‘Europe is decades ahead’, O’Flynn says as she joins Ara Partners

BlackRock veteran Teresa O'Flynn will co-lead the decarbonisation-focused firm’s infra unit alongside Churchill George Yong.

Ara Partners announced the addition of Teresa O’Flynn and Gearóid Maher to its Dublin team earlier this month, as the company aims to strengthen its focus on decarbonisation.

O’Flynn joins as partner and co-lead of its infrastructure strategy, with Churchill George Yong as the other co-head. She will be based at Ara’s Dublin office, while Yong will remain in the Houston headquarters.

Gearóid Maher joins Ara’s growing infrastructure team as principal.

Ara Partners launched its inaugural, closed-end infrastructure fund last month, Ara Infrastructure I. The vehicle’s strategy is to invest in industrial decarbonisation, and the decarbonisation focus is also a key reason for O’Flynn’s move to Ara Partners and away from building wind and solar.

“I spent nearly 10 years in the industry working in the wind and solar space, and over 10 years at BlackRock building our renewable power infrastructure platform and also looking at the broader sustainable investing strategy for alternatives. As renewables were scaling up, the inevitable question was, ‘what is next?'” she tells affiliate title Infrastructure Investor.

“The industrial segment accounts for about 40 percent of emissions, and what stood out about Ara was its unique focus on industrial decarbonisation. We need lots more wind and solar, for sure. But if we are to achieve the goals of the Paris agreement, we have to transform multiple sectors of the economy.

“And what we mean by industrial decarbonisation is transforming how things get made, how the industry operates, the greening of legacy infrastructure and the building of new.”

Europe leads the way

At the moment, assets are split 40/60 between Europe and the US. Future allocation will be based on the quality of opportunity, but Europe remains a key focus.

“Europe is decades ahead of the rest of the world with its decarbonisation and sustainable finance regulation,” says O’Flynn. “And we are strong believers that a lot of the patterns and types of opportunities that we are seeing in Europe are the types that over the coming years are going to rise in other geographies, including North America. So being very plugged into Europe is important for today and tomorrow.”

“Moreover, we’re seeing attractive investment opportunities across several markets in Europe – here in Ireland for sure, but also in the UK, France, Germany, and the Nordics. My day-to-day focus will be Europe, but ultimately we will go to whatever market delivers the best risk-adjusted return for our clients at any given point in time.”

As for the kind of opportunities that Ara is looking for, Yong, the other infrastructure co-head, says: “We are primarily looking at two buckets of opportunities. The first bucket is to bring proven infrastructure such as storage terminals, port infrastructure or pipelines into the decarbonised economy.

“The second bucket is to mine the legacy economy for infrastructure assets that need to be and should be repositioned towards the low-carbon economy. So take an existing asset and put it into different service, because we can’t build everything brand new from the ground up.”

Hydrogen will be part of the strategy, they agree, with Ara Partners already having three hydrogen-related investments in its portfolio.

Roomy mid-market

While green funds are growing dramatically in size, O’Flynn and Yong insist there is plenty of room for Ara Partners.

“Our focus is mid-market and we believe there’s better value to be had in the mid-market. We work in a space that’s fragmented and requires a mid-market solution where we’re investing, say, $50 million to $200 million per platform investment,” says O’Flynn.

To reach net-zero emissions by 2050, annual clean energy investment worldwide will need to more than triple by 2030 to around $4 trillion, according to the IEA.

“The numbers involved are staggering. So, it is certainly a large space that can accommodate multiple players. What excites me about it is not only the demonstration that we are certainly beginning to bring much-needed capital to this problem, but I also view a lot of these other funds as potential exits for our investments.

“As we transact in the middle market and take on some of the growth-related execution across our portfolio, that is going to result in deals or deal types that are very well positioned for your core/core-plus type infrastructure buyers,” explains Yong.

The macro headwinds being felt across the world matter less to Ara, argues Yong, as there is still growing regulatory and corporate support for decarbonisation, as exemplified by the US’s recent Inflation Reduction Act.

“I think the support is creating a sustained pocket of opportunity in all things decarbonisation,” he says.

“Also, the companies and the assets we acquire are going to look very different when we go to sell them five, seven years down the road. So the value creation that we are pursuing has nothing to do with the natural arbitrage of the classic leveraged buyout, where you take advantage of low-interest rates to synthetically generate a higher equity return. The overall pullback in public markets, if anything, puts the onus on private investors like ourselves to provide the solutions to the companies that require capital to continue down the route of decarbonisation.”