In Private with Nishan Srinivasan, Ambienta

Sustainability has become one of the most debated themes in private markets, hailed by some as the future of investing, and questioned by others as hype. But beyond the noise, where does real value lie?

In this episode of Termgrid Talks, Dipish Rai spoke with Nishan Srinivasan, Partner and Co-Head of Ambienta Private Credit, to explore how one of Europe’s leading sustainability-focused asset managers is building a differentiated credit platform.

Founded over two decades ago, Ambienta has grown into a €4.5 billion AUM manager focused on backing “environmental champions”—companies positioned to benefit from long-term sustainability trends. In this conversation, Nishan shares how these trends translate into tangible alpha, why the lower mid-market offers a compelling opportunity set, and how private credit is stepping in where traditional banks are retreating.

Dipish Rai: Welcome to this episode of Termgrid Talks. We are joined today with Nishan, who is the co-head of Ambienta’s Private Credit Strategies. Welcome, Nishan. Thank you for taking the time today. We’ll kick it off with a quick introduction about Ambienta for our community that does not know about Ambienta. So give us a sense of who is Ambienta. What do you guys do?

Nishan Srinivasan: First of all, thank you for taking time with me and congratulations on building a really impressive business. Thank you. It’s really good work.

So Ambienta, we were founded about 20 years ago. I myself only joined three years ago, but we were founded 20 years ago with a mission to be a private assets manager in environmental sustainability. Fast forward to today, we’ve got about 4.5 billion of AUM across mainly private equity and private credit strategies.

We’re really a mid-market, lower mid-market player in Europe, helping companies that are part of, we call them environmental champions, part of that change that the economy is seeing as environmental trends accelerates.

Dipish Rai: Sustainability is a core theme for Ambienta and is recently coming under some political kind of crosshairs. What is your view on that? Has the pendulum shifted quite a way on the other side and what’s the long-term outlook here?

Nishan Srinivasan: So a really interesting question. Let me take you back to when we were founded. The thesis that our managing partner had when he started the business was that if you invest in a company which is a champion in environmental trends, there should be alpha in it because these companies tend to outperform their peers with older ways of doing business.

And we’ve proven that out over 20 years. I like to think we’re proving that out in our credit portfolio, which we’ve been doing for a couple of years now. If you think about alpha as the guiding light, so delivering returns for investors, then I think certainly every LP I speak to and every counterparty in the market I speak to sees that as a positive thing.

When you talk about pendulum shifts, I think what we saw over the last five years was this broad-term ESG where people were investing for lots of other, you know, everyone wanted to jump on the bandwagon of so-called ESG.

Some of this, we can argue, wasn’t really creating value for LPs. And so I think the reason the pendulum shifted in one way is some parts of the world, some LPs were saying, well, hold on a second. If you’re a pension trustee and you’re trying to maximise the pensions of your employees, that should be your job.

You shouldn’t be trying to fix the world just for the sake of fixing the world. And what we’re seeing is, you know, those pretenders, we call them tourists in the market, who are doing it because they thought it was an easy way to raise money from LPs, they’re leaving the market.

And we are, you know, amongst several managers now who are trying to find that alpha and also drive change in the economy. So frankly, we think the pendulum shift has been a positive thing, if you like.

It will eventually find equilibrium and get back to a more balanced approach in our judgment. You mentioned something very interesting, that sustainability was getting brushed under the broad spectrum of ESG.

Dipish Rai: You mentioned something very interesting, that sustainability was getting brushed under the broad spectrum of ESG.

Nishan Srinivasan: In our mind, this is the most important distinction that you can make when you’re thinking about ESG more broadly.

We actually call it at Ambienta the what versus the how. What does the company do? Does what the company do back environmental growth trends which may create alpha for the company in the future? 

Let me give you an example of that. One of our early deals was something in the water space. It was a company that made equipment to allow industrial users of water to reuse water rather than using fresh water. Guess what? That’s a growth trend because companies are increasingly conscious of not wasting water, especially as cost goes up for them.

Secondly, reusing water enhance the company’s margins. And thirdly, there are perhaps regulatory trends in some parts of the world backing the reusing of water rather than wasting water and just dumping dirty water elsewhere.

That means that this company we invested in, which was backed by Oaktree, has grown, in our judgment, faster than its peer group and is outperforming. That’s the what. ESG’s the how. Plenty of company, and these are all very virtuous and important metrics to monitor.

How does the company operate? Does it have good gender balance? Does it treat its employees and customers fairly? That’s super important. We’re an Article 9 fund, so that’s an important part of what we do.

But in our judgment, that doesn’t necessarily always drive a sustainable competitive advantage for the company. So we’re very mindful of managing both of those. But ultimately, the reason we exist is to create alpha through the what.

Dipish Rai: Ambienta recently has raised a sustainable credit strategy fund. Talk to us a little bit about that. Where do you see the opportunity as sustainable credit around the globe or in Europe?

Nishan Srinivasan: So the genesis of us raising a fund, the reason I was hired along with my partner Ran [Landmann], was the firm’s been in business 20 years. A bulk of what it does in the private equity side is first-time deals. So buying family-owned companies, helping them grow and develop, and then obviously selling them on. The team that was doing that increasingly came across companies that had a capital need, but maybe weren’t ready to open up their equity capital structure.

We saw also other opportunities from sponsors who are investing, saying we need credit. So we saw that this was an underserved part of the market. So it’s a natural extension to our private equity business to add into credit.

And I must say we’ve been, if anything, positively surprised with the response we’ve received, both from partners and LPs on one hand, but also potential borrowers and actual borrowers on the other. We’ve done 14 deals in the last 18 months, and we’ve seen a very good response of people wanting to engage with us to help grow their businesses, which is sustainable.

Dipish Rai: You also mentioned that sustainable credit in lower middle market opportunities. Why the focus on lower middle market? How does that, is that a function of these founder-owned, family-owned businesses are largely smaller? So that’s the opportunity set that you’re going after. Give us a sense of why that sweet spot focused for you guys.

Nishan Srinivasan: It’s a really interesting question. So we had the great fortune, given we were setting up a business from scratch for Ambienta, when we came in to do a bunch of analysis and think about what do we want this business to be.

Now, the history of Ambienta has been in the lower mid-market, so in fairness, that was a little bit of a wind at our backs. But we did a lot of work, and what we identified were a few obvious trends.

First of all, when you think about consistency of deal flow, the lower middle market is where we at least see the most consistency of deal flow. The last few years, the large cap market has been driven, unsurprisingly, by carve-outs, take-privates.

Guess what, we’re at market highs, so there aren’t many take-privates anymore. And obviously, a dearth of secondary private equity to private equity sales. In the lower mid-market, that’s driven partly by carve-outs, but mainly by family transition.

We’re seeing baby boomers get old, you know, to use the adage, and they’re thinking, what do I do? Do I hand my keys over to my children or do I sell the business? That has been the driving force of the lower mid-market.

And so we see lots of good deal activity in that space. Second point, in Europe, having done a bunch of work around this, environmental trends and the lower mid-market are the drivers of growth for the economy.

When I say environmental trends are a driver of growth, we do believe it is. It’s maybe not the major driver of growth in the economy, but we think globally environmental sustainability resides most uniquely in Europe.

Low middle market is definitively the driver of growth for economies in Europe. So we think that’s a good trend for us to be backing. Final point I’d make is that, again, this should be in the consciousness of all of your clients and everyone who might see this.

In the smaller market, commercial banks have been pulling back. We all know the pressures they’re under with RWA and capital constraints and all these things. So they’ve been pulling back, yet the larger syndicated markets are not dipping down into smaller deals.

And I’m talking deals anywhere from, you know, 30 to 50 to even 150, 200 in size. So as a result, these are the companies that lack capital the most, so we can add the most value to, but also these are the places where we’re effectively replacing banks.

So we’re getting bank-like structures, bank-like terms, but the pricing of private credit. So I think we get to serve all our stakeholders perfectly. Borrowers, sponsors we partnered with, as well as our LPs.

Dipish Rai: Nishan, you mentioned lower middle market as a key focus area for you guys because of the consistency of deal flow. Now, in that consistency of deal flow, how is your origination set up to capitalize on that deal flow that exists in this market where banks are retreating and more deals are in the market? So talk to us about your origination edge.

Nishan Srinivasan: I’ll try and put it in a thoughtful way because anyone you ask in the world of private credit around origination will say, of course, we’re unique, we’re differentiated, we do things our own way.

Because we’re focused on environmental sustainability, that’s the heart of our differentiation. And I mean that in a few different ways. First of all, our firm has grown phenomenally since I, even since I joined, I was employee 61 and we’re up to 120 people now. Point number one. 

Point number two, our secret source as a firm, if I had to identify one, is that we have a team of engineers on the platform. It’s a team called the Sustainability and Strategy Team.

And these guys are engineers and MBAs typically by training, subject matter experts on trends around specific sub-industries. The reason that’s relevant for origination is first of all, we can help our partners, sponsors, other companies, and educate each other on businesses as they grow.

And second of all, these guys actually go out and beat the pavement as well. So it’s not just me and the team we have here that are out meeting people every day. It’s that team as well. So it’s a brilliant quiver to our bow.

So I think those are the two main things I’d say.

The third thing I’d say is that environmental sustainability is a trend that’s becoming quite pervasive. Every financial sponsor in the market has half an eye on it.

It may not be their main focus, but they definitely want a couple of portfolio assets that might be relevant there.

We find that lots of people want to partner with us because we can add a certain insight to them, perhaps even a bit of credibility as they think about positioning a business, you know, either with their own stakeholders or for a future sell side as an environmental one, which may attract a slightly more, you know, better valuation.

We can help position them and as I said, maybe also bring some credibility hopefully to them as well.

Dipish Rai: As far as Ambienta credit is concerned, the last three years have been the inception phase, phenomenal growth, phenomenal platform that you guys are building at the moment. 

If you fast forward the clock for the next five years, where do you think Ambient credit will be? From a sector-focused perspective, are there certain sectors that are important to you versus the others? How are you thinking about that?

Nishan Srinivasan: We’re still early in our innings. We’ve been here three years. It’s been incredible hard work, but it’s been very rewarding as well to build something from scratch, have a great team.

We have our first fund, which we’re halfway through deploying now, which is about half a billion in size.

First things first, we’re credit investors. So my immediate focus and my medium-term focus and my long-term focus is downside protection and making sustainable, steady returns for our stakeholders.

That will obviously come with opportunities to grow. So we are very ambitious and we think there are opportunities to raise and deploy in much greater scale than we have today.

You touched upon sectors.That I think is actually the key underscoring all of this. Our judgment is that what’s happening in the world from an environmental perspective means that every sector, every industry in every part of the world will be impacted.

Right now we’re a sector agnostic business focused on Europe. Clearly there’s potential for geographic expansion, but what I would say is that really that fact that we can be sector agnostic means that we can scale to a great degree and really help our partners here.

Dipish Rai: Nishan, thank you so much for taking the time today, sharing the story of Ambienta with us. All the best to you in the future and congratulations on the journey so far.

Nishan Srinivasan: Thanks for taking time. Really appreciate it and it was a really engaging conversation.

Dipish Rai: Thank you very much.

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