M&G's Catalyst impact investing team gets off to fast start

The impact investment team that M&G Investments Management launched last year with £5 billion ($6.7 billion) of group money to invest addressing sustainability challenges has hit the ground running, said Alex Seddon, its London-based head.

The team, dubbed Catalyst — now 35 strong, up from 25 at its February 2021 debut — has already put a combined £1.3 billion to work in 29 private companies promising innovative solutions for problems ranging from plastic recycling and carbon storage to sustainable housing, Mr. Seddon said in a recent interview.

And while Catalyst's £5 billion mandate from parent company M&G PLC's £143 billion "with-profits" vehicle — effectively its life insurance general account — leaves it with ample dry powder for now, Mr. Seddon wouldn't rule out moving to raise money from external investors in the future.

"We're not in a hurry because we're very fortunate to have capital to deploy, but I think probably at some point, next year maybe," it might make sense to raise third-party capital as well, he said.

"The opportunity is huge … £5 billion gets you into the right conversations and gets you access to the right kind of opportunities. But for me, this strategy can scale to two or three times that size," he said.

Catalyst's momentum over its first 12 months, meanwhile, reflects the fact that many of its members have worked together investing in innovative private companies over the past 10 to 20 years, which enabled the team "to hit the ground running," Mr. Seddon said.

By way of example, within weeks of Catalyst's Feb. 4, 2021, launch, the team had invested £35 million in Oxford Nanopore Technologies Ltd., an Oxford-based company with technology for low-cost DNA sequencing capable of being done in the field rather than a laboratory, and $50 million in Vaccitech Ltd., an Oxford-based firm with a "great therapeutics technology platform," Mr. Seddon said.

M&G PLC, under John Foley, who became CEO in August 2017, had already been pivoting to sustainability, with the direction of travel one of integrating ESG factors into the investment process across the group, Mr. Seddon noted. The COVID-19 pandemic provided a further push in that direction.

Coming into the pandemic, Mr. Seddon said the 95-member M&G private credit team he co-headed previously had been engaging with colleagues about next steps in managing its £143 billion with-profits vehicle, and the conclusion emerged that "highly flexible, global impact private investment was the future."

"We believed the only way to make a difference is by investing in businesses that are applying innovation and technology to actually solve these problems," Mr. Seddon said. "You've got to roll up your sleeves … take risks … invest. That's how you make the change," he said.

And while the world remains perilously behind the curve in addressing challenges such as climate change, global health and inequality — Catalyst's three main areas of focus — Mr. Seddon said the growing ranks of very talented people now "founding businesses that are trying to solve fundamental problems or have a positive purpose as the core of what they do" is reason for hope.

That sentiment appears to be shared at parent company M&G. Early this year, the company moved to further boost its impact investing capabilities, announcing on Jan. 27 that it will acquire a 90% stake in responsAbility Investments AG, a Zurich-based impact investment firm with $3.7 billion in assets under management.

Catalyst and responsAbility may have opportunities to work together on projects and share ideas but the two strategies will remain separate and distinct, Mr. Seddon said.

Having reached that conclusion favoring impact investing at the start of the pandemic, the Catalyst team and the with-profits vehicle team spent the next year hammering out the details of Catalyst's mandate, with emphasis put on ensuring the greatest scope possible for flexibility — Catalyst can invest in credit, both senior and junior debt, but also in financial or real assets, as well as private equity, Mr. Seddon noted.

That focus reflects a belief that the typical private equity or venture capital firm has little appetite to back startups with high capital expenditure requirements, leaving the field largely open to impact funds.

"If you think about what the carbon transition requires, you need to build stuff, whether it's carbon capture and storage, whether it's solar," Mr. Seddon said. "When that stuff becomes green infrastructure, there's loads of capital flowing" but for early stage businesses with high capital expenditure requirements there's a funding gap, Mr. Seddon said.

"What we're trying to do at Catalyst is take slightly earlier risk, try to help these purposeful businesses scale to a point where there's more people willing to provide capital," he said.

Catalyst's November investment in Plastic Energy Ltd., a London-based firm with a chemical process that turns plastic waste into recyclable food grade plastic, is a good example of what's at stake, Mr. Seddon said.

The company has two factories now in Spain but if it ends there "it's not going to change the world," he said. It needs significant capital expenditures to scale up but "asset heavy" companies like Plastic Energy can't always rely on venture capital or private equity. "You need to be a big impact-focused global fund to invest in that business, and you need to be comfortable with financing assets," he said.

Other companies Catalyst has invested in over its first year include:

• Storegga Geotechnologies Ltd., a Hassocks-based carbon reduction and removal technology firm, in July 2021.
• UBQ Materials, a Tel Aviv-based company with technology that turns solid waste otherwise destined for landfills into a range of building materials, in December 2021.
• Greencore Construction Ltd., a Guildford-based builder of energy efficient homes, in January 2022.

Mr. Seddon's team is currently spread across four countries, with 15 at Catalyst's London headquarters, 12 in Mumbai, five in Singapore and three in New York.

While the Catalyst team expects the U.S., Europe and Asia to each end up accounting for roughly a third of the total capital deployed, at present, Asian companies account for only $200 million — or less than 12% of the £1.3 billion disbursed so far. But Mr. Seddon – speaking in Singapore on a recent trip — said Catalyst has a pretty strong pipeline in the region, with segments such as fintech companies in India drawing more attention now.