Bringing together capital and competencies. Five well-known Ukrainian entrepreneurs and investment bankers launch a large private equity fund targeting “green” projects.
In October 2021, Konstantin Magaletskiy, 43, Sergey Maslichenko, 44, and Michail Merkulov together with Andrey Stavnitser, 39, and Filipp Grushko, 38, launched a private equity fund potentially amounting to $100 million. This information was confirmed to Forbes by several investment bankers in the market. At the start of 2022 the team was joined by another financier whose name is not disclosed.
“The Partners have combined efforts in order to develop a new trend of sustainable and green investments”, responds SD Capital to the inquiry by Forbes. “The point at issue is renewable energy, transport, logistics and building”.
Roman Bondar, Head of the Ukrainian branch of Korn Ferry, considers the alliance of great interest and unique for Ukraine. “It combines a wide range of competencies: managerial, investment and entrepreneur skills”, says Bondar.
The businessmen intend to cooperate with international financial institutions, such as EBRD and IFC, as well as attract funds from private investors. The fund will be partially financed by the founders themselves, including Stavnitser’s family, whose capital, according to Forbes assessment, overruns $215 million.
Who and how will create the new investment fund
The idea of creating the largest green investment project in Ukraine (working title: Green Sustainable Fund One) was initially proposed by Magaletskiy. How did it originate? “SD Capital had had ambitions to extend their sphere of activity quite for a while”, says Magaletskiy. “Along with that, Sergey Maslichenko had been also working on launching a green investment line after his departure from EBRD. I desired new challenges. Likewise, upon his withdrawal from Arricano, Michail Merkulov started dealing with investments independently.”In October 2021, Magaletskiy left the American investment fund Horizon Capital, where throughout the recent eight years he had held the position of Executive Partner.
Horizon Capital specializes on investments in the spheres of IT, e-commerce and other companies active in swiftly growing sectors (among the most well-known projects are such as Rozetka, Ciklum, Jooble, Ajax Systems, Makeup, Dobrobut). According to Kosharna, Magaletskiy decided not to join Horizon on its next scheduled ten-year cycle, within the range of which such funds normally function. “We fully support his intention to market launch a product following quite a different investment strategy”, says Kosharna.
What is it all about? Green energetics is not merely solar and wind power, but also biogas, biomass etc. into the bargain”, specifies Magaletskiy. “That would also include Green Building: warehouses, schools and hospitals – facilities that go in line with European green standards. It is transport and logistics. As well as digital infrastructure (i.e. data centers)”.
Magaletskiy had been putting together a star team for the new fund. Amid the first entrepreneurs who discerned his idea were Stavnitser, Co-Owner of TIS, the largest Ukrainian port operator, and Grushko, former Manager at the Munich branch of PricewaterhouseCoopers. Since 2015 the businessmen have been managing investment company SD Capital created due to Stavnitser’s initiative.
Each of the partners will be responsible for his own line. SD Capital specializes on CAPEX-intensive projects and large M&A in the field of infrastructure. Created in 2016, the company has consummated three largest deals in the history of Ukraine’s infrastructural branch: the construction of grain terminal Neptune in joint venture with Cargill, launching onto the market the P&O Maritime towing operator, sale of 51% of stocks of TIS container terminal to global company DP World. Projects in process include construction of an LNG-terminal near Odessa and semi-knocked down assembly of Canadian Bombardier locomotives.
“Neither I nor Filipp had been fund experts, and when you have no fund background, things are 20 times tougher”, admits Stavnitser. “This is why decided to team up with the guys. Each of them is a crack shot in his experience”. He intends to share SD Capital’s green experience with the new fund “provided that they are industrially compliant”.
According to Bondar, Merkulov contributes understanding processes of business management, decision-making and structuring. “He is in the top-list of the best general managers in Ukraine”, says Bondar from Korn Ferry. “Michail is a powerful leader, strategic thinker and innovator”, confirms one of the top managers of Arricano, who had worked several years under supervision of Merkulov.
Maslichenko’s scope of competency is direct attraction of green investments. “When it comes to this field, he is the most skilful banker in Ukraine with 20 years of experience”, says Maslichenko about Magaletsky. In most recent years he has been a member of board of directors in a large investment fund Green for Growth Fund, founded by international financial organizations and a green investments portfolio worth €600 million in 20 countries. “It is vitally important that Maslichenko has had a chance to get an inside out glimpse at working with ERBD”, says Stavnitser.
Magaletskiy will undertake administration and some of the managerial functions. “I with great pleasure try to play in line with the rhythm set by Kostya”, says Stavnitser. Bondar calls Magaletsky a professional networker who can provide the right contacts to attract Western capital. “Whosoever you ask, everyone knows Kostya, and he knows them, too”, confirms the Top Manager of Korn Ferry.
Money sources and expected business dimentions
The partners will not disclose the legal aspects of their business, as they have not yet approved the legal framework of their alliance, clarifies Stavnitser.How will the financing occur? “This is not crowdfunding, it is rather a typical fund structure with a GP (general partner) and LP (limited partner)”, explains Stavnitser. “The general partners here are Maslichenko, Magaletskiy, Merkulov, Stavnitser and Grushko. Whereas limited partners are those who invest funds and expect a particular return, which we undertake to generate”.
The partners are going to carefully select candidates for potential LPs, says the entrepreneur. One position has already been filled in: “Our family office is not only going to act as a GP, but also as an LP”, confirms Stavnitser, yet not disclosing the investment sum. “I believe this and cast a vote by my assets”.
Full-scope launching of the fund is bound to take 1-1,5 years, confided one of the partners on condition of anonymity. The first founders expect IFI’s to act as investors, as those more willing to accept sovereign country risk, clarifies Stavnitser. “Further down the road we will have more participants joining in, such as funds funneling money in sustainable and green projects, family offices etc.”, he adds. “Our experience working with IFI is going to be of great value at that stage”.
$100 million of investments, according to Stavnitser, is just the scratch line. “We are aiming for at least several hundred million”, says Stavnitser. However, it is precisely working with foreign capital that might become their biggest challenge, believes Dan Pasko, co-managing partner of Diligent Capital Partners. “Capital has a bottleneck nature, it is very difficult to attract from international markets”, he assumes.
The advantage of Magaletsky, Stavnitser and partners’ fund consists in their experience developing large international projects, continues Bondar from Korn Ferry. “Stavnitser had attracted Cargill to deal with a local asset, and they constructed a huge capex from scratch, on top of that in a port, which inevitably becomes a politically biased issue, – that means that risks had been managed correctly, he says. Magaletskiy attracted American money. Merkulov was a CEO in a company rated on the stock exchange market. This is a team inspiring confidence by default”.
Stavnitser is hoping to keep up with the worldwide green investment trend. “Merely the transfer from truck freight traffic to railway shipping will cost the German government €120 billion by 2030”, he explains. “This is just scratching the surface of the significant developments going on in the world”. In order to meet international ecological standards, according to SD Capital assessment, Ukraine is going to need $12 billion of private investments in the electric power system and transport, as well as housing and public utilities (branches responsible for 71% of emissions) per year over the period of 10 years.
Eighty percent of raised funds are going to be spent in Ukraine, twenty percent – in neighboring countries (such as Georgia and Moldova). What can the quartette of entrepreneurs offer investors to begin with? Stavnitser sees the prospect in building green hospitals and schools. “We are not talking about municipal schools, but rather about private projects: I want every city with a million-plus population to obtain several private schools following Ukrainian or international curriculum”, says Stavnitser. “The same relates to hospitals. The more we have, the greater it will contribute to people’s wellbeing and to the healthcare system overhaul”.
The fund targets medium-sized regional entrepreneurs who are willing to implement and manage projects of the like. “We shall eagerly finance such businesses”, assures Stavnitser.
What next? “We shall capitalize and sell”, Stavnitser says describing the planned work pattern. “Our task is provision of profit to investors”. The operating period of the fund covers six to ten years.