Goldman Sachs’ Sustainable Investment Group, part of the bank’s asset management unit, has held a final close on its climate and environment-focused growth fund at $1.6 billion, it said on Tuesday.
The firm started marketing the fund (Horizon Environment & Climate Solutions 1), its first private markets impact vehicle, in March 2021 with an initial target of $1 billion. It held a first close having surpassed $800 million three months later.
“We were able to get to – within a few months – our target size of fund, and then we nestled down with clients that needed more time,” Ken Pontarelli, head of sustainable investing for private markets, told New Private Markets. “We really truncated our outreach to make sure the size of the fund fit the dynamics of the investment opportunity set on the ground.”
Over the course of 2022, the market for private equity fundraising slowed, as M&A and IPO activity became more muted and some limited partners found themselves at or over their private markets allocation limits. Commenting on the market slowdown, Pontarelli said climate-focused strategies have retained their investor appeal.
“If you think about where on the equity side clients are allocating capital, this is still high on people’s list,” he said. “Obviously they are thinking about private credit, they are thinking about secondaries, but within the equity bucket, [climate-related investing] is still very, very topical.”
The fund close comes a few weeks after General Atlantic, another growth equity investor, closed its first climate-focused fund with around $2.6 billion in capital from external investors.
Goldman’s fund has now committed nearly $1 billion to 12 portfolio companies, the firm said, backing ones in areas such as lithium-ion battery production, packaging materials and recycled cotton fibres. Three-quarters of the investments are in North American businesses, with the remaining quarter in European companies.
Asked whether a slightly enlarged fund size will affect the deployment strategy, Pontarelli said the number of investments would remain the same, but the average investment opportunity had been “a little bit larger” than forecast and there is more opportunity to finance bolt-on acquisitions.
The fund is classified as Article 9 under the EU’s Sustainable Finance Disclosure Regulation.
Goldman has established a corporate network for the fund, which “convenes sustainability leaders from global corporations” to discuss their sustainability needs and solutions and provide “thematic insights” to Goldman. This echoes a similar initiative by TPG, which manages the $7.3 billion Rise Climate fund and has what it describes as a “climate coalition” comprising corporates who come together to share “practical insights and progress on decarbonization strategies”.
Goldman’s Sustainable Investment Group intends to bring additional private capital funds to market, although Pontarelli declined to give specifics about new strategies. Instead, he noted that alongside the climate theme, the organisation is “equally focused” on the theme of inclusion, meaning access to, and affordability of, things like healthcare, financial services and education and training.
“Long-term we want to be able to work with clients to fulfil their objectives across different end markets and different risk-reward,” he said.