The Dutch Mezzanine Fund‘s objectives are to achieve long-term capital appreciation through privately negotiated investments primarily in mezzanine securities, for the purpose of achieving an attractive return on Investments. Mezzanine is a hybrid form of capital which is subordinated to senior (bank) debt and ranks ahead of a borrower’s equity.
Fund IV follows the success of Fund I, II, III where the investment team is consistent in investment strategy but with a broader geographical reach, investing in both the Netherlands and Germany.
Initial publication date: 18 August 2023 (last update: 27 January 2026)
Summary
The objective of Dutch Mezzanine Fund IV (DMF IV, the Fund) is to achieve long-term capital appreciation through privately negotiated investments primarily in mezzanine securities, for the purpose of achieving an attractive return on investments. DMF IV provides financing to a diversified portfolio of small and medium-sized enterprises (SMEs) with the intent to promote measurable environmental and social characteristics, alongside financial returns.
The Fund shall try to achieve its objective in particular, but without limitation, by:
- Providing mezzanine and related classes of capital for buyouts, recapitalisations, development or expansion of companies or other entities primarily with their core business in Europe, whereby the Fund will invest:
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at least 60 percent of total commitments in mezzanine and other private, subordinated debt as well as investments with a similar risk profile issued by companies, issuers and borrowers that are incorporated or have their corporate headquarters, or which conduct a material part of their business in the Netherlands or Germany; and
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in mezzanine and other private, subordinated debt as well as securities with a similar risk profile issued by investee companies that qualify, at the time of the Fund’s first investment therein, as expansion and growth stage companies.
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- In unitranche investments with leverage provided by third-party leverage providers.
- An amount equal to at least two thirds of the amount drawn down from investors for the purpose of investment in companies based or active in the territory of the member states of the European Union (EU) or in candidate and potential candidate countries (recognised as such by the EU).
The Fund aims to achieve a >10 precent internal rate of return, net of costs and carried interest, for its investors.
DMF IV promotes social characteristics towards investee companies by providing access to financing for SMEs. Whilst financing remains a key success factor for the future business growth of SMEs, access to financing for SMEs remains difficult in today’s markets. DMF IV invests in SMEs that are willing to make an effort to improve on their good employment practices, thereby fostering the development of decent work environments.
In addition, DMF IV promotes environmental characteristics as the Fund is convinced that investee companies that are better prepared for the uncertainties and challenges of potential environmental changes will have better performance in the future. Enabling SMEs to improve on their sustainable production and consumption processes supports this preparation.
DMF IV promotes both environmental and social characteristics, but does not have a sustainable investment objective. As such, the Fund does not target a percentage of sustainable investments and does not take into account the adverse impacts on sustainability factors as defined in the Sustainable Finance Disclosure Regulation (SFDR). Also, DMF IV does not target EU Taxonomy aligned investments. The Fund is therefore classified under article 8 of the SFDR.
For every new potential investment, the Fund’s portfolio managers prepare an extensive investment proposal. As part of this investment proposal, sustainability risks are assessed according to the Sustainability Accounting Standards Board (SASB) sustainability risk matrix including various risks regarding Environmental, Social and Governance (ESG) criteria. The investment proposal is subsequently discussed with the DMF IV Investment Advisory Committee, where the ESG risk analysis forms part of the overall risk assessment and investment decision process. The output of the ESG analysis is monitored by the Fund’s manager via a third-party software tool.
DMF IV uses the SASB methodology as it provides a framework for assessing and reporting on sustainability factors that are financially material to companies. While SASB primarily focuses on industry-specific sustainability issues, it recognizes the importance of good governance practices as a fundamental component of sustainability. SASB requires companies to disclose relevant governance-related information as part of their reporting. This includes information on Board composition, independence, leadership structure, executive compensation, and shareholder rights. By imposing these disclosures, SASB promotes transparency and accountability, which are essential elements of good governance.
No sustainable investment objective
DMF IV promotes environmental and social characteristics, but does not have a sustainable investment objective. The Fund targets a minimum of 60 percent of the invested capital to be aligned with the environmental and social characteristics, and does not make use of derivatives to promote these characteristics.
More details can be found in the SDFR Pre-Contractual Disclosure (Annex II).
Environmental or social characteristics of the financial product
DMF IV promotes social characteristics towards investee companies by providing access to financing to SMEs. Whilst financing remains a key success factor for the future business growth of SMEs, access to financing for SMEs remains difficult in today’s markets. DMF IV invests in SMEs that are willing to make an effort to improve on their good employment practices, thereby fostering the development of decent work environments.
In addition, DMF IV promotes environmental characteristics as the Fund is convinced that investee companies that are better prepared for the uncertainties and challenges of potential environmental changes will have better performance in the future. Enabling SMEs to improve on their sustainable production and consumption processes supports this preparation. The Fund aims to align its portfolio to the following Sustainable Development Goals (SDG) developed by the United Nations:
Investment strategy
The investment strategy of DMF IV is to support the sustainable growth of SMEs by providing access to financing. DMF IV provides financing to a diversified portfolio of SMEs with the intent to promote measurable environmental and social characteristics, alongside financial returns.
DMF IV focuses on SMEs as they play a vital role in the economy for several reasons and access to financing is a key factor for their success:
- Business growth: Financing enables SMEs to invest in their operations, expand their production capacity, and enter new markets. With access to capital, SMEs can purchase equipment, hire additional staff, invest in research and development, and fund marketing campaigns. This helps them seize growth opportunities, increase productivity, and enhance competitiveness.
- Job creation: SMEs are significant contributors to employment and economic growth in many countries. Access to financing enables them to create new jobs, hire talented employees, and contribute to reducing unemployment rates. As SMEs grow, they generate tax revenue, stimulate local economies, and contribute to overall economic development.
- Economic growth and innovation: SMEs are important drivers of economic growth and innovation. They foster entrepreneurship and encourage the development of new ideas, products, and services. Their agility and ability to adapt quickly to market demands allow them to introduce innovative solutions, challenge established practices, and promote competition, leading to overall economic advancement.
- Contribution to GDP: Although individual SMEs may have smaller turnovers compared to larger corporations, collectively, they make a significant contribution to the Gross Domestic Product (GDP) of a country. The cumulative impact of numerous SMEs across various sectors adds up to a substantial share of economic output, contributing to overall economic stability and prosperity.
- Regional development: SMEs play a crucial role in regional and rural development. They often establish businesses in areas that are underserved by larger corporations, bringing economic activity, investment, and employment opportunities to those regions. This helps to reduce regional disparities, boost local economies, and improve the overall standard of living.
- Supply chain and local sourcing: SMEs often form an essential part of the supply chains of larger corporations. SMEs provide goods and services, act as suppliers and (sub-)contractors, and contribute to the overall functioning of the economy. Moreover, SMEs often source their inputs locally, supporting other small businesses, fostering interdependence, and creating a multiplier effect on the economy. The Fund applies a combination of exclusions of unwanted activities and sectors together with active portfolio management to support companies to grow in a responsible way.
Proportion of investments
The Fund aims to select a minimum of 60 percent of the Fund’s invested capital to be aligned with the social and environmental characteristics. The Fund does not make use of derivatives to promote the environmental and social characteristics. The Fund does not make sustainable investments and does not target alignment with the EU Taxonomy. The scope of the investments is reduced through the application of the Fund’s product and sector exclusion policy as well as the geographical focus on small and mid-cap companies in the Netherlands and Germany.
Monitoring of environmental or social characteristics
The Fund has determined that an investment contributes to the social and/or environmental characteristic if it reports sufficiently on the KPIs related to the relevant characteristic. The companies the Fund invests in should not only have strong financials, good management and comply with the regulations, but they should also improve performance on their KPIs wherever possible. The Fund’s portfolio managers have a long history of investing in and supporting SMEs. Active portfolio management can be very effective and can have a concrete and direct impact on the SMEs’ policies and practices.
More details can be found in the SFDR Pre-Contractual Disclosure (Annex II).
Methodologies
The Fund uses the following methodologies to measure how its investments promote the social and environmental characteristics:
- The Fund applies the materiality map of the SASB to determine which sustainability risks are material to consider in the investment decision-making process. SASB has identified more than 25 sustainability risks divided across ESG topics. Dependent on the economic sector the investment is active in, these risks are marked either: not material, not likely material, or likely material. For a risk to be classified as likely material, SASB has found that for over 50 percent of the companies active in that sector, the risk has a significant impact on the financial position or operational activities. The Fund performs an analysis based on policies, practices, and incidents to determine if the investee company has a low, average or high estimated sensitivity of the value of the investment to material sustainability risks.
- The Fund measures various KPIs related to SDG 8 (Decent Work and Economic Growth), 9 (Industry, Innovation and Infrastructure) and 12 (Responsible Consumption and Production). Progress is monitored and reported annually in the Fund’s annual report.
Data sources and processing
The Fund uses data for the following purposes:
- Sourcing of investee companies
- Monitoring sustainability risks
- Reporting on the SDG KPIs
Data used and processed by the Fund are as follows:
- Data sources: Directly sourced investee company financial data, policies, annual reports, and ESG reporting data. External technical experts and sector specialists are used when required.
- Data quality: A potential investee company needs to be willing to communicate and share information regarding the relevant topics and sustainability risk factors.
- Data processing: the Fund processes data from investee companies via a software provider, checks the received data and does not process data beyond preparing investor communications and regulatory reports.
Limitations to methodologies and data
The Fund expects limitations to occur with the current methodologies and data collection as SMEs need some time to acquaint themselves with ESG reporting methods, or improve their reporting scope and quality of data. As the investee companies become more familiar with the ESG reporting, the Fund’s methodologies and data sources are expected to improve.
Due diligence
The Fund follows the below investment process, integrating ESG risks and opportunities into the due diligence on potential investments:
- Deal sourcing: Initial check on sector/product exclusions
- Initial selection: Deep dive into sector and product details and initial ESG analysis
- One-pager/initial review: Understanding ESG risks and opportunities
- Extensive investment proposal: Full understanding of ESG risks and opportunities, policies and ESG ambitions. Contribution to KPIs.
- Confirmatory due diligence: Final ESG risk report
- Transaction documentation: Inclusion of ESG commitments
Engagement policies
DMF IV takes an active Board observer seat of each investee company to monitor developments, steer ESG progress and intervene where needed on the below timeline:
- Monitor on a monthly basis – all Board reports, management accounts and comparisons to budget
- Quarterly basis – covenants compliance certificates
- Attend Board meetings – at least once a quarter with further meetings for specific corporate events (strategic decisions, large investments and budget deviations)
- Annually – budget discussions and monitoring of audited accounts
- Detailed and regular Investor reporting – DMF IV investors receive quarterly reports, portfolio and Fund updates, annual audited report & accounts, and notifications on new developments and distributions.
Designated reference benchmark
The Fund does not compare its ESG performance to a benchmark or index.
Pre-Contractual Disclosure:
Key Information Document
