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New energy charges Swiss financiers

Wave energy is one of the most environmentally-friendly forms of energy (energy.ca.gov)

Two new private equity funds from Zurich-based Sustainable Asset Management (SAM) are investing in startups whose technologies help to overcome our dangerous dependence on fossil fuels.

Corporate and financial investors are putting more money into energy.

A sign that the time is ripe for investment in alternative energy is the fact that 12-year-old SAM was able to raise two brand new venture capital funds (combined investment total of €90 million) at a time in history when private equity allocations are all but frozen among many institutional investors, the traditional backers of private equity funds.

The year 2002 has been one that sees even less risky, conservative, mid-market buyout firms as having a hard time raising capital.

Only the most established funds managers can attract fresh capital this year. Nevertheless, SAM raised two brand new funds to invest in European and North American early stage - and some later stage - deals. How did it happen?

Being specialised in a market targeted for growth is clearly one reason that SAM Private Equity had an easier time of it. The management company, SAM Group, was founded in 1995 and has a track record in sustainable asset investment. Its research informs the Dow Jones Sustainability Index, for example.

SAM Private Equity funds invest in sustainable energy projects or companies. But don't call it "green" investing, commented SAM's new top manager Bruno Derungs to Swiss Venture in a recent interview. The Swiss firm defines sustainable technologies as including both renewable energy sources and alternative energy sources.

Renewables are geothermal, wind, wave, and solar powered systems. Alternative energy technologies include steam cells, fuel cells, biogas, and biodiesel fuels.

New energy sources

For the first time in decades, a number of environmental and economic changes are forcing power companies and their suppliers to look seriously at new sources of energy.
These factors include the liberalisation of energy markets, global warming and the political situation in certain countries - social unrest in the key supplier markets.

North American and European corporations have put money into SAM's new funds. Nordsk Hydro, Ontario Power Generation and Hydro Quebec are among the investors, as well as high net worth individuals with an eye to growth.

Co-investment

Normally, institutional investors, such as pension funds allocate a small portion of their total capital to alternative assets such as venture capital and private equity. But SAM's funds are dominated by corporate investors. They are looking for good returns, but something more too.

"A basic requirement [for these investors] achieving venture capital returns on their investments, but they are also interested in co-investment opportunities," says Gina Domanig, head of SAM Private Equity.

Co-investing is a part of corporate venturing activity. It is a tested way of accessing new technologies and markets. It was common in the telecommunications and pharmaceutical sector in the nineties.

Many so-called old economy industries have discovered this type of corporate investment or corporate venturing. For example, food industry giant Nestlé has put millions into the new Inventages fund, while some chemical giants, such as BASF, recently announced that it was funding new nanotechnology ventures.

The energy industry is no different than these other sectors. It needs innovation to be able to grow and avoid stagnation.

About 80 per cent of the €90 million SAM raised will be allocated to the energy sector, with the rest split between technologies that reduce the environmental impact of industry, as well as in so-called 'healthy nutrition'- investments in companies with technology that could reduce our dependence on chemically modified foods, for example.

Sarasin's new energy

SAM is not the only Swiss investor to take alternative energy seriously.

It could be argued that the first was Sarasin, the Basel-based private bank. It established a fund called New Energies Invest, after having built up expertise advising various customers on the topic of sustainable investments in the eighties and nineties.

For example, it is supported the Ethos fund, now administered by Lomard Odier.

About a hundred years ago, the bank's namesake saw the potential of electrical power and backed the people who built the Swiss power industry. Now the company's current management is following in that tradition and is aiming to back the next century's power providers.

Valerie Thompson

Key facts

12 year old asset management firm has set-up two new VC funds
They will be invested in alternative and sustainable energy startups
Up to €90 million available for early stage deals in Europe and North America

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