Vision Ridge Partners sells mitigation banking assets to strategic buyer

Vision Ridge Partners will announce later this morning that it has exited a set of three wetland mitigation banking assets managed by The Earth Partners, an ecological restoration company. Affiliate title PE Hub discussed the deal with Reuben Munger, who founded Vision Ridge in 2008. The firm aims to deliver superior financial returns and positive environmental impact through investments in sustainable real assets.

Vision Ridge invested in TEP in 2016, and the firms have restored and preserved over 2,000 acres of wetland and 60,000 linear feet of stream waters since then. The portfolio includes Gulf Coastal Plains, Houston Conroe and Tarkington Bayou, all in the Galveston Bay region of Texas.

“Mitigation banking is part of the opportunity where we are finding situations that are tied to the sustainable transition that people haven’t spent a lot of time in,” Munger said.

He described mitigation banks as properties in wetlands, streams or other aquatic resources that have been restored or preserved in exchange for credits. Although Vision Ridge is not disclosing the actual returns, Munger said the investment has earned over 70,000 stream credits and over 850 wetland credits.

This represents 6.5x the initial stream inventory and 4.3x the initial wetland inventory.

Similarly to other initiatives that monetise the preservation of the environment and the climate, including the carbon credits in fossil fuel-based energy generation, mitigation banks are backed by the Clean Water Act, which mandates any impact to aquatic resources from permitted use such as transportation or energy development be compensated.

“This project goes to our core purpose of sourcing investments that are part of maintaining a sustainable and natural ecosystem,” Munger said. “Mitigation banking is an example of bringing the three core principles together: preserving land, reducing carbon and improving jobs.

“We saw over time a chance to earn some private equity style returns with low risk and fantastic impact in these projects,” he said.

The system is administered by the US Army Corps of Engineers (USACE), which watches over the projects to make sure that it achieves an environmental standard that makes it possible to get the credits for monetisation.

Growing this kind of investment comes along with its set of challenges, Munger said. “The USACE’s approval process is relatively opaque specific to an individual site and can result in long, uncertain permitting timelines, which while challenging, creates a competitive advantage for assets that are operating or in late-stage development.”

The process of constructing mitigation banks also requires significant upfront capital.

However, the Vision Ridge Partners managing director said given that the industry has historically seen limited investment, there’s a growing opportunity for institutional capital. “To this end, the banks in the TEP portfolio were sold to Vision Ridge by under-capitalised developers who needed an investor like Vision Ridge to build and own the projects.”

Munger said mitigation bank investment can be extended to other regions and countries, although the local regulatory environment will be key to determining its success.

Munger declined to name the buyer but described it as “a strategic corporation that is interested in scaling its presence”.