Emerging markets manager Actis is eyeing an expansion of its strategy in Asia after it collected $6 billion for its latest energy strategy, reaching a $4.7 billion close on its fifth energy fund and scooping up $1.3 billion of co-investment capital.
The investor mix included over 50 LPs, more than 15 of which committed over $100 million, Neil Brown, partner, head of investor development group, told Infrastructure Investor. He added that 31 percent of LPs originated from North America, 27 percent from Europe, 24 percent in the Middle East and 17 percent from APAC.
Brown also said that while Actis has not formally closed on any deals in the fund to date, it has allocated $4 billion to eight platforms, with the group eyeing 12 platform investments within the fund amid a growth in Asia.
“Asia, excluding India, in the past has not been fruitful for us. We’ve not found the best opportunities. I think that’s about to change this time,” said Brown. “The rest of Asia is now in a position where there are more opportunities than there were in previous funds. There’s still plenty of opportunity in India and Latin America, although in Latin America politics causes you to reflect on relative risk return. In Africa, there is opportunity, but it tends to be a bit smaller.”
Actis recently exited Saavi, a 2.2GW gas platform in Mexico from its Actis Energy 4 fund, to Global Infrastructure Partners. Recent reforms to the country’s energy sector, designed to boost the market share of state-owned utility CFE, have made deals there more complex for Actis.
“We’re unlikely to do a new IPP renewables business in Mexico. The regulations are too in flux at the moment,” Brown said. “We won’t invest in that sub-sector in the current vintage because we don’t see a favourable regulatory requirement. We’re more likely to invest in other sectors where power is already built and has CFE as an off-taker, those will have a lighter touch regulation.”
Renewables ‘very significant’ in portfolio
At least 60 percent of the fund’s overall portfolio is expected to be in renewables, with Brown noting an increasing amount of opportunity in the commercial and industrial sector, where Actis has previously found little activity. He also said the mix of renewables and gas will be dependent on where each fund is in the energy cycle.
“Fund three was more renewables for us; fund four was a mix but still heavy renewables,” he said. “We expect renewables to be a very significant part of this portfolio. There will be some gas assets but renewables remains a solid theme. We didn’t do a distribution business in the last fund, but we did in the fund before. We could well see distribution business opportunities in this vintage.”
Actis Energy 4, which closed in March 2017 on $2.75 billion, was generating a net IRR of 13.1 percent as at the end of March, according to documents from the Employees Retirement System of Texas. Its 2013, $1.2 billion vehicle was generating an IRR of 8.6 percent.
“At some point in the cycle, building from scratch makes more sense than M&A and building with a substantial anchor. In other parts of the cycle, there’s a more substantial anchor,” said Brown, with regards to platform companies. “Funds 4 and 5 I would say start with more substantial anchors. The vintage before that was more built from scratch.”