Energy transition to dominate private equity – AVCJ Forum

K.Y. Tang, founding chairman and a managing partner at Affinity Equity Partners, pointed to electric vehicle (EV) batteries, observing that although the segment remained in its infancy, leading companies were claiming dizzying valuations. Examples include Shanghai-listed CATL, which has rapidly scaled to a market capitalization of RMB1.4 trillion ($225 billion).

“I think it’s going to be massive. And it’s not only about renewable energy – It’s also about smart energy, using technology to deliver the energy in a very smart way,” Tang said. “Energy transition is going to happen for the next 50 years, and for the next 20 years, I think it’s probably going to be the biggest opportunity for private equity globally. It’s so big, the tiniest segment of it is huge.”

Other megatrends highlighted as smaller but significant areas of growth include logistics and food. Eric Xin, a senior managing director at CITIC Capital, and managing director of Trustar Capital, called food supply chains the subject of a “silent revolution” in China that would lead to the obsolescence of the household kitchen.

Xin concurred that energy was the biggest opportunity, however, going so far as to evoke the sector’s most unpopular industry as a prospective area of development.

“Don’t discount coal,” he said. “Obviously it’s dirty, but some of the technology can capture the carbon dioxide into fertilizer. The cleaning of coal, there’s a lot of technology out there. We look at some of the companies as interesting. It’s not about buying the resources – it’s about how do you get smart. Energy is a big part of life. Just think about life: eating, drinking, and energy. That’s what we have.”

The comments came as part of an overview of how private equity has evolved in the context of COVID-19, which included a strong emphasis on business digitization. Jim Hildebrandt, a managing director at Bain Capital, observed that technology-related investments across sectors now represented up to 50% of the portfolios of large firms globally.

“Overriding all of this is software,” said Hildebrandt said, adding that software is now an early value-add consideration for every Bain portfolio company. “Whatever we’re talking about, software enables it. AI [artificial intelligence] is coming across all industries. Energy or more efficiently moving food, whatever you’re doing, it’s all related to software. I think that’s probably the biggest opportunity.”

The panelists agreed that the growing importance of new technologies in traditional industries is pushing buyout investors into minority positions and venture-style investment.

All the speakers indicated their firms had growth or quasi-venture capabilities, with Xin noting that buyout investors had to pay special attention to ecosystem building to be successful with higher volume, earlier-stage strategies. Nevertheless, they are all mindful of rising valuations in this market segment.

“The VC people are complaining about the growth people wandering into the space. I say, ‘What do they expect?’” said Tang. “A Series A used to be $20 million, which was a big deal, and now Series A is $200 million and Series C is $2 billion. That’s bigger than most buyouts just a few years ago. It’s the sector that is driving this overlapping.”

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• Topics
• GPs
• Investments
• Industrials
• Technology
• Affinity Equity Partners
• CITIC Capital Partners
• Trustar Capital
• Bain Capital Asia
• energy
• AVCJ Events