Infrastructure might have had a record fundraising year in 2021 – with more than $136 billion raised for unlisted, closed-end funds – but it probably won’t surprise you to learn that this tally wasn’t driven by an army of new faces.
At this point, there is nothing new about the plight of first-time managers, but it is still striking just how unwilling LPs are to countenance them. In our LP Perspectives 2022 Study, more than half of LPs surveyed plan to increase the number of GP relationships in their portfolios over the next 12 months. However, the same proportion of investors have a ‘no first-time funds’ rule and a further 16 percent intend to invest less in first-time managers over the course of the next 12 months than they have in the past year.
Fresh from closing its second fund on a revised €1.8 billion hard-cap – a speedy fundraise that took less than a year – Asterion Industrial Partners is very much not part of that first-time club any more. But it was a member not that long ago, becoming that rarest of things: a nascent manager LPs actually wanted to invest in.
A thin line
If anyone is in any doubt about the strength of the Asterion brand, which was created in late 2018, a conversation Infrastructure Investor had last September with a placement agent gives you a good idea of it. Following talks with some LPs that had atypically expressed an interest in committing to fledgling managers, the placement agent was outlining the difficulties such outfits face getting off the ground. The LPs, however, were having none of it, batting away arguments with protestations that former KKR global co-head of infrastructure Jesús Olmos managed this feat successfully with the creation of Asterion.
That kind of star power has been part of the Asterion brand since the beginning – rather fittingly too, given Asterion literally means “star” in ancient Greek.
So, how did Asterion succeed where others have failed?
“The industrial approach allows you to speak the language of corporates and be able to originate deals”
“We’ve been a little bit lucky. The line between success and failure is very thin, right?” Olmos, the firm’s founding partner and chief executive, answers, keen for that not to come across as a humblebrag.
“I think we were also very decisive. It wasn’t a case of, ‘let’s give it a try, see if we can do a deal [first]’ – we wanted to do this and we went all the way,” Olmos recalls. “We were able to attract a first-class team, which wasn’t easy without a franchise. We were then able to line up anchor investors that were key to us getting started. And then immediately after, we were able to do our first deal. So, everything came together nicely. If things had been a bit more difficult [on any of those fronts], we could be in a completely different position.”
Decisiveness and that willingness to go all the way were already apparent when we caught up with Olmos in March 2019.
“One of the ways in which we tried to give comfort to investors was to show them that, practically six months since we started, we have a full team of 15 people, a Madrid headquarters plus a presence in Paris and London, and a chief financial officer in place,” Olmos told us at the time. “When we had investors doing due diligence on site, they were amazed that we had started yesterday but had all the requisite infrastructure and a team of 15.”
The team has now grown to 33, fresh from moving into new offices in central Madrid, with Olmos and his two fellow founding partners – Winnie Wutte and Guido Mitrani, who both worked at KKR alongside him for the better part of a decade – very much at the heart of it. Of course, that track record meant Asterion was never really a first-time team, helping to explain how the sequence of events Olmos outlined above fell into place so flawlessly.
Take Asterion’s anchor LPs. “It’s fair to say we had a good relationship with our anchor investors from our prior lives,” says Wutte, who focused on capital raising and investor relations in Europe at KKR. “We invested in those relationships a lot and they got to know us through deals that happened, deals that didn’t happen, funds and other situations. That served us well when it came to talking to them about the Asterion project. It’s not like we were picking up the phone and cold calling people.”
This is different from saying it was easy to get those LPs on board, Wutte cautions. “Getting a fund commitment over the line is quite a long, detailed process. And as a first-time fund, there are three extra layers that need to be crossed,” she says.
“We had to convince investors that we had a different proposition,” Olmos recalls. “But it was also difficult to convince people we could do deals in the context of a new structure with its own compliance, its own infrastructure – that’s completely different from doing deals as part of a wider strategy,” he adds, alluding to his KKR days.
Industrial, mid-market vision
Ask the Asterion team what makes it different – if not entirely unique – and they will flag its industrial approach, mid-market focus and discipline around their chosen sectors and geographies.
“If you look at our strategy, it’s focused on the mid-market,” says Mitrani. “It’s focused on five countries – Spain, Italy, France, the UK and Portugal – and three sectors – energy, telecoms and mobility – where we have our network and track record, and where we can apply our industrial approach.”
That industrial approach is obviously a point of pride and differentiation, significant enough for the firm to highlight it in its full name.
“For us, it is very important that we have an investment team that strikes a balance between financial and industrial skills. Our team of world-class operating partners is fully integrated in everything that we do from a sourcing, diligence, execution and asset management perspective,” says Mitrani.
That percolates to the investment and asset level. “It’s not just a balance as a team, but making sure that balance is in each of the investments that we have,” Mitrani explains. “That means we normally have a team of three or four people working on an investment, with one or two operating partners and one or two people with a financial background as part of the investment team.”
Olmos jumps in: “There are a lot of investors with a financial background; there are not so many investors with a truly industrial approach. That makes us different.”
Industrial, though, is one of those terms that can mean different things to different people.
“We had a good relationship with our anchor investors from our prior lives… It’s not like we were picking up the phone and cold calling people”
“The industrial approach is not just about making an asset better,” Olmos explains. “It’s being able to do a carve-out, it’s being able to negotiate and structure a contractually complex deal, it’s having the knowledge and understanding of a business that allows you to unlock a transaction that might not otherwise be possible. The industrial approach allows you to speak the language of corporates and be able to originate deals.”
Olmos is no stranger to that language, of course. Aside from spending more than 10 years at KKR, which he joined in 2008 to help build its infrastructure team, Olmos spent nearly 20 years at Endesa – Spain’s leading electricity utility and the largest private electricity utility in Latin America, helping the company develop its European business. Endesa Europe was eventually sold to E.ON in 2008 for an enterprise value of €11 billion.
Which is not to say the Asterion industrial approach isn’t also about transforming assets.
“From day one, from the time you get the information memo on a transaction, you have to be thinking about what you are going to do with an asset that is different to what the present owner is doing with it,” Olmos says. “That means you have to understand the business, understand the market, understand how you can drive efficiencies and how to focus companies on sectors that are actually more interesting.
“There are many opportunities out there in which the only competitive advantage is to have the lowest cost of capital. And that is very easy to do. But we are positioned on the opposite side of the spectrum. We like things that are more complex, where you really need to do things with the asset and push the management teams.”
It is that complexity – in part – that attracts Asterion to the three sectors it targets.
The firm’s very first investment through its debut fund was the acquisition of a co-controlling stake in Proxiserve, a French utility that provides energy services, such as sub-metering, maintenance, heating and electricity. That was in March 2019.
Two months later a second investment followed – Asterion Energies – a platform that the firm launched to develop renewables projects across its core geographies in partnership with local developers. That same month, Asterion sealed its first digital infrastructure deal – a carve-out that saw the firm buy 11 data centres from Spain’s Teléfonica.
“For us, the mid-market is the destination; it’s not part of the trip”
Fast-forward to the present and Fund I – which closed slightly above its hard-cap on €1.1 billion in January 2020 – has been fully deployed across 10 investments, equally split between the energy and digital infrastructure space. Two of the companies have been merged since, so that the first fund’s portfolio currently comprises nine businesses.
Capital has also been deployed from the second fund across four investments in the energy and telecoms space, Infrastructure Investor understands. The firm has disclosed two of the four deals to date: Barter Energy, a Spanish start-up focused on the deployment of shared solar rooftop installations; and MS3, a UK-based fibre services provider that Asterion will help expand in the north of England.
All of which makes Asterion overweight in two of its three targeted sectors.
“We have no exposure to mobility or transport [at the moment],” Mitrani acknowledges.
“We do see energy and telecoms as the most active sectors [but] we would like to do something in transport, though we recognise it’s less industrial and many of the opportunities are focused more on cost of capital rather than what you can do differently from a business perspective.”
While the mobility sector can require less of an industrial approach, Wutte points out that the three sectors Asterion targets intersect.
“I think there is a sort of overlap among these three sectors,” she says. “You have a digital aspect in energy, but also in mobility. Likewise, you have an energy aspect in mobility and digital.
“So, they are interconnected and there is a natural crossover in all of these sectors to which our knowledge and expertise can play very well. I think if we can identify interesting areas within mobility that allow us to use the knowledge that we have from those other sectors, we will be focusing on those areas as well as taking the knowledge that we built up on the energy side and the digital side to look at that. Again, I think being very industrial can be differentiating in those subsectors.”
With two funds under its belt, many in the market are surely wondering what’s next for Asterion. The short answer: nothing out of character. “[You won’t see us] go and do a $10 billion fund that has a US and an Asia arm and doing venture capital alongside that,” Wutte says.
Still, having closed both vehicles above their hard-caps in a buoyant fundraising market, the temptation to go bigger must have been there.
“The honest answer is ‘yes’,” Olmos admits. “But we were able to resist that temptation.”
“For us, the mid-market is the destination; it’s not part of the trip,” adds Mitrani, indicating that the mid-market is where Asterion intends to stay.
Wutte concludes: “We have a commitment to the market, to our investors, to ourselves and we want to stick to that.
“I think there’s a lot of capital out there and a lot of very good managers, people who can do lots of different things. We want to do the things we know how to do well, and you will see us doing that going forward.”
A community-first approach
ESG is deeply woven into Asterion’s culture, with support for the communities in which it and its portfolio companies operate taking pride of place.
Not long after Asterion’s founding, covid hit, and Madrid – where the firm is headquartered – found itself severely impacted by the pandemic. Asterion partnered with social enterprise Auara on the latter’s initiative to donate bottled water to Spanish hospitals that were in need.
It also partnered with the A LA PAR foundation, which works with people with intellectual disabilities in Madrid, focusing on education and employment. Asterion co-financed the creation of an e-learning platform aimed at providing training to a greater number of students with disabilities.
Those are just two examples of a series of collaborations and partnerships comprising the Asterion for Local Communities programme, with the aim of providing a framework “that sponsors projects aligned with our values and which support our local communities”, according to a statement.
But ESG is not just about Asterion’s charitable activities.
“ESG is part of our purpose,” Jesús Olmos, the firm’s founding partner and chief executive, stresses. “And I think that investment is an important tool in terms of transforming society and also the Asterion way of doing things, which includes showing the community that you can be successful with the right culture.”
Founding partner Winnie Wutte adds: “Our culture is very closely linked to how we think about ESG and what ESG means for us, which is trying to do good: invest in assets that are sustainable and sensible for the long term and that have a positive impact on communities and all the stakeholders that are attached to the community.”
In Asterion’s chosen sectors, that means finding ways to reduce an energy company’s CO2 emissions, for example, but also reducing customer bills and improving customer experience, according to Wutte.
“In digital, we ask ourselves if we’re really connecting global communities and ensuring that our investments are having a positive impact,” she says.
To achieve these goals, Asterion has woven ESG into all its processes, from investment decision-making to portfolio management, to monitoring and reporting to its LPs, to its hiring and remuneration practices.
“It’s all included in that because we think it’s central to those processes,” Wutte says.