Carlyle to tap US water sector in deploying infra fund

The DC-based firm has entered a partnership that is shortlisted to develop a new wastewater facility in Oregon.

The Carlyle Group is planning to deploy capital from its Global Infrastructure Opportunity Fund, which it closed on $2.2 billion last month, in the US water sector as part of an investment partnership with management firm VICO Infrastructure.

Carlyle, a Washington DC-based fund manager, said in a statement that it would work with VICO to develop and acquire desalination, wastewater treatment and water reuse facilities in towns and cities throughout the US. In what could be the pair’s first project, the City of Lake Oswego in Oregon has shortlisted VICO and Carlyle to design, build, finance, operate and maintain a new wastewater treatment plant for the city, which has a population of 39,000.

Carlyle said the firms planned to collaborate and pursue investments with public agencies, private industries, educational facilities, and real estate and related energy and smart-city technology projects. They also plan to explore opportunities with Carlyle’s existing and future portfolio companies.

Peter Taylor, managing director and co-head of Carlyle’s infrastructure fund, told Infrastructure Investor that there was a significant demand in the US, “especially the further west you head”, from consumers, industry and agriculture for the reuse and treatment of water. “We really see this as an opportunity to help cities move forward with both water supply issues, where scarcity is a challenge, as well as wastewater treatment,” he said.

Although there is a significant need for investment in US water infrastructure, the private sector has traditionally faced obstacles to deploying money into assets. In many municipalities, the public have been sceptical about private companies managing water infrastructure. There also remains uncertainty about the levels of pricing for infrastructure assets and the long-term feasibility of continued private ownership of such projects.

However, Taylor said that as more state and local authorities use public-private partnerships to finance other types of infrastructure projects, opportunities to invest in water assets would increase as well.

“The needs that these cities and agencies have is not for financing,” he said. “They need operating teams and they need expertise that can bring on additional supply, treatment reuse of facilities. When you bring management expertise that can deliver a better outcome for communities, that’s where you’re going to see the private sector opportunity.”

Demand for exposure to the water sector is high among institutional investors. According to a survey of institutions published last November by Bright Harbor Advisors, water and wastewater management facilities were the sustainable alternative assets in which they most wanted to invest.

The partnership with VICO marks Carlyle’s return to the water sector after its first investment in 2011, when it acquired Montana’s Park Water Company. It sold the utility in 2014 for around $327 million.

VICO is an infrastructure development and management company founded last year by Brian Cullen, who was previously president of PERC Water Corporation.

Carlyle has already deployed capital from its latest infrastructure fund, which is targeting investments in transport and logistics, energy and power, water and agriculture projects. Investments made to date through the Global Infrastructure Opportunity Fund include the modernisation of Terminal One at New York’s JFK International Airport; the Lone Star Ports Harbor Island Crude Export Terminal in Texas; and Crimson Midstream Holdings, a provider of crude oil transportation and storage services in California, Louisiana and off the Gulf of Mexico.