Climate Finance and CleanTech

Investment Dream team.  A pooling of capital and expertise. Five prominent Ukrainian entrepreneurs and investment bankers launch a large private equity fund with a focus on green projects

In October 2021, Konstantin Magaletsky, 43, Sergey Maslichenko, 44, and Mikhail Merkulov together with Andrei Stavnitser, 39, and Philip Grushko, 38, launched a private equity fund with the potential size of more than $100 million. This information was confirmed by several investment bankers at the market to Forbes. In early 2022, another well-known financier, whose name was not disclosed, will join the team.

“The partners have joined forces to develop a new area of ‘sustainable’ and ‘green’ investments,” SD Capital said in its response to Forbes’ enquiry. – We are talking about renewable energy, transport, logistics and construction.”

Roman Bondar, head of Korn Ferry’s Ukrainian office, calls the alliance interesting and unique for Ukraine. “It is a diversity of competencies: managerial, investment and entrepreneurial experience,” Bondar says.

The businessmen intend to cooperate with international financial institutions, such as the EBRD and IFC, and also attract money from private investors. Part of the funding will come from the cofounders themselves, including the Stavnitser family, whose fortune, according to Forbes, exceeds $215 million.

How and who is setting up the new fund

The idea to create Ukraine’s largest “green” investment project (working title: Green Sustainable Fund One) was proposed by Magaletsky. How did it come about? “SD Capital has long had ambitions to expand its sphere of activity,” says Magaletsky. – At the same time, Sergey Maslichenko was working on launching green investments after he left the EBRD. I wanted new challenges. And Mikhail Merkulov, after leaving Arricano, was already working on investments on his own.

In October 2021, Magaletsky left the US investment fund Horizon Capital, where he was a partner for the last eight years.

Horizon Capital specializes in investments in IT, e-commerce and other companies that operate in fast-growing sectors (Rozetka, Ciklum, Jooble, Ajax Systems, Makeup and Dobrobut are the most well-known projects). Magaletsky, according to Kosharna, has decided not to go into another ten-year cycle with Horizon, in which similar funds operate. “We support his desire to bring to market a product with a completely different investment strategy,” Kosharna says.

Mikhail Merkulov

What does it consist of? “Green energy – not only solar and wind, but also biogas, biomass, etc.,” Magaletsky lists. – Also Green Building: warehouses, schools, hospitals – buildings that meet European green standards. Transport and logistics. Digital infrastructure (data centres).

Magaletsky assembled a star-spangled team for the new fund. Stavnitser, co-owner of the largest Ukrainian port operator TIS, and Grushko, ex-manager of the Munich office of PricewaterhouseCoopers, were the first to see his idea. Since 2015, the businessmen have been running SD Capital, an investment company set up at Stavnitser’s initiative.

Each partner will be responsible for a different area. SD Capital specialises in CAPEX-intensive projects and large M&As in the infrastructure industry. Established in 2016, the company has completed three of the largest investment deals in the history of Ukraine’s infrastructure industry: the construction of the Neptune grain terminal together with Cargill, the market launch of tugboat operator P&O Maritime and the sale of a 51% stake in the TIS container terminal to global company DP World. Unrealised projects include an LNG terminal near Odessa and the large-scale assembly of Canadian Bombardier locomotives.

“Philip and I are not stockbrokers, and if you don’t have a stock background, it’s 20 times harder for you,” admits Stavnitser. – So we teamed up with the guys. Each of them is cool in their experience.” He expects to transfer SD Capital’s “green practices” to the new fund “subject to industrial compliance”.

Merkulov, according to Bondar, adds an understanding of business management processes, decision-making and structuring. “He is among the best CEOs in Ukraine,” says Korn Ferry’s Bondar. “Mikhail is a strong leader, strategist and innovator,” says one top Arricano executive who has worked for several years under Merkulov.

Maslichenko’s expertise is directly in attracting green investments. “He is the most experienced banker in Ukraine in this field, having worked in it for 20 years,” describes Maslichenko to Magaletsky. He was most recently on the board of directors of Green for Growth Fund, a major investment fund founded by international financial institutions with a €600m green investment portfolio in 20 countries. “It is very important that Maslichenko has an insider’s view of working with the EBRD,” says Stavnitser.

Magaletsky will handle the administration and take over some of the management functions. “I am happy to try to match the rhythm that Kostya is setting,” says Stavnitser. Bondar describes Magaletsky as a “professional networker” who can provide the right contacts to attract Western capital. “Everyone knows Kostya and Kostya knows everyone,” says the Korn Ferry top manager.

Where the money will come from and what they will do

The legal details were not disclosed by the partners because the legal structure of the association has not yet been approved, Stavnitser said.

How will they finance it? This is not crowdfunding but a typical fund structure with GP (general partner) and LP (limited partner),” says Stavnitser. – General partners are Maslichenko, Magaletsky, Merkulov, Stavnitser and Grushko. Limited partners are those who invest money and expect a certain return, which we promise to generate.

The partners will filter candidates for potential LPs, the entrepreneur says. One position has already been filled: “Our office will enter not only as a GP, but also as an LP,” confirms Stavnitser, without disclosing the investment amount. – I believe in it and I am voting with my money.

It will take 1-1.5 years to fully launch the fund, one of the partners said on condition of anonymity. The first founders are expected to see IFI’s as investors – they are easier to accept country risk, Stavnitser explains. “Further on, other participants and funds pull up that give money for sustainable and green, family offices, etc.,” he adds. – This is where our expert investigation in working with the IFIs will come in handy.

A $100m investment is the bottom line, according to Stavnitser. “We are counting on a few hundred million,” says Stavnitser. However, it is working with foreign capital that may be the biggest challenge for them, says Dan Pasko, co-managing partner at Diligent Capital Partners. “Capital is a bottleneck, it’s very hard to raise it from international markets,” he believes.

The advantage of the Magaletsky, Stavnitser and Partners fund is their experience in developing large international projects, notes Korn Ferry’s Bondar. “Stavnitser was winding up Cargill on a local asset, they built a huge capex from scratch, and in the port, which is a politically charged topic – so they managed the risks correctly,” he says. – Magaletsky attracted American money. Merkulov was the CEO of a listed company. This is a team that inspires trust by default”.

Sergiy Maslichenko

Stavnitser hopes to be part of the global trend towards green investments. “The German government will spend €120 billion by 2030 on shifting freight transport from trucks to railways alone,” he explains. – That is just a small part of what is happening around the world. To meet international environmental standards, Ukraine would require $12 billion of private investment a year for 10 years in the energy system, transport and utilities – sectors responsible for 71% of emissions, according to SD Capital estimates.

80% of the money raised would be spent in Ukraine and 20% in countries of near abroad (such as Georgia and Moldova). What will the quartet of entrepreneurs offer investors first? Stavnitser sees the prospect of building green hospitals and schools. “We’re not talking about municipal, but private projects: I want a few public schools based on the Ukrainian or international educational system to appear in every city with a million inhabitants”, Stavnitser says. – It is the same with hospitals. The more of them we have, the better for people’s health and medical reforms.

The fund is targeting mid-level regional entrepreneurs who are willing to implement and run such projects. “We would be happy to finance them,” Stavnitser says.

What’s next? “We will capitalise and sell,” describes Stavnitser the model of operation. – Our aim is to provide returns for depositors.” The work schedule of the fund will be between six and ten years.

Forbes original article

 

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