London-based manager Gresham House will have fully deployed the its £450 million (€516 million; $552 million) second place-based impact fund next year, having closed it last week, according to managing director of sustainable infrastructure Peter Bachmann.
British Sustainable Infrastructure Fund (BSIF) II was launched in January 2022 and has a “place-based impact investment approach” whereby by it makes SDG-aligned investments in UK infrastructure. Bedfordshire Pension Fund and Staffordshire Pension Fund committed a combined £80 million in July this year. In total, eight LGPS are LPs in the fund. It is the firm’s second generation sustainable infrastructure vehicle; fund one closed on £300 million in 2020.
BSIF II currently has a portfolio of 10 companies, eight of which it shares with BSIF I, which closed on £300 million in 2020. The portfolio includes Environment Bank, which runs projects that generate Biodiversity Net Gain Units to help purchasers meet regulatory requirements; B-corp certified nursery chain N Family Club; and alternative fuel provider WKE.
Bachmann told New Private Markets: “We may do one or two new platforms but, broadly, the platforms that we’ve got have given us north of £2 billion of controlled pipeline. So we’re very certain we can deploy the full fund. We’ll probably fully deploy the fund next year, which we think is pretty good going to get to a 100 percent deployment within such a short timeline of final close.”
Despite being almost fully deployed, there are no immediate plans to launch a third fund. “Its very much up in the air,” Bachmann explained. “We’ve got some good co-investment vehicles already that will allow us to continue to raise capital into the strategy in the meantime. Its something we’re going to consider in the near future naturally given the depth of our pipeline. We’re also getting some quite good inbound interest from different sources of capital”.
The final closing figure of £450 million falls slightly short of the fund’s £500 million target. Bachmann pointed to economic and geopolitical headwinds, as well as LGPS’s balancing their private markets allocations, as factors which have make fundraising more difficult in 2023. Other managers seem to have experienced similar issues; Northern Gritstone, a UK VC impact firm that also has a strong LGPS investor base, closed its platform on £312 million last month, having initially targeted £500 million.
“For such a UK-centric strategy, certainly, we feel like we’ve done as well as anyone,” Bachmann said.
Looking forward, Bachmann predicts growing attention on the sustainable infrastructure space from UK LPs. He said: “There’s a lot of interest in the Defined Contribution (DC) market to come and invest into these types of assets because traditionally DC has only done listed assets. If you really want to have the sort of impact that I think we all want, you need to invest into new Greenfield assets and Greenfield assets don’t typically work that well in public settings mainly because there’s negative earnings for a number of years around the construction phase and therefore time to reach profitability which listed stocks need.”
“The other place I’m hopeful are the insurers. Insurers are doing quite a big process of buying out the Defined Benefit schemes and they are going to be the longer-term holders of a lot of these illiquid assets. These insurers are also increasingly seeking to create more positive impact with their capital.”
BSIF II is the firm’s second fund close in recent days; its debut natural capital fund closed on target on £300 million last week.