S1E7 Capital Radio - Nina Freudenberg from Golding Capital Partners

Today’s guest is Nina Freudenberg. Nina is a Director at Golding Capital Partners and is responsible for Impact Investing. Nina was previously one of the founding members of Sonanz, an Impact Fund of Funds. Prior to Sonanz, Nina spent time in Bangladesh, where she led consulting projects for Brummer and Partners.

In this episode, Nina shares how investing for impact differs from more traditional investments and the unique challenges associated with impact investing. She also shares with us her view on how impact investing has changed over the last 10 years and her view on the future.

Transcript

Lieke  0:36  

Welcome. Our guest today is Nina Freudenberg. She joined Golding Capital Partners in 2021 as a director and is responsible for impact investments. And prior to joining Golding, Nina was a director for Sonanz, which is an impact funds of funds, where she was part of building the company since its inception in 2015. And before that, Nina spent time in Bangladesh, where she led consulting projects for Brummer and Partners, which is a local private equity firm. She started her career in 2011, as a management consultant for the Boston Consulting Group in Munich. Welcome, Nina. 

Nina  1:10  

Hello. Thank you for having me. Good to be here. 

Lieke  1:13  

Yeah. Great having you!

Liz  1:14  

Thanks for your time. Nina, let's let's kick off. So as Lieke just mentioned, an introduction, we understand you spent some time in Bangladesh. So we wonder if you could tell us more about that. And whether it sparked your initial interest and impact in emerging markets?

Nina  1:29  

Yes, sure. So in Bangladesh, I worked for the first private equity fund that was set up by the Swedish firm Brummer and Partners, I spent a couple of months there to work in particular with the portfolio companies and small projects with them. So it was I mean, I lived in emerging markets before as a kid, I lived in Burkina Faso for a couple of years. Then, when I arrived at Dakar, it was really a totally different experience. I think it's one of the most crowded places on earth. Whenever you are on the street, you see at least 100 people. It's very noisy and loud, and, but also very vibrant. And you can see entrepreneurs in every corner. And Bangladesh also has a couple of really cool new companies that became very successful in a short period of time, for instance, B Cash, mobile money company. So I really started to understand that if you are able to develop a product, mostly coupled to technology that needs a very large local demand for the people on the ground, you can be extremely successful as well. So I came back in 2015, to help my colleague Andreas Nilsson to start Sonanz and was really fully inspired.

Lieke  2:53  

Yeah, great. And impact investing is, of course, often related to really these emerging markets that you were talking about. So Bangladesh, for example. But how would you define impact investing? Because it's, I can imagine more than just emerging markets and being active there. How would you define that?

Nina  3:11  

So I'm not going to give you another definition of impact investing. I think there are way too many out there already, but I'd say the difference is that as an impact investor, you really start with a mission. You have a specific social or environmental problem in mind that you'd like to solve with the means that you have as an investor. So for instance, through Sonanz, we have invested in a fund in India called Omnivore and Omnivore invest in technologies centered around the setting of smallholder farmers. So they saw that the vast majority of our farmers in India, smallholder farmers, that means that they have less than two Hectare's that they cultivate, and they have various challenges in life, they, they don't have access to markets. So they have difficulties, you know, selling their products at the right time at the right price and so on. They have difficulties to access good inputs like seeds, and so on. They don't have a lot of technology that they can use on their fields. And they're very vulnerable to economic also environmental shocks. So the thesis of the Omnivore Fund for instance really looks at what do those smallholder farmers need and what can help them to thrive to live a more resilient life, but also to become more sustainable. And to this thesis. They do not only help smallholder farmers but at the same time they have invested in a couple of companies that are just also commercial be extremely successful, and because they meet such a large demand. 

Liz  5:04  

Absolutely and I think Nina, you touched on, you know, the idea of having a goal or investment thesis beyond more maybe more traditional investments, which might focus more on financial returns. And in Omnivore that was, you know, improving their lives, from the accessibility and for the farmers. Can you maybe speak a bit more about how that shapes your investment approach when you're looking at impact investments and, and maybe how this might differ from, you know, say, a more traditional approach for a more traditional investments.

Nina  5:35  

So, the new Golding Fund that we are currently working on is really centered around really has environmental focus, we see two pillars of the strategy. The first one is that we believe that if we really want to do something against climate change, and reduce resource consumption, and emissions, and so on, we do need a couple of breakthrough technologies. And we believe that some of them will come from Europe or North America. So through the fund 50% of the fund will target private equity growth, private equity funds in Europe and North America. And then the other part will focus on emerging markets, because at the same time, we, we see that it's equally important that emerging markets that are growing and that, that are striving for better living conditions, that they do this in a sustainable way, and that they grow more decoupled from resources and emissions, and don't necessarily repeat the mistakes that we have done here and industrialized economies. And the two themes really, really go hand in hand.

Liz  6:44  

Sure. And when you speak more about, you know, the 50% into the emerging markets, Nina, I can imagine that, you know, the landscape is really different. You know, I bet you wouldn't see hundreds of people on the street, you know, and Western Europe at one time. I can imagine that might present certain challenges when it comes to really investigating whether you want to make the investment or not, maybe there isn't so much data available. And the markets that you are looking to invest in is do you have to really tailor the metrics that you look at when you're looking at emerging markets compared to that of North America or Europe?

Nina  7:16  

Yes, exactly. So when we look at the fund manager, we can typically not look at a track record of let's say 20 years, but it's often the strategies that have developed are fairly new, and also the markets are fairly new and just developing now. But having said that, at the same time, they are a growing number of fund managers that are now already raising the second or the third fund. So we wouldn't necessarily only focus on first and fund managers, but more on more experienced fund managers. But still, the track record that you can look at it's not as long as what you would see in Europe, for instance. So it is, I'd say one thing that is different compared to when you do a due diligence of let's say a very established private equity buyout manager here in Europe is that we look much more at the specific strategy and the specific sectors that the strategy is targeting. So the fund managers that we found interesting in the past have to have a specific sector focus, so they wouldn't necessarily be a generalist, and in, but really have a focus on a certain theme. So for instance, when we have invested in a fund called [?], Alfie, they're based in Nairobi, and invest in the off grid energy space. So what we did is we really travelled there and spent a lot of time to try to understand, you know, if the off grid  energy space is a good space invested in. And we talked a lot of the dynamics or when I say off grid energy space, business models that you see quite often in that space are, for instance, solar lanterns, or solar home systems that offer enough electricity for small households. But you could also see mini grids and so on. So we really try to understand what the drivers are and the sectors and came to the conclusion that is actually a fantastic sector to be invested in at the moment because in the past two years, several things happened. That make it very attractive. So the prices for batteries and solar panels, for instance, came down tremendously, which made the product very affordable for the people on the ground in East Africa. But also, the way you can distribute the products changed a lot because of the introduction of mobile money. So how it works is that the people buy solar home system, for instance, that costs let's say, some depending on the size and so on something between $200 and $500 Dollars and that is something that people could maybe not afford. On one day. What they do is they make a down payment on the first day of let's say $30 And then the rest of their pay off through daily or weekly installments through their phone. So yeah, this, this is sort of the level, we need to look at when we try to understand if we want to invest in a fund manager.

Lieke  10:14  

Yeah, I can imagine. And I can imagine that it's such an exciting space to work at, like, such a growing, growing market growing population, and indeed, the mobile payments opportunities, that you speak about, it's really I can imagine really exciting to work it, on the other hand, also really challenging. Can you tell us a bit more about the unique challenges that you see within the impact investing space?

Nina  10:39  

The problem is, it's not very clear what impact investing is different people have different opinions about it. And some people think, you know, one thing is impactful, and others don't. So for instance, you could say, in a country where there are not enough schools to educate the people, it would be a, you know, a very impactful investment to invest in private schools to increase the educational offering. But at the same time, you could all say no, actually, you don't want schools to be private, do you think it's more, you know, if you want to provide equal access to education, school should be public? So it's not very clear. Is it an impactful investment to invest in private schools or not? So at one point, it always becomes very political, if you feel, you know, what you define as impact on and whatnot. And then the second part is, which is also a bit linked to this theme, is measurement. You can, there are great measurement, approximations on the market to date. And, and it's, it is constantly evolving, and new solutions are being developed constantly. But still, it always stays an approximation of impact. So for instance, when you sell solar lanterns, and your thesis is, people that have electricity can maybe study more at night, because they and they can the kids can do their homework in the evenings. And that's why you'll increase the educational level for the people that bought those solar lanterns, it is very difficult to prove, you know, how will you prove that kids actually study at night wants to have the solar lantern, it might also be that they just charge their phones and then play all night. And you'd need very large randomized control trials almost to really, truly prove that you do have impact, which is not within the budget of most investors and not in relation to the amount of money that you have invested in a specific company. But still, having said that, there are great solutions. And for instance, coveys arfi, uses a fantastic survey method that, again, uses questionnaires using the mobile phone to ask the customers of solar lanterns, what they what they do with a solar lantern, how it has improved their life, and to what extent they are happy with the product and so on. And they use that data are not only to measure him or develop approximation for the impact they have, but also to feed it back into product development and to think about how they can further develop the product to make it even more useful for people.

Liz  13:33  

Absolutely I can imagine continuous development in such a dynamic space probably has really, yeah, influenced or has been a trend that you have seen over the last 30 years that you've been working in impact Nina? And I think what I'd be really curious to hear from someone who's been involved in industry for so long, how have you seen impact investing change over your career? So you spoke about how, you know, sometimes it becomes a little bit political? Or also there are new forms of measurement that that have been developed? You know, every year? Have you seen any any major trends and the types of impact investment that have become more popular or the specific tools being used?

Nina  14:11  

Yeah. So I'd say that two things that that happened. In the past years, when we started to land, the impact investing world was still very much about social impact investing. And environmental themes were always there, but they weren't up so much in focus, and that has obviously changed tremendously. So environmental themes became much more important. You can see much more funds now that focus on environmental technology and so on. This is definitely one big shift. And the other one is the focus the increased regulatory focus on environmental topics. So now on the European Union, you have SFDR and soon the European Union taxonomy that really defines what sustainable investments are and what not. And this will help a lot to really standardize and, and ensure certain minimum level of, of what can be defined as sustainability and whatnot. And it will also help to make the scene much more mainstream. Because in the past, I had the feeling that investors didn't invest in impact opportunities because they were afraid of green washing. And it was really unclear and difficult to understand what funds have impact and what fund is sustainable. The assessment was very difficult. So some investors just didn't do anything at all. And, and the new regulation will certainly help at that. 

Lieke  15:44  

Indeed from the from the investor side and LP side, I can imagine that now you see more and more investors coming up that want to invest in impact. And also, as you mentioned, with a lot of governments having these goals based on sustainability on Sustainable Development Goals, is that also something that you have seen changed dramatically, the landscape of investors, for example, more institutional investors that are coming up?

Nina  16:09  

Yes, I'd say they're more so. From the product side, there are more large asset managers entering the market. And also the variety of strategies that you see in the market is constantly increasing. But also from the investor side, I have the feeling that when it's when you at least, count the number of conferences for investors on sustainability and the amount of web trainings you have on E3 and so on. The interest is at least there, I think some investors are still in the learning phase and trying to get an overview of what they can do as investors, which is initially not always very clear, because there's so many different investment opportunities. But I'd expect that in the coming years, the amount of capital that is committed into sustainable fund products will also increase. 

So at the end, perhaps Nina the the move, I guess, from Sonanz, to Golding is a great example of this. Maybe you could tell us more about about your recent move and what Golding is hoping to achieve.

Nina 17:18  

Yes. So at Sonanz, we've been one of the pioneers in this space for many years. And but we're still boutique player, we had our first fund and had great investors that were backing us. And fund one is performing well. But then at one point, we were at a stage that we saw that really large asset managers are now also launching products that are comparable to what we did. And we're a bit afraid that we just don't have the manpower to compete with those large asset managers. And then, last fall, Jeremy Golding called us and we knew him for quite some time already. I think first time was in 2010, or 11, that we met. And we've been in contact with him, in particular since we launched Sonanz, because Golding is a large fund a fund manager in Munich, and as a senior player, he was very helpful in giving us advice about how to run a fund of funds over the years, so we knew we knew him for some time, we knew that he was interested in impact. And then we were really, when he called us last fall and ask us, if we would like to join his firm to help him start an impact pillar, it just made a lot of sense. They have this huge organization with the really blue chip institutional processes and they have a department legal department, they reporting department a finance department and an investor relations department and so on. So it was just very good opportunity that now enables us to focus on what we can do best the investments and, and get just a lot of support from the organization to set up the rest as well.

Lieke  19:11  

Yeah, I can imagine that that is such a great step and also in a broader perspective, a good step forward for impact investing. So we are also wondering, what do you see as your kind of goals or dreams for the future? And also for the future of impact?

Nina  19:28  

Yeah, so I think when you are in the space of impact investing you never reach your goals. It's always a journey. Obviously, we have now the short term goal of raising this first fund and building a great portfolio of target funds and underlying impactful companies. But after that, I'm sure you know once we might be able to solve some problems or at least contribute to the solution of some social environmental problem, but once they are solved I'm sure that new problems will Come up that need new investment. So, and this is also what I liked a lot about impact investing space that you can constantly think about new themes that you should be investing in, and that you should add to your strategy. And there's just a lot of room to grow and to be creative. And for the impact space as a whole. It's, I think I like a lot how it has developed in the past years. When we started, nobody really knew what impact investing is. And we had to explain it so many times. And by now, when you when you use that word, everybody at least has a broad idea of what it could mean. And this is already a fantastic development.

Liz  20:43  

Sure, and Nina, you speak about, you know, I love the way you spoke about how there are problems that can be solved. And once they are solved, you can move on to the next one that I think that gives us a lot of hope. Because the problems I guess you're looking to solve in your space are, you know, of climate change or environmental issues or for the greater good. So that's, that's really encouraging to hear. And I wonder, because you're focusing on these themes that are so broad and often quite remote to where you sit in Germany. You know, every day when you're at your desk working? What really excites you in their day? Do you spend a lot of time thinking about these new themes? Is it really operational? But yeah, what gets you out of bed every morning to work on problems on the other side of the world from Germany? 

Nina  21:28  

Yeah. So within the team, we constantly speak about challenges that we see. And that happens often that you know, somebody has read, you know, an article in a newsletter again over the weekend. And then, and then we have lunch on Monday. And then we speak about it. I have you, for instance, last weekend, I read this article about the problem of chemical pesticides in in emerging markets that big farms use but also many smallholder farmers use chemical pesticides and don't really know how to use it. And I think it was a study from that uses data from WHO that shows that there will be thousands of smallholder farmers that die from chemical pesticides every year. And this was I knew that chemical pesticides were, you know, not a good idea. But I wasn't aware about this scale of the problem. Yeah, so this is just an example of we are constantly debating, you know, new challenges that need solutions.

Fire Round

Lieke  22:33  

And I can imagine that the there are always new challenges, and always new problems that can be solved. And yeah, thank you very much for this Nina, that was all very, very insightful. And now we're moving into the next part of the interview, which is the fire round. Basically, we will ask you a couple of really short questions, and we'd like you to answer them also to get to know you better on a bit more personal level. So if you're ready, then we'll go ahead. What is your morning coffee order?

Nina  23:02  

Coffee first? 

Lieke  23:06  

Nice. And what type of coffee black or with milk?

Nina  23:08  

 Yeah, a cup of tea. You know, it's, it's Yeah, perfect. I like a good cup of tea in the morning.

Liz  23:14  

Yeah, me too Nina. And my question for you is if you could solve one problem and the world, what would it be?

Nina  23:20  

 Definitely climate change

Lieke  23:22  

Nice and could you name three traits that make a successful LP in your eyes?

Nina  23:27  

So I love LPs, that are really interested in the investment themes. I love it when when they call and have a specific question about one of the investments. This is probably the most important one. In general, I think LP engagement is something I like a lot even if the questions are sometimes critical. Yeah, those were two trades, but I hope that's okay.

Liz  23:50  

Yeah, of course, of course. And you know, other than, you know, articles about chemical pesticides. Are you reading any books at the moment? What are you currently reading?

Unknown Speaker  23:59  

Yes. So at the moment, I'm, I'm still reading this book from Bill Gates, about technologies that he believes that we still need to solve climate change. It's very  recommended he's obviously a tech guy and his solution to climate change is very technical. It's not it doesn't have a strong focus on societal themes, but the tech solutions and the way structures, It is very helpful and I can recommend it, although you view you can debate his approach to nuclear energy yet.

Underrated or Overrated

Liz  24:33  

 That's a subject where there's a lot of debate on I'm sure, but thanks for that. I'll definitely look it up. Alright, Nina. So now on I guess to the second part of the fire round. With even shorter answers, I would just like to ask you what your immediate reaction is when we ask if the following topics to you are underrated or overrated. So the first one is Twitter. 

Nina  24:56  

I don't have an account.

Liz  24:58  

 Perfect. That's a great one. What about self help books? 

Nina  25:02  

I've never read one. 

Liz  25:06  

Perfect Okay, have you eaten an avocado before? 

Nina  25:09  

Yes. 

Liz  25:10  

Okay, so are they overrated or underrated?

Nina  25:12  

They are overrated. We probably shouldn't eat as much of avocados because the way they are cultivated sometimes it's very difficult to do water using much water. 

Liz  25:21  

That's the one. 

Nina  25:23  

Okay, what about Oktoberfest? 

It cannot be underrated

Liz  25:28  

 And cryptocurrency?

Nina  25:30  

Interesting. I'd say so for me it's overrated. I liked it currencies are regulated by states. 

Liz  25:38  

Sure, And and the Netflix documentary Seaspiracy. If you're familiar with it?

Nina  25:45  

Underrated, it opened my eyes that probably there's no such thing as sustainable fish. 

Liz  25:52  

And lastly, self driving cars. 

Nina  25:56  

Underrated although it really depends on how we will use this new technology. It can be a tremendous step towards less fewer cars on the street, but it can also be the total opposite.

Liz  26:08  

Absolutely. Already, Nina, that was it for today. Thank you so much for such an engaging discussion. That was really full of examples. And I think for for us and for our listeners will really bring to life. Such a broad and important topic. So thanks so much for your time today. 

Lieke  26:25  

Thanks, Nina.

Nina  26:26  

 I thank you for having me. Thank you.

End