Three Hills to launch an impact fund this year

Mid-market European investment firm Three Hills Capital Partners is preparing to launch an impact fund, New Private Markets has learned – becoming the latest in a swelling crowd of managers seeking to raise an impact fund with a private debt angle.

The fund will be opened for external LP commitments later this year, a source familiar with the matter told New Private Markets. Its target will be “a few hundred million” euros, smaller than the firm’s €1 billion flagship Fund IV, the source said, although the firm has not yet finalised the target.

Three Hills invests via a “preferred capital” model: it provides growth credit to small and medium-sized European corporates with “an element of downside protection”. The forthcoming impact fund will have a similar structure and strategy, the source told New Private Markets, although ticket sizes will be smaller than Fund IV’s “sweet spot” of €40 million-€100 million, said the source. It will issue loans along socially and environmentally positive themes, the source said.

Three Hills declined to comment on any fundraising plans.

“Our flagship strategy is an ESG-focused fund,” Stefanie Kneer, head of ESG and sustainability at Three Hills, told New Private Markets earlier this month. “Sustainability has always been ingrained in our DNA.”

The firm was established in 2008 and within its existing flagship funds and segregated mandate portfolios it has “invested more than 60 percent of [its] capital so far in sustainable business models – [along themes of] people, planet and progress”, said partner Marco Anatriello. The firm’s sectoral focuses include circular economy, recycling, digital transformation, energy transition, software, and business services, and it is considering deals in the healthcare and education sectors, said Anatriello.

Along these sustainability themes, Anatriello is seeing interesting opportunities in “the smaller end of the spectrum” than the Fund IV’s bitesize. “Smaller businesses are perhaps more fine-tuned towards more future-fit business models,” added Kneer.

The firm last year received B-Corp certification – a distinction issued by US non-profit B Labs to identify companies with “purpose and profit” business models. B Labs scores applicants using multiple indicators of operational sustainability. Kneer sees Three Hills’ B-Corp certification as “external validation” by “an impact measurement and management expert”, she said. “It looks at the business model as a whole, how you treat and manage your employees and how you foster environmental activities within your corporation.”

The firm will not be alone in marketing an impact debt strategy: there are 17 other fund managers marketing impact strategies with targets or capital raised above the $100 million mark, PEI Group’s databases and New Private Markets’ research show. Among these are Amundi Group, targeting €1 billion for Senior Impact Debt IV; Copenhagen Infrastructure Partners, targeting €1 billion for its first Green Credit fund; Climate Fund Managers, targeting €1 billion for its second Climate Investor fund; and Apollo Global Management, which is raising the first credit vehicle in its $100 billion climate investment target by 2030.

This article has been updated to reflect that Three Hills’ invests through a hybrid debt-equity strategy.