sustainability transition,” he said. “It’s an emerging market, it’s a market that requires some flexibility of the capital providers and we also believe that there is going to be a lot of capital from the traditional GPs – like the Oaktrees of the world – that want to get into this space, but don’t have the bench strength and capabilities.”