Oslo-headquartered private equity firm Verdane has closed its first impact fund at €300 million. Verdane, a €3 billion-AUM firm, is targeting a 25 percent internal rate of return and 3x invested capital. It has secured an impact-linked credit facility and 10 percent of its carry will be tied to achieving impact KPIs for this fund.
Investors include Swedish pension fund AP3, Adams Street Partners, clients of investment consultant Mercer and Norwegian state climate investment fund, Nysno. European LPs committed over €150 million in total.
“Many of our existing investors invested out of their existing PE mandate, and this was their first impact investment. We also brought on some new investors, and from there it was purely from their impact allocation,” Frida Einarson, a partner at Verdane, told New Private Markets.
The fund, Idun I, will be classified under Article 9 of the EU’s sustainable finance disclosure regulation, which applies to funds with “sustainable investment… or a reduction in carbon emissions” as an objective. It will invest in technology companies in Europe along three themes: energy transition, sustainable consumption and resilient communities.
“Those are themes we have invested in for a long time. We’re seeing a huge dealflow of transactions which we really wanted to do but didn’t have the mandate to do in our other funds,” Christian Jebsen, partner at Verdane, told New Private Markets.
Verdane has completed three deals through Idun. Investment criteria include addressing at least one of the UN’s sustainable development goals and the firm’s proprietary impact assessment framework, which leverages the Impact Management Project. Verdane will set individual impact KPIs for each portfolio company upon investment. Ten percent of Verdane’s carry is contingent to attainment of these KPIs.
“The most important factor is how impact scales with business growth. While these companies relatively small at the outset, we think they can have disproportionate impact,” said Einarson.
Only a handful of impact fund managers have linked their carried interest to impact performance, but Verdane’s 10 percent commitment is at the lower end of the spectrum. Developing World Markets (targeting $50 million) has staked 75 percent of its carry; Mirova (targeting €300 million) and Swen Capital Partners (targeting €120 million) have each staked 50 percent; EV Private Equity (targeting €350 million) has staked 25 percent; Trill Impact (raised €900 million) has staked 10 percent.
“We said, ‘Let’s start somewhere.’ It will evolve over time,” said Einarson. “Our investors are happy with the framework. That’s what’s most important – that we have a good partnership with our investors and we can demonstrate that we’re serious about goal attainment.”