Climate Adaptive Infrastructure, a firm founded in 2019 by former Macquarie executive Bill Green, has raised over $1 billion for its debut fund programme, comprising $825 million in equity for the main fund and $200 million in a co-investment programme.
CAI looks for infrastructure investments in energy, water and urban infrastructure that are well positioned to weather the “triple threat” of climate risks, as the firm words it: physical risk, regulatory risk and policy risk.
The world has changed significantly since the firm started marketing the fund in November 2020. Amid numerous extreme weather events, the finance and investment industries have started coalescing around climate commitments; the US regulator has begun rulemaking around emissions reporting; multi-billion-dollar climate and energy transition-focused private funds have been raised; and the Russian invasion of Ukraine has shone a spotlight on energy security.
While all of these developments may have added tailwinds to CAI’s fundraise, it was this summer’s passing of the Inflation Reduction Act, the US Government package of climate-focused tax breaks, that may prove most transformative to the firm, which will invest at least 80 percent of its capital in North America.
Green describes the “catalytic” piece of legislation as creating a new opportunity set, but only for those with the nous and experience to deliver projects. “Remember, while there was a lot of back slapping and arm waving at the time, it is nothing more than a tax credit,” Green tells New Private Markets. “You have to actually deliver a project to mechanical completion to get the tax credit. They are not just handing you the money to chase your hydrogen dream.”
“It is a dramatic accelerator for those that are commercially capable of delivering,” he continues, “but those additional opportunities are limited to a smaller subset of practitioners that you might believe… if you think it is all rainbows and unicorns for everyone… that is not how it is playing out.”
The firm has already deployed 39 percent of the debut fund’s capital into three investments: Intersect Power, a clean energy company providing low-carbon electricity, fuels and related products to customers across North America; Sentinel Energy Center, an 850 MW critical peaking power plant in Riverside California; and Rye Development, a leading US developer of low-impact hydropower generation and pumped-hydro energy storage.
The fund is targeting gross returns of between 14 and 16 percent, according to documents presented to to the Stare of Connecticut Investment Advisory Council in December 2021. The fund has a 12-year life with up to three one-year extensions. The management fee is 1.75 percent and carried interest is 17.5 percent over an 8 percent hurdle rate with 100 percent catch up. The waterfull structure is European-style whole fund. Green declined to comment on the terms of the fund.
Julian Pearson, co-founder FirstPoint Equity, which acted as placement agent on the fundraise, said in a press release that the firm’s mission “clearly resonated with the market amid a challenging and crowded fundraising environment”. Pearson also noted that the process was conducted almost entirely through virtual meetings.
Kirkland & Ellis provided legal counsel.