Each fund manager or fund advisor has been invited to answer a series of questions about their own funds as well as the market in general.
We sat down with Miguel Lemos and Duarte Costa from Grosvenor House of Investments to find out more about Sustainable Innovation Fund.
Why did you decide to create the Sustainable Innovation Fund?
Sustainable Innovation is an ESG fund (Environmental, Social, Governance) that focuses on two outcomes: impact on the environment and society, and return. We use ESG as an additional layer to investment selection. Two investments in companies that were looking interesting from a financial perspective didn’t go ahead for governance reasons. ESG is also important to increase the robustness of our investees, giving them a holistic approach and helping them managing risk more effectively. Additionally, ESG investment is not a short-term tendency, for the sake of the planet.
While helping companies in our portfolio implementing best ESG practices, we are making them more attractive, considering the quest for sustainable assets. So, investors will get a more risk-compelling solution and also benefit from the huge flows to ESG investments while having a positive sustainable impact.
Could you please provide us with some background about yourself and the team working on the Sustainable Innovation Fund?
We have focused on creating the most robust, long-term experienced team to implement our innovative strategy (in Portugal). Together we have more than 100 years of experience in financial markets, in different areas. The fund core team has passed through different economic cycles, giving a more conservative approach to investment.
Miguel J. Martins, our sustainable investments partner, has worked 20 years for IFC in Washington in sustainable asset management.
Diogo Moreira-Rato is an investment committee member and brings two important contributions: in his 32 years in Johnson&Johnson, as a senior executive, and after in Smith and Nephew, he was responsible for several company acquisitions, management, and disposals in one of our key verticals: health & life sciences. On the other hand, he can support the fund on our exit deals, knowing the acquirer’s view.
Has the management/advisory team invested in Sustainable Innovation Fund? Please explain your decision.
The management team is fully aligned with the fund objectives: having an impact and generating value in the long run. For those reasons we obviously decided to invest in the fund.
The Sustainable Innovation Fund is targeting innovative Portuguese companies with a strong R&D focus in sectors such as energy, health, and life sciences. Could you please elaborate on that and explain your thought process behind this decision?
Although the fund is sector agnostic, we have been identifying interesting opportunities in these verticals. In health and life sciences, we are gaining exposure to a sector that has been driven by demographics (According to the UN, until 2050 people over 60s will increase by 38% in more developed countries 260% in developing regions).
With Covid-19, remote data transmission and telemedicine became even more important allowing substantial efficiency gains and potentially generalising access to medical services. On the other hand, increasing knowledge on biology, namely molecular (RNA seq and other) leads the way to new forms of therapy. In this field, innovative companies are always on the radar screen of big industry players. In fact, the number of transactions in this sector has been increasing steadily.
Regarding energy efficiency, we are fully aligned with European union targets for curbing CO2 emissions. The fund focus on energy efficiency solutions supported by Machine Learning instead of infrastructure, since the fund is not leveraged. On top of this, our investees have access to extensive funding programs from the EU, most of them in the form of non-refundable funds, allowing for capital reinforcements that indirectly benefit the fund holders.
How would you describe Sustainable Innovation Fund’s risk profile: Conservative, Moderate, or Ambitious?
Moderate. And I’ll give you some examples of technics to manage and mitigate risk: The fund investment focuses on companies already in the expansion stage, not seed capital. ESG is paramount: it works as an effective additional investment filter and allows reducing our investee’s operating risk.
Co investments are also very important to mitigate risk: they allow for portfolio diversification and gives the portfolio a call option profile when involving matching funds as co-investors. Grants also reinforce the capital structure of our investees with benefits extendible to the fund and its holders.
The Golden Visa rules state that a qualifying investment must be held for just five years but Sustainable Innovation Fund runs for longer. Could you please explain the fund’s lifetime including the launch date and subscription period?
The fund was launched in December 2020 and has a 7 years maturity. However, since we are only considering one investment cycle, after the 5 th year of the fund we are planning to distribute money back to our investors, always taking into consideration their Golden Visa commitments.
On average, how long does it take to onboard a Golden Visa investor into the Sustainable Innovation fund and what are the main obstacles in the onboarding process?
Onboarding is a very straightforward process. Since the investors had already passed through different stages, including the opening of bank account, when subscribing to the fund, the bulk of the required documents are already available. In 4 to 5 days the process is completed.
In general, some Golden Visa investors are cautious because of the funds’ lock-in
periods. How do you plan to deal with Golden Visa investors who wish to exit the Sustainable Innovation Fund fund before its full lifetime?
There might be opportunities to sell in the secondary market but our investors should consider the timings I’ve mentioned above: a 7 years maturity fund with expected capital distribution from the 5th year onwards.
We’re curious to know more about the companies that the Sustainable Innovation Fund has invested or plans to invest in. The fund presentation shows just one example – could you please share details of other investments so that we can get a better sense of the portfolio profile?
Peekmed is a company that clearly states our strategy: it has a focused management team, is already working with some of the largest industry players, and is for example already FDA cleared to start operations in the US market. The impact they have on the environment and the savings they generate to the implant manufacturers make them a very attractive company to our portfolio.
We are currently managing acquisition processes with 3
other companies, on a due diligence stage. They also have scalable solutions in the areas we are investing in – blue economy, energy efficiency, and health & life sciences. These investments are expected to be concluded soon but we are not in a hurry. Our return model is based on a 27% investment allocation in 2021.
Contact Miguel Lemos and Duarte Costa from Grosvenor House of Investments from Sustainable Innovation Fund nowMin investment: €250,000 · Lifetime: 7 years · US Citizens: OK! 👍🏽· Subscription deadline: August 2022 🗓️
The Sustainable Innovation Fund is considered to be an ESG, Golden Visa eligible fund and has a mandate to only invest in companies that fulfill a selection of the UN 2030 Sustainable Development Goals. Could you please elaborate on the SDGs you’re focusing on and explain why it’s these ones in particular that have been chosen for the Sustainable Innovation Fund?
The fund will have a broad impact on most SDGs and that is the purpose. Most directly we foresee direct impact in SDGs #7 Affordable and Clean Energy, #8 Decent Work and Economic Growth, #9 Industry Innovation and Technology, #11 Sustainable Cities and Communities, #12 Responsible Consumption and Production, and #14 Life Below Water. Obviously, the impact extends to other SDGs, for example, #3 Good Health and Well Being.
Many of those considering the Golden Visa are currently comparing funds vs real estate. What advice can you offer to help investors make the right decision for them?
There are some risk factors associated with real estate we are not exposed to at Sustainable Innovation Fund. Although investing in Portuguese companies, our investees target global markets, diversifying this way the investment geographical scope of the fund, for example in terms of economic cycles, legislation, tax regime.
For people who are unfamiliar with investing in funds and may even be nervous about learning, what advice would you like to give them?
First I would like to highlight funds are supervised by CMVM (Market Authority), as well as management teams. Funds are probably the most compelling way for investors to diversify their investment risk since funds invest in several assets. There is another important aspect related to a tax regime that, in our case, is favourable for non-tax residents.
Considering the incoming Golden Visa rule changes on January 1st 2022, what advice would you give to investors who are currently looking into the program?
If they want to have access to Golden Visa with a lower investment amount (EUR 350 k), it makes sense to start the process asap-.
What is your outlook for Portugal from both an investment and lifestyle perspective over the coming years?
Portugal has been showing itself as a resilient economy. The present EU support for mitigating Covid 19 impact, will finance further innovation and renewal of infrastructures.
Portugal is a country with pleasant living conditions that are completely at the forefront of innovation, and wellbeing, with special attention to environmental issues.