Golding Capital: Energy transition fund filterer

In 2021, about US$755bn (€695bn) was injected into the global energy transition market. Many more hundreds of billions were again raised in 2022, which is predicted to be yet another record year. The total invested in 2021 was a healthy jump from US$595bn in 2020 – and compares with US$264bn in 2011, according to Bloomberg NEF Energy Transition Investment Trends of 2022.

The rapid growth in global investment in renewable energy, which accounted for US$366bn of total investment in 2021, continued unabated in the first half of 2022. According to BNEF’s tracking of renewable energy, published in July 2022, some US$266bn was raised to invest in renewable energy, an all-time record.

BNEF notes that the surge was driven by increased investment in renewable-energy projects, venture capital and private equity funding. Given the rapid proliferation of investment in energy transition, it is hardly surprising that there should be a bewildering array of manager funds jumping aboard the transition bandwagon.

With as many as perhaps 100 energy-transition funds in the market, investors are spoilt for choice, but it is a hugely complicated task selecting the right fund or manager. Enter an intermediary solution, the energy-transition fund of funds from Munich-based Golding Capital Partners. Last October, the Golding Energy Transition 2022 fund of funds was launched with capital-raising target of €300m.

Matthias Reicherter, managing partner and CIO at Golding, says: “Our clients are looking to our network and expertise to select the best managers among the deep pool of energy-transition funds.”

In addition to traditional wind and solar, there are now newer clean-energy and dedicated energy-transition funds. These are either coming to market or are already there.

“I would argue that there are at least 100 pure-play funds in the energy-transition space,” Reicherter says. “In just pure renewable-energy funds alone, there could be as many as 30 or 40 available in the US. Particularly in 2023 when many funds will begin to go into fundraising.”

Golding has managed infrastructure funds of funds since 2011, and Reicherter says it has the expertise to build a strategic portfolio of energy-transition funds. “We would invest in 10-12 funds. This is sufficient for diversification and allows us also to play across various themes. We also want to make it efficient for us and our clients and not to be distracted with too many funds.

“We use our infrastructure strategy in this vehicle, investing in real assets with an energy-transition focus. We are not taking technology risk or taking unproven technologies or projects into the portfolio construction.”

The risk-return profile is relatively conservative, aiming for a net internal rate of return of between 7% and 8%, and the strategy is focused on four strands of the transition story.

“Traditional renewable energy – solar and (offshore) wind – will form the backbone of our portfolio construction,” Reicherter says. “We look for assets with a global perspective but expect they will predominantly be in Europe and North America.

“We will complement that with technologies that are driven by energy transition trends. This includes carbon capture, ‘power-to-x’ to decarbonise industrial processes, as well as battery storage. Then we go outside electricity production to users of electricity, such as electricity-charging networks for cars and other types of transport.

“Coming back to battery and storage elements, there might be points in time when there is more electricity in the system than is actually being demanded or used. The question is what to do with surplus energy. One element is storing it, so this is where the battery element comes in. The other element – and we are exploring this as well – is the use of excess energy to produce green hydrogen. This is a kind of auxiliary or additional element of the renewable strategy.”

The standard approach is to invest in funds, Reicherter says, but Golding will also look for co-investments to enhance returns. About 20% of the capital raised is being set aside to co-invest. There will be a 60% allocation to Europe with the remaining 40% to the US.

Investors in the Golding fund are looking for diversification, Reicherter says. “They tell us they have been investing for a long time in certain [sectors] – for example, German solar or French wind – but have reached a point when they are overweight. Now they want us to help broaden the spectrum of technologies and regions, because they do not have the capacity in-house.”

Fund selection is based firstly on the manager in question having a convincing strategy. This must be backed up by a good performance record, preferably with reference to a previous renewable-energy fund.

When it comes to the latest generation of energy-transition funds, Golding is more comfortable if the manager operates from an existing platform. 

“We are looking at established asset management firms, such as Copenhagen Infrastructure Partners, who have been in the business for a long time,” he says.

Over the past decade, the firm has spent time developing relationships with asset managers and developers, including pure renewable players such as Qualitas Energy, NextEnergy Capital and Quinbrook Infrastructure Partners. Relationships are critical to picking the right funds, Reicherter says.

Last, is a need to protect against regulatory risk, which can be best mitigated by broad geographical diversification.

The firm is now into its fifth-generation infrastructure fund of funds, with assets totalling €5.7bn. Through these vehicles, Golding has already invested in renewable-energy themes. 

“All the energy-transition themes are already embedded in our current portfolio,” Reicherter says. On wind and solar, we have invested in numerous platforms, either in green or brownfield projects.

“We are also investors in a carbon-capture project in the US and have co-invested in a number of vehicle-charging networks in Europe. We are also invested in energy-efficiency businesses, retrofitting large real estate portfolios to make them more energy efficient.”

Energy efficiency as an overarching theme could be part of the portfolio construction of the new fund. With capital raising having started only in October, deployment of capital from the Golding Energy Transition 2022 fund has not yet begun. 

The fund has a life of 15 years, Reicherter says. “We see the underlying fund life being 10 to 12 years, but there might be some overhang.” 

So far, Golding’s investors include church pension and endowment funds, pension schemes, savings banks and others that are under public pressure to demonstrate their support for energy transition.