Multi-family office Vedra Partners has a narrowly focused strategy for its climate impact fund because the UK hydrogen industry is uniquely poised to boom, co-founder Max Gottschalk tells New Private Markets.
Vedra has raised £200 million ($276 million; €233 million) for HyCap, a climate impact fund with a target of £1 billion. Of HyCap’s capital, 75 percent will be invested in British businesses producing, manufacturing and supplying hydrogen. Vedra is targeting 20 percent net IRR.
“We can provide pure play in the UK hydrogen sector,” said Gottschalk. “The UK hydrogen market is in its infancy. We’re still in the early stages of the cost reduction curve and investors will benefit from that.
“What attracts investors to hydrogen is that they see this market developing. Other renewable energy investments have been around for some time, and accordingly, the risk-return profiles have been reduced.”
Vedra is confident that demand for hydrogen will grow, minimising the risk associated with a single-market and single-sector focus. “Hydrogen will play a key role in providing energy to the UK market – through transport, heavy industries such as steel and cement and heating homes.
“Batteries also have a role to play in the decarbonisation of transport, but battery prices have already come down materially over the last decade. We believe hydrogen will sit alongside batteries. In particular, when it comes to mobility and transport, hydrogen works a lot better for big and heavy vehicles than batteries.”
And it helps that the UK government agrees about hydrogen’s role in the energy transition, Gottschalk said. The UK government is planning a £240 million fund to develop low carbon hydrogen production plants and is considering a Contracts for Difference scheme to incentivise private investment in hydrogen plants as part of its hydrogen strategy, released last month. The strategy also included a projection that 20-35 percent of the UK’s energy consumption by 2050 would be derived from hydrogen. The UK government has set itself a target to deliver 5GW of low carbon hydrogen production capacity by 2030.
The UK government hasn’t invested in HyCap, but the fund’s co-founder Jo Bamford says it should. Bamford, who also owns a hydrogen-powered bus company and is the executive chairman of Ryze Hydrogen, a hydrogen production plant development company, told New Private Markets: “I’ve been working in hydrogen longer than most. I already know a lot of the market, the buyers and contractors and businesses that want to get into hydrogen. That’s what attracts LPs to our fund.”
The HyCap team’s expertise in hydrogen is a strength, Bamford added: “You can be very scatter-brained with your investments or you can be very focused. We’re very focused.”
Gottschalk agrees: “One needs to stay focused on an area where they want to generate impact. To try to do this on a global scale can be very challenging. Being focused on one strategy and ecosystem makes sense.
“I’m of the opinion that over time, investors would want to have more dedicated impact mandates around their areas of interest. Investors may have interests in the oceans, in healthcare, in education or in climate change programmes. In fact, we think there’s the opportunity to create dedicated products in each of these areas.”
HyCap might invest in his other hydrogen assets, Bamford said.
HyCap’s investors include Gottschalk’s family, some of Vedra’s family office clients, the Bamford family, construction equipment corporation JCB (which Bamford sits on the board of), “a very big UK pension fund”, corporates and strategic investors, Gottschalk said.
Vedra manages the portfolios of 12 family offices and invests in public and private markets. It was founded by Gottschalk and is jointly owned by Gottschalk’s and several other family offices. Gottschalk declined to disclose Vedra’s AUM value, but public filings show it had a turnover of nearly £1.7 million in 2020.