Hong Kong-based GLy Capital Management is driving into the increasingly crowded field of new mobility through the launch of its maiden fund, aiming to deploy $300 million in two years.
GLy, established in August 2017, debuted the New Mobility Fund this March to bet on privately-held companies that could “redefine the transportation industry”. It focuses on four major areas — smart cities/Mobility as a Service (MAAS); electrification; internal combustion engines (ICE)/electric vehicle (EV) materials; and smart cars.
The firm is in the market collecting ammunition for the New Mobility Fund, targeting the planned final close of $300 million by end-2021. The fund has already secured $60 million from two anchor investors — Chinese automaker Geely and SK Inc, the holding firm of South Korea’s conglomerate SK Group. The investors committed $30 million each.
The firm says it has embarked on a journey to promote a mobility future that is intelligent, connected, and eco-friendly as sentiments around green vehicles have grown more fervent in recent months.
According to consultancy McKinsey & Company, the COVID-19 pandemic appears to have increased consumer awareness of new-generation vehicles, such as battery-electric vehicles (BEVs) and partial-hybrid EVs, as well as contactless delivery options powered by autonomous driving. In its consumer survey of about 7,000 respondents worldwide, over 40% of the participants stated their willingness to pay a premium to enable the shift to green vehicles.
As the survey indicated, annual global passenger plug-in EV sales hit three million in 2020 – an over 40% increase year-on-year – with 46% of the fiscal-year sales coming from Europe, 39% from China, and 12% from North America.
“If anything, I think this disruption of the whole [new mobility] supply chain has only just started,” Harry Krkalo, GLy’s founder and co-CEO, told DealStreetAsia in an interview in Hong Kong. “The tailwinds for this decarbonisation are going to persist until 2040 or 2050, by when, as most governments have decided, it will be the ‘endgame’ and you cannot buy an internal combustion engine vehicle.”
“We’ve gotten a fair bit of time before that to see how the industry evolves. In that disruption, there will be opportunities,” said Krkalo.
Fast track dealmaking
GLy is convinced that the New Mobility Fund offers some degree of “uniqueness” over incumbents when it comes to sourcing quality assets.
The “uniqueness,” said Krkalo, lies in the composition of its anchor investors. With support from industry giants Geely and SK, the nascent fund management company plans to leverage investors’ extensive resources and networks to validate and nurture startups in China and worldwide.
Their backing “opens up a very different type of conversation,” said Krkalo. “When we talk to a company, they see us as an investor with capital, but they also view us as an entity associated with someone that can actually help them commercialise their business.”
The two limited partners (LPs) have already assigned professionals to assist GLy in verifying potential investees’ technologies as part of the firm’s due diligence (DD) process. Hangzhou-based Geely owns Volvo Cars and a 9.7% stake in Germany’s Daimler, while SK’s affiliates include the world’s second-biggest memory chip maker SK Hynix and EV battery maker SK Innovation.
GLy will fast track the deployment of the new fund, sitting on a solid pipeline of potential deals that it has built in the past three years of “soft sailing”. The firm has set a preliminary target to invest about $150-200 million this year, and then fully deploy all dry powder from the new fund before mid-2022.
In total, the New Mobility Fund aims to make about 12-15 investments. The average cheque size per deal is somewhere in the vicinity of $10-30 million.
In China, where GLy plans to deploy roughly a quarter of the fund’s corpus, Krkalo said that he will pay particular attention to businesses related to smart connected vehicles and EV charging infrastructure.
Both the segments are on a rise in China. Industry analysis firm Counterpoint projected the sales volume of 5G-connected cars in China to jump to 7.1 million units by 2025 driven by government incentives. For the EV sector, Beijing announced last October its pledge to achieve net-zero carbon by 2060. That would lead to the reduction of about 30% of global carbon dioxide and, based on estimates from Goldman Sachs, a total investment of up to $16 trillion into the clean tech infrastructure, promoting almost 100% penetration of new energy vehicles (NEVs) in the country.
Globally, GLy also looks for investment opportunities in the US, Israel, as well as Europe where Geely already has a strong foothold yet still expands aggressively through its car brands Geely, Volvo, and Lynk & Co.
‘A moat around EBIT’
To keep up with its targeted investment pace, GLy is in active conversations with LPs in South Korea, Hong Kong, Singapore, Europe, and the US to build an international investor pool. Despite virus-induced travel restrictions, Krkalo said that GLy is still getting “immediate interest” from potential LPs thanks to the reputation of its anchor investors, as well as his special touting strategy of using potential investees as “sales force”.
“There were times when we just introduced clients to our pipeline of [potential] assets… If we get the [investee] company to talk to the LP directly, that will give the potential investor a lot of comfort,” said Krkalo. “That’s really powerful. The pipeline of assets that we’re going to invest in just becomes our salesforce.”
The firm just showcased yet another alluring “sales force.” Earlier this month, the New Mobility Fund’s cornerstone asset Polestar, a Swedish EV maker owned by Volvo and its parent Geely, announced the completion of its first external funding round at $550 million amid a year of stock price rallies of US-listed counterparts including Tesla, as well as China’s Nio, Xpeng, and Li Auto.
GLy’s New Mobility Fund infused approximately $60 million into Polestar. Separately, the firm’s single project fund Northpole GLY 1 LP, a co-investment vehicle, also participated in this round with a $80-million investment.
While GLy aspires to build “a cross-Asia platform that invests globally,” it could still take years and billions more US dollar investments to unveil the future when autonomous driving, connectivity, electrification, and smart mobility become ubiquitous. More important, for investors like GLy who are beholden to bringing returns to LPs, is that their portfolios can commercialise and start generating profits.
“I’ll prefer to see something which is potentially going to monetise at a later point in time in a commercial way. But before that, it should be revenue-generating in a closed loop,” said Krkalo, adding that GLy looks to take minority stakes in late-stage companies that are relatively mature.
The business should have “a moat around its EBIT (earnings before interest and taxes),” he said, “instead of just operating a business that may later come under pressure.”