Energy Capital Partners has recruited Jennifer Powers and Reiner Boehning, the former leaders of Global Infrastructure Partners’ credit business, to launch a climate credit strategy.
The new strategy, named ECP ForeStar, is starting off with $2.5 billion to invest. This is a combination of existing dry powder from ECP’s previous credit business and institutional capital raised by Powers and Boehning in the past year.
Powers and Boehning left GIP in March 2022, affiliate publication Infrastructure Investor reported at the time. Boehning had established GIP’s credit business in 2012, while Jennifer Powers joined GIP as partner and chair of credit in 2017. In the year since their departure, Powers and Boehning established a climate-focused private credit investment manager, Forsight Sustainable Capital.
Forsight is now being merged into ECP, which is consolidating its existing credit business under the ECP ForeStar umbrella. ECP ForeStar is led by Powers and Boehning alongside Mahmud Riffat, who joined ECP in 2017 and helped launch its credit business, and Britt Pinkerton, who joins ECP from Forsight Sustainable Capital.
The new platform “is not some small initiative” or “tangential” to ECP’s main investing business, “it’s core to everything we’re doing [at ECP] going forward”, ECP founder Doug Kimmelman told New Private Markets this week. “I think this will be the fastest growing sector of our firm. We’re happy with our equity business and we’re a major player there, but there’s more need for debt capital than equity capital for the energy transition.”
Nearly all of the alternatives capital raised to date for renewables and energy transition assets is equity capital, said Boehning. But the transition requires more debt than equity capital, he added. “There’s a huge gap to fill for pure-play, private sustainable credit. And commercial banks aren’t going to provide this all by themselves.”
“We aim to be the one-stop shop of sustainable credit through the yield curve, ranging from the high-octane part of the curve, mezzanine opportunities all the way to investment grade,” Powers said. “The one-stop shop concept is more meaningful now than ever, given the broader pullback in the lending environment and credit markets.”
ForeStar has already deployed $500 million of its $2.5 billion starting capital. Its average ticket sizes will be $100 million or lower. The strategy is “defining the [climate] opportunity set and the sector very broadly”, said Boehning. Investments could range from financing renewable assets to what Powers calls “adjacencies”: companies servicing these assets and companies in transition.
One recent investment is credit to a US school bus operator “that has made a commitment to convert a proportion of its school buses from diesel power to electric vehicles”, said Boehning. “The pricing of that loan is linked to achieving the conversion rate.” Boehning expects “a substantial portion” of investments may have sustainability-linked considerations incorporated into pricing covenants.
ECP has decades of experience investing in the climate, transition and sustainability sectors, said Kimmelman. The firm has also historically invested in fossil fuel-based power generation and midstream infrastructure, although the latter has been phased out. Aside from their fossil fuel policies (ECP’s equity business has historically invested in natural gas power generation; ForeStar has ruled natural gas out), what makes the ForeStar platform different to ECP’s previous credit investments?
“We’re starting with a very large base of capital relative to what [ECP is] currently investing,” said Kimmelman. “And we’re bringing in more depth and experience on the team. The loans we have been making are similar to how [Powers and Boehning] are defining sustainable lending. But it’s an opportunity for us to expand our business dramatically.”
Powers and Boehning left GIP because they “felt [they] needed a platform that is much more aligned to and focused on sustainability themes”, said Boehning.
Moreover, “the market opportunity over the next few years is going to be decidedly or majority middle and lower middle market”, Boehning continued.