Corran delves into secondaries market for Environmental Fund II

Experts predict growth in the number of environmental- and impact-related assets to hit the secondaries market.

Corran Capital, an environment-focused private equity firm founded by a co-founder of Scottish Equity Partners, has launched Fund II with £110 million ($135 million; €125 million) target, New Private Markets has learned.

The firm is exploring secondaries market transactions for Corran Environmental Fund II: £70 million of the fund will be invested in “a large cornerstone secondary asset”, according to Strathclyde Pension Fund documents seen by NPM. The remainder of the capital will be deployed in between four and six growth equity investments in UK environmental businesses.

Corran is targeting returns 20 percent IRR net, or between 2.5x and 3x multiple, noted the pension fund documents. The fund’s term length is eight years, with options for two one-year extensions.

Strathclyde is considering a £20 million investment in the fund.

Sustainability-related strategies are bubbling up in secondaries markets. Summa Equity Partners, for example, has launched a continuation vehicle to hold onto a waste management asset; North Sky Capital, Arcano Asset Management and Stafford Capital Partners are among firms with active impact secondaries businesses. Meanwhile, Campbell Lutyens’ head of European secondaries Immanuel Rubin predicted earlier this year that GP-led strategies could serve as a tool for decarbonising assets.

CEF2 is managed by Gary Le Sueur, who was a founding partner of Scottish Equity Partners. Le Sueur left SEP in 2020 to establish Corran. At SEP, Le Sueur managed the 2012-vintage Environmental Energies Fund. SEP EEF is a secondaries fund that raised £95 million in 2012 to acquire a portfolio of cleantech venture investments from SSE plc, a London-listed utilities company. He also managed SEP’s 2014-vintage Environmental Energies Fund, another secondaries vehicle that raised £135 million – including £5 million from Strathclyde.

CEF2 is “closely modelled” on SEP’s two environmental funds in reference to the weighting of portfolio companies between secondaries and primaries, the fund documents state.

The secondary asset in question is a minority stake in a “UK-based district heating network and sustainable energy solutions business”, according to the fund documents.

District heating networks are infrastructure assets that offer a lower-energy alternative to heating buildings individually. Insulated pipes channel heat energy from a central source (a central boiler or power plant, or – ideally – waste heat from industrial or data centres) to multiple buildings.

The secondary asset CEF2 will invest in is described but not named in the fund documents: it has a “nine-figure annual turnover”, which “has grown at an average of circa 18 percent per annum over the past 12 years”. “The business’s main activities are in (i) the design, build and operation of energy efficient heat/power generation and distribution systems (ie, DHNs); (ii) long term energy efficiency/performance contracts allowing clients to achieve energy efficiencies and reduce carbon emissions; and (iii) the development (for long-term operation and ownership) of energy-from-waste projects in England, including one which is well advanced.” The company has delivered “64 university and hospital projects over the past six years”, the fund documents state.

Among SEP EEF’s portfolio companies is Vital Energi, a UK district heating networks company, which has similarities to the secondary asset described in Corran’s CEF2 fund documents; it had a turnover of £150 million in 2021 and “turnover has trebled since 2015”, according to a case study description on the BVCA website. Vital Energi’s projects include the universities of St Andrews, York, Keele, Strathclyde, Edinburgh, Northampton, Liverpool, East Anglia, Warwick and Loughborough. Gary Le Sueur declined to comment on any part of the story. Scottish Equity Partners did not respond to requests for comment prior to publication.

Corran’s first fund had one investor, SSE, which committed £48 million. CEF1 develops solar, wind and battery storage assets in Europe and the US; these assets are wrapped into a holding company, Renewco Power.