Norway’s KLP and German investors commit over EUR270m to Catella European Residential Impact Fund
The Catella European Residential III Fund (CER III), relaunched as the first ‘dark green’ pan-European residential ESG impact fund, has attracted a total of over EUR270 million in mandate commitments from Norway’s largest pension company KLP and a group of eight German pension funds and insurers.
The new capital raise lifts CER III’s total equity to EUR750 million since its initial launch just two years ago. CER III is structured around Nassim Taleb’s pioneering antifragile investing concepts of Black Swan extreme random tail risk events and the alignment of stakeholder interests through ‘skin in the game.’
The capital raise follows CER III’s transition from a ‘light green’ real estate fund to the certified status of the first pan-European dark green EU SFDR ‘Article 9’ residential property impact fund during the first quarter of 2021, which means the vehicle pursues sustainable societal objectives, or the reduction of carbon emissions, in its investments. The fund is managed by Berlin-headquartered Catella Residential Investment Management (CRIM).
Michael Fink, Managing Director, CRIM, says: “Black Swan events, such as the global financial crisis or the Covid-19 pandemic, have a significant impact on housing markets. Catella has found solutions to manage these market events by implementing Nassim Taleb's concepts. The same random pattern of severe market disruptions will almost certainly occur more frequently in the future with an oncoming tsunami of cataclysmic events related to climate change. Prevailing market wisdom dictates that rental income should be maximised, but we have demonstrated that a lack of social justice, or real affordable rents in a portfolio, are a major source of risk. Now with our impact fund, we are adding the third ESG pillar of our investment philosophy by incorporating Taleb’s ‘skin in the game’ thesis through a close alignment of investor and investment manager interests, or the governance ‘G-factor,’ in CER III’s fee structure.”
The alignment of interests in CER III is achieved through incorporating a penalty clause into the management agreement whereby CRIM will donate part of its recurring management fee to a relevant ‘impact-related’ United Nations fund should the manager fail to meet the financial or societal targets set for the fund.
Andreas L Farberg, Investment Manager Global Real Estate at KLP, Norway’s pension company for the local government and healthcare sectors, says: “KLP strives to be a responsible investor. We select our management partners and investments in real estate, and all other asset classes, on the principle that they contribute to the achievement of globally adopted goals for a sustainable future. The SFDR dark green investment overlay of CER III is aligned with our ambitions for sustainable investments. In particular, we appreciate that Catella has created a direct link between their fee income as an asset manager and the achievement of the fund’s specified sustainability targets, which contributed to our selection of CER III. We find Catella’s. application of Nassim Taleb’s risk concepts of robustness and anti-fragility to residential investments very innovative.”
Nassim Taleb’s fifth book in his Incerto series – Skin in the Game: Hidden Asymmetries in Daily Life – emphasises the necessity of sharing any ‘investment pain’ in investor/manager relationships. He contends that having shared risk when taking a major investment decision is fundamental for transparency, fairness and risk management.
Casper van Grieken, Executive Director, CBRE Netherlands - Head of Capital Advisors: "CER III’s financial objective is to deliver stable, low-risk total investment returns of around 5-6 per cent per annum. The strategic environmental and societal targets, which are aligned with the United Nations’ Sustainable Development Goals, focus on reducing CO2 emissions by developing and investing in sustainable properties and transforming standing assets to achieve a 100 per cent cut in carbon emissions over 10 years, while also increasing access to affordable housing with decent living conditions. More than 80 per cent of the portfolio will be invested in affordable housing throughout the lifetime of the fund.”
A portion of the fund’s equity can, under its terms, be invested in assets in Catella’s pan-European joint venture programme with Elithis to develop 100 of the world’s first energy-positive residential towers. The towers, conceived by French sustainable engineering design company Elithis, produce more energy than the building and the tenants consume, resulting in the virtual or complete eradication of household energy bills and effective affordable rents that are targeted at 5 per cent to 10 per cent below the average of the surrounding neighbourhood.
CRIM will be partnering with recognised third-party service providers on ESG benchmarking, such as GRESB at the fund level and CREEM for individual assets, to measure the ESG-performance. An interactive ESG impact dashboard allows its fund managers to rigorously assess the suitability of potential acquisitions as well as to see the current and future social and environmental impact status of assets within the portfolio. ESG consultancy EnviroSustain, is supporting CER III on pre-acquisition asset checks and the ongoing compliance and achievement of the ESG-objectives. Vistra Fund Management SA is providing the AIFM (Alternative Investment Fund Manager) services for CER III.