Eiffel raises €500m for third energy transition debt fund

For the third vintage of its Energy Transition debt strategy, Paris-headquartered Eiffel Investment Group (EIG) is targeting €1 billion with the aim of accelerating the European energy transition. With a first close of nearly €500 million, Eiffel is well on its way to succeed with what would be a significant step up from its predecessor funds.

“The previous vintage including co-investments, etc, was around €500 million. So the step up is two times, basically. And that’s mainly a function of the needs of the players in the market,” Fabrice Dumonteil, president of EIG, told affiliate title Infrastructure Investor.

The strategy looks to provide short-term – often construction-related – funding for mid-sized OECD developers of projects related to the energy transition. Eiffel’s intervention typically occurs at the critical starting stage of infrastructure asset construction, when long-term financing is not yet in place.

“[Sponsors] need to have short-term financing rather than having a 15-year locked-in financing,” says Dumonteil. “They are looking for some flexibility in the way they can use this financing. And this is typically what we bring with this fund and with this strategy”.

Developers look to Eiffel’s proposition to avoid either having to finance the construction with equity or having to wait for project finance, which can mean a delay, according to Dumonteil. For this, he says, developers pay something closer to the cost of equity than to the cost of debt, but only for a short time.

“It’s a way to accelerate the deployment of their project portfolio. So, it’s expensive. It enables us to generate a return for our investors that is much higher than what you would get on an infrastructure debt fund. It’s clearly closer to what you would get on the equity side, but it’s a great value proposition for the developer. So it’s good for everyone,” Dumonteil adds.

As for why this fund is so much bigger than the earlier vintages, Dumonteil points to the market: “The financing needs have grown tremendously over the past few years. Projects are becoming bigger. The counterparties that we finance are also growing, and so they need more money. So it’s very in line with the needs in the market.”

Recycling is key to return

The targeted return for the Article 9 fund is “a high single digit”, says Jean-Charles Arrago, who co-leads the energy transition debt programme alongside EIG’s head of infrastructure, Pierre-Antoine Machelon.

Crucially, going for this niche type of investment makes for an unusual debt fund. The eight-year fund has a four-and-a-half-year investment period, says Arrago, adding: “The investments, on average, are 18 months. Within the investment period, we recycle the capital of the company.”

“This way of investing is very labour-intensive, but in many cases, we work on a repeat basis with the same developers,” says Dumonteil. Also, “[with] a repeat transaction, you can use the same basic principles, the same type of contracts, etc. It’s quite efficient, in fact, both for us and for the developers that we finance”.

The team estimates that the strategy’s targeted €1 billion of capital will eventually unlock €3 billion of investments. The current project pipeline surpasses the €1 billion mark.

Arrago highlights the knowledge that comes with the Eiffel debt team having done 200 transactions so far: “It allows us to be very efficient when we look at the transaction and to be very relevant when the developers are looking for solutions and quick solutions to be implemented.”

But this is not a strategy for energy transition frontier developments. “We cannot take technological risk. We have to work on bankable technologies in order for them to be refinanced,” says Arrago.

Internationalising the LP base

Already, 20 institutional investors, mostly European, have committed a total of nearly €500 million, with the largest single commitment being above €100 million. Half of this total is re-ups, meaning the strategy has attracted a number of new LPs from across Europe.

“We try to internationalise,” says Dumonteil. “Some of the new investors are not French, which is great because the investment strategy is pan-European. We’ve financed assets everywhere across Europe and even outside. So, it makes sense to have German investors and Dutch investors, etc.”

What those investors will get, he says, is a diversified portfolio with a typical ticket being no more than three or four percent of the fund, and they will see their money called sooner rather than later.

“We will be invested very, very rapidly, because we have the pipeline and it’s a strategy that has been running for many years now. And especially the international institutional investors, the non-French ones, prefer to see a ramped-up portfolio and to really be able to touch what’s in the fund, even though the duration of each individual transaction is short,” adds Dumonteil.

The Eiffel Energy Transition programme has invested approximately €2 billion into 7GW of generation capacity over the past seven years. The manager has around €6 billion of assets under management across private debt, private equity, energy transition infrastructure, and listed equities and bonds. Its 100 employees are located in Paris, Amsterdam, New York, Warsaw, Milan and Abu Dhabi.

Final close for the fund is set for May 2025, says Arrago.