Luxembourg-based investment professionals seeking to launch their first or second impact investment fund are eligible for extensive government assistance, including training and financial support.
The agency in charge, the International Climate Finance Accelerator, or ICFA, is supported by Luxembourg’s finance and environment ministries as part of the governments’ COP28 commitments, allowing it to facilitate up to one million euros in financing per year.
Investment Officer sat down with Stephan Peters, the agency’s CEO, and Laurance Hulin, its programme director, in advance of a 28 November informational webinar.
“People are very interested in the programme because it’s so unique,” said Peters. “There’re very few acceleration programmes. And this one is also very much focused on impact investing specifically.”
Impact by design
The programme requires prospective fund managers to “target an impact fund, which would be Article Nine or equivalent, with all the processes in place, with impact by design into every component,” said Peters.
The accelerator, known by its acronym ICFA, was set up by Luxembourg’s government in 2018, to target first- or second-time fund managers. He explained that many large-scale investors prefer to invest only in fund managers launching their third or later fund.
“Even though you might have very long experience in the fund industry, maybe being involved in the fund running, but having the tag of a first or second fund manager is a very big barrier to overcome,” said Peters. “And setting up an operation from scratch is very costly as well.”
Institution-ready
“With what we’re putting them through and the guidance we’re giving them, we’re getting them ready for institutional money,” he said.
The paucity of investment products suiting institutional investors’ mandates, however, is pushing them to look at less-experienced fund managers who can offer them something of interest, Peters explained.
The organisation deals with existing, established fund managers “only if they’re looking to invest and deploy into other funds,” said Peters. He said this included them giving back to the industry and teaching other people.”
Financial support
Among the services ICFA offers is financing, usually in the form of repayable loans.
Hulin explained that ICFA can offer each prospect fund manager a total of 280,000 euros. Of this amount, 80,000 euros is a reimbursable pre-financing amount – a zero-interest loan. The 200,000 euros comes from a loan facility at a bank with a state guarantee.
ICFA typically selects four funds per year for support. For each fund selected, ICFA examines about 65 applications. To date, it has supported 34 fund managers.
Creating visibility
Being accepted means subjecting your fund to a rigorous selection process, involving a Spuerkees-run KYC process.
Fund managers tell ICFA that their programme helps, explained Peters. They “say that the programme helps open the doors for them, because the recognition is very important to be able to open a door to an institutional investor, they value the support we give as well and in helping them create visibility around their projects,” he said. For example, “working with them on the fund presentation, the concept itself, what is needed to make sure that they hit all the requirements to be an impact fund.”
ICFA follows the funds they’ve examined and looks for success, in financial and impact terms over time. “We see that when the funds succeed in raising funds, they succeed with their initial investments, and with their ability to report on their KPIs and then provide proof of their impact,” said Hulin.
Leveraging investments
Tracking funds helped by the programme since inception, there have been 937 million dollars of commitments made to the fund managers, based on 8.1 million euros of ICFA-offered financial support.
“That’s essentially the capital of their notes now starting to deploy investing in companies,” said Peters. “Hopefully in the next 10-15 years is when we can start reporting on the impact that they’re generating, so greenhouse gases are mitigated.”
The funds that raised the highest level of investment among the initial intake of funds in 2018-2019 was Terra Global Capital’s Terra Bella Nature-based Solutions Carbon Pool, which secured up to 640 million dollars in investment with a final close in January 2023.
Fundraising success
The Lightsmith Group, whose Climate Resilience and Adaptation Finance and Technology Transfer Facility (CRAFT) raised 168 million dollars by its final close in January 2022. Another fund, Empower Impact Investment’s Empower Impact Investing Platform, raised 82 million dollars, with a final close in Oct. 2022.
ICFA launched its call for applications in early November. “Each year for people who are interested in the programme and who are willing to apply, we organised an information webinar,” explained Hulin.
This includes how the programme and selection process work, how long it takes, and the different steps involved in getting to the first training session. Participants get to listen to recordings about the many various subjects involved in the initial application, including legal structuring, impact measurement, distribution and marketing.
ICFA also offers, beyond the training and the financial support, the services of a personal coach.