Investing in the environment
An interview with Duncan White and Stephen Brooke, the fund managers of Hambro Perks' Environmental Technology Fund*
I my second GP interview I speak with Duncan White and Stephen Brook of Hambro Perks about their Environmental Technology Fund.
This is very exciting space with much opportunity where their investments address some of the worlds' biggest and most urgent problems.
Tell me about your Hambro Perks and the Environmental Technology Fund
Hambro Perks (HP) is an alternative asset manager based in London, with ~50 people and ~£600m AUM.
We are a multi-strategy manager, investing across primary and secondary opportunities, and across equity and credit, focussed on private technology companies.
We want to find and back the most innovative tech companies at the various stages of their development, and be the go-to partner for investors looking for European private markets tech exposure.
Our latest-stage fund is Environmental Technology Fund II (HPET Fund II). This is an Article 9 impact fund, focussed on the scale-up / growth private equity stage, looking to make 10-15 investments across energy transition, water-tech, food/agri-tech, industrial process, and circularity verticals.
Figure 1: Investing in environmental technology
What are your personal backgrounds?
Stephen has been investing for 25 years, starting at Bridgepoint Capital and then IP Group, before founding the Ombu Group, the precursor to the HPET Fund I.
Duncan started off as an academic, with a PHD in Chemistry form the University of Cambridge and a Fellowship at Harvard, before transitioning into environmental investing via investment banking.
Stephen and Duncan have worked together for the last 12 years.
You are in the market with HPET Fund II, tell me about it and how is it different?
The Environmental Technologies strategy is relatively new to Hambro Perks. While we only launched Fund I in 2020, we have really been pursuing this strategy for over 10 years so have a great deal of experience.
For HPET Fund II we are taking advantage of some favourable market dynamics that didn’t exist five or ten year ago, we have been able refine and expand our strategy.
These dynamics include:
The number of environmental tech companies has grown exponentially - while many of these companies are still at an early stage there is a growing number breaking through into scale-up and growth stage
Talent – tech, commercial, and management talent has flooded into the sector, attracted by a combination of growth prospects and purpose
Corporate adoption of environmental technologies has accelerated – catalysed by the Paris agreement, as it is widely accepted that technology will play a key role in meeting sustainability commitments related to energy, water and circularity
Increasing number of exits - 2021 was an exceptional year, and the underlying trend of a growing number of trade exits looks well set to continue
Finally, because we’re investing in environmental technology companies at the growth phase, our investments create immediate and measurable positive environmental impact from day one.
What does a typical deal look like?
We engage and work with company management teams very early on (often before Series A) so tend to have strong working relationships already before the deal, which helps enormously for investing at later stages.
A typical growth stage deal, which for us would be Series C, would be a €30-50m investment into a company with proven technology, proven product-market fit, and substantial and growing revenues (€20m+). Of this, we’d look to invest €15-20m, and offer the remainder of the deal as co-invest.
Even with a bit of a smaller fund, this facilitates good diversification while also accommodating the co-invest interest that many LPs have. In total our fund will be £200-250m, deployed across 10-15 deals.
There is a lot of money flowing into this space - what are your thoughts on that?
The vast majority of capital committed to this space has gone to green infrastructure. This is helpful for us because it provides a growing market for enabling technologies in this space.
For example, after large capital flows into EV charging infrastructure we sought out and invested in an enabling technology company called Driivz, which benefitted from this growing market and was acquired by Vontier last year.
On the technology side, there are a large number of climate tech funds targeting the early stages (seed / Series A) but relatively few experienced, independent financial funds investing at the growth stage. Corporate venture capital is probably the most active group of investors in the energy sector but there are very few, if any, looking at the growth opportunity for water tech.
Other interesting investors in this space are the ‘megafunds’: these are multi-billion dollar funds making high-stake investments and deploying huge amounts of capital in creating entirely new industries. We don’t have the firepower or risk-appetite to do this, but we are watching closely as these new industries emerge so we can capitalise on opportunity elsewhere in the value chain.
What excites you about this opportunity?
We’ve been investing in this space for more than a decade. It was hard at the beginning, Cleantech 1.0 was a disaster, but for those of us that stuck at it we’ve learned a lot and we’ve really seen the market come towards us over the past 5 years.
I guess, in many ways, that we are now actually benefitting from those early Cleantech 1.0 ‘science projects’.
The most exciting development has been the shift in the behaviour of large industrial corporates towards sustainability. These companies are key customers, partners and acquirers of environmental technologies and ultimately, they have the ability to drive global change – enabled by the technologies we are investing in.
Corporate behaviour is obviously influenced by many stakeholders so public awareness, political attitude and regulatory dynamics are all critically important too but it seems, right now, we’re mostly pulling in the same direction.
What’s the most interesting company in your first portfolio?
We’ve had three exits from the first portfolio and have 3 remaining assets. Of these, the one we would single out is Bluewater Bio.
Bluewater Bio is a water treatment technology company, with operations in Europe, the Middle East and South Africa.
Only 1% of the world’s water is portable, and so reliable and cost effective water and wastewater treatment technologies are essential to meet the world’s demand for water resources. 40% of the global population currently lives in critical water stress regions.
Bluewater Bio’s technology doubles existing water treatment plant capacity at a fraction of the cost of building a new plant – in other words, Bluewater addresses a real and urgent global problem with a strong business case and large addressable market.
We’re are currently working with several large buyers and hope to achieve an exit this year.
What keeps you awake night, generally and for this strategy in particular?
Unfortunately, as non-specialist capital flows into the space, seeking to capitalise on the hype around climate tech, there is a lot of noise that can often distract investors and even managers from the fact that scaling environmental technology companies isn’t easy.
It is important for everyone not to lose sight of the fact that these environmental technology companies are industrial in nature, often selling into highly regulated markets with complex supply chains and can be reliant upon large corporate and even political stakeholders.
Consequently, these businesses, while still attractive investment opportunities, do not scale in the same way as a consumer mobile app and so we firmly believe that experience and specialism will drive greater impact and better returns.
Where can you see this strategy going, where do you want to take it?
Firstly, we want to just focus on securing a first close of this fund (hopefully in Q2) and deploying into some exciting deals that are already well developed in our pipeline.
Once we’ve done that, bring a few more European LPs onboard and taking the fund up to £200-250m will be the next step. On some point we’d like to start thinking about Fund III, possibly with a broader regional remit, but we’re a long way from that just yet.
I hope you enjoyed getting to know Hambro Perks and their Environmental Technology Fund.
Next one coming soon, along a final post on co-investing. As always let me know if you have ideas for topics and / or know of anyone who would like to be interviewed.
#privateequity #venturecapital #PEcompass #StayIlliquid #hambroperks #ESG #impact
Note: *This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinions and recommendations herein do not consider any individual circumstances, objectives or needs and are not intended as recommendations of particular securities, financial instruments, or strategies to particular individuals. The readers of this material must make their own independent decisions regarding any securities or financial instruments mentioned herein and should seek advice from such independent financial, legal, tax or other adviser as the deem necessary.