Fund focus: Actis leverages energy experience

Ugandan power distribution network Umeme was a tough sell. With as many as 20 deaths by accidental electrocution per year as of 2009, the company seemed to be under a curse. But Actis Capital had taken a closer look and saw that the solution could be much easier than anyone had previously guessed.

“On day one, we fenced substations and repaired poles. And not only did that mean the fatality rate dropped to somewhere between zero and one, we didn't have as much losses in downtime and high maintenance costs,” remembers Neil Brown, partner and head of the investor development group at Actis. “So all of those things which we should do from an ESG [environmental, social and governance] perspective were actually commercially sensible as well.”

This willingness to tackle the challenges of building energy networks in emerging markets has been rewarded by investors, with Actis closing its fourth global energy fund at the hard cap of $2.75 billion. Up to 75% of the corpus will go towards building renewables platforms in emerging markets – the firm already has four from its previous funds in operation, including India-based Ostro.

Actis builds platforms by acquiring construction-ready projects and concluding power purchase agreements (PPAs); this allows it to obtain financing to complete construction and get the assets operational. When the platform has reached sufficient size Actis seeks a buyer attracted by the prospect of steady returns. Where possible, the firm sweetens the pot for acquirers by building in growth potential in the form of prepared construction projects. In one case, Actis secured an exit from a South American platform by showing the buyer how the asset could achieve immediate expansion.

“We had 394 megawatts of solar and wind under operation, and another 480 MW in the pipeline. So they could continue to grow the business if they wanted to,” says Brown. “These were sites where we had wind measurement data, and they were ready to go if someone wanted to get a PPA, finance them and construct.”

This focus on renewable energy and emerging markets makes the firm a natural target for impact investors. But while DFIs are represented in the latest fund, the vast majority of capital comes from pure financial investors such as public pension funds, sovereign wealth funds and insurance companies. Brown attributes this concentration to the firm’s success in returning capital: it has completely exited its first fund and has already returned more than 100% of investors’ commitments from the second.

“It's a very diverse, commercially driven client base, which I think reflects the fact that we are mature and probably a top manager in the markets in which we operate. We don't need DFI capital in the same way a new manager does who has no track record,” he explains. “They’re important, but that's more by virtue of the markets we’re in than where we are in our life cycle as a GP.”

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• Topics
• South Asia
• Fundraising
• Infrastructure
• GPs
• Infrastructure
• Asia
• India
• Actis Capital
• energy