It is accepted wisdom that the world’s climate is warming. But even if you believe environmentalism is nothing but a fad, the growth of emerging markets, which are yearning and learning to consume at the same rate as the Western world, as well as the imminence of $100-a-barrel crude, means alternative sources of fuel and sustainable energy practices are economic necessities.
Andrew Heintzman, president of Investeco Capital Corp. in Toronto, has recognized an opportunity to make “capital solve problems instead of create them” in the changing paradigm. Heintzman, who helmed Shift magazine for most of the 1990s along with Evan Solomon, launched ICC, which invests exclusively in environmental sectors, in 2003.
ICC has more than $28 million invested in two private-equity funds, Investeco Private Equity Fund I and II, that have made companies with sustainable environmental practices their focus. ICC wants to see its third private-equity fund, Investeco Private Equity III, which will invest in similar companies, attract investments of $100 million. In addition, Investeco Financial Corp., a wholly owned subsidiary of ICC, will launch ICC’s first public fund in 2008: Investeco Global Environmental Sectors Fund will log its first closing on Jan. 4.
Between its public and private-equity funds, ICC is poised to finance and profit from the growing focus on sustainability.
However, the firm’s approach cannot be classified as traditional “socially responsible investing,” Heintzman says. SRI either takes a best-in-breed approach, such as investing in firms whose SRI track record leads the sector, or uses screens to weed out firms that generate significant income from taboo products — usually alcohol, tobacco, gaming, pornography and military systems, although the list is growing.
Instead, ICC takes a “sectoral approach,” which is a positive-selection approach, for both its private-equity and public funds. The funds invest in companies that fall into four sectors: clean technologies, natural and organic foods, clean water and alternative power.
ICC’s private-equity funds also aim to address the reality that “we have phenomenal inventors in this country, but we have proven to be very poor commercializers,” says John A. Cook, a managing partner at ICC and president of IFC. So, when Heintzman set out to establish the funds, he was looking for the “greatest potential for us and our capital,” Cook adds.
Michael Curry and Alex Cham-berlain, both managing partners of ICC, selected nine expansion-level companies with sound financial models and strategic positioning in the environmental economy for whom “a couple million dollars of private equity” and guidance would help them reach the next level. The room for growth is unlimited. If the environmental economy and the need for sustainable food and fuel practices are “going to be as big as we think, the need for investment is staggering,” Heintzman says.
Some of the companies in which ICC has invested have been getting significant attention lately. Triton Logging Inc., which harvests lumber from forests flooded by hydroelectric facilities using an unmanned submarine, was featured in Popular Science. Schneider Power Inc., a leading wind-power producer, was featured in the Globe and Mail’s “Report on Business” section because it is ahead of the curve and already producing electricity.
ICC gathered data from more than 400 publicly traded companies operating in the four environmental sectors; that material produced the core of Investeco Global Environmental Sectors Fund. Many of its investments are anchored in the “negawatt” phenomenon — that is, we have reached a point at which saving a megawatt of power is actually cheaper than producing a megawatt.
Greg Payne, vice president and portfolio manager with IFC, calls most of the investments “humdrum solutions” — firms metering use and operating utilities, focusing on efficiency and conservation. Cook describes them as “companies that can do more with less.”
The private-equity funds’ ultimate goal is to outperform average private-equity returns. As limited partnerships, they are restricted to accredited investors. ICC collects a 2% management fee as well as a 20% performance fee when performance exceeds the 8% hurdle rate. The Venture Economics U.S. private-equity performance index is the benchmark.
Technological risk is the last thing the private-equity funds want to take on. The funds have shied away from “holy grail” technologies, such as hydrogen fuel cells and high-efficiency batteries — this generation’s cold fusion. “They’ve had lots of money, and I hope they work out,” says Payne, noting they haven’t yet. He sees more value for ICC in “taking things we know work and throwing money at them so they can make a significant difference.”
@page_break@Like the private-equity funds, Investeco Global Environmental Sectors Fund, a pooled fund, is limited to accredited investors. Class A shares have a 1.5% annual management fee; Class F shares have a 1% annual management fee. There is a 10% performance fee with a 6% hurdle rate, payable only upon redemption “to move away from shorter-term thinking,” says Cook. He cites the advantages of being a small fund — there isn’t a lot of marketing or administration — and Payne’s focus on the long term and low portfolio turnover for making the modest fee structure possible.
Many of the skills Heintzman honed as Shift’s publisher — such as networking, writing business plans and contracts — transfer naturally to his work as ICC president and IFC chairman. To identify investments and manage ICC’s funds, he has assembled a team with different skills but similar convictions.
Cook brings marketing and investment-management credentials from years in a senior executive role with AIM Funds Management Inc. and BPI Financial Corp. He joined ICC in 2006 from MaRS Discovery District — a not-for-profit organization with a facility in downtown Toronto dedicated to bringing the scientific research, business and capital communities together — for which he was president and CEO from 2001 through 2005.
ICC has hired a formidable lineup. Economist Greg Payne will manage the public fund; he spent several years at KBSH Capital Management Inc. and worked as a consultant for the Government of Ontario. Curry cut his teeth on E2 Venture Fund Inc. Chamberlain is a lawyer and chartered financial analyst with investment-banking experience. IE
Private-equity firm takes SRI to the next level
Investeco Capital Corp. has invested millions in companies that fall within four specific sectors
- By: Kate Betts-Wilmott
- December 5, 2007 October 28, 2019
- 11:54