New Sparta Asset Management, a private investment boutique focused on emerging markets, has launched New Sparta Energy, a subsidiary targeting African renewable projects.
The unit will have its own team and target a sector which, in the words of Jerome Booth, chief executive and founder of NSAM, holds “huge” potential. Creating such “teams of people”, Booth told Infrastructure Investor, is one way the asset management community can get institutional investors to allocate “much, much more” to emerging markets.
The firm followed a similar philosophy when it put together its previous units, respectively focused on Indian infrastructure, real estate and financial services. Citing regulatory constraints, Booth did not wish to comment on which “products” would be used by NSE to channel investors’ capital into projects, other than to say they would be “fantastic”.
More was disclosed about NSE’s mooted strategy, starting by who will be helming the unit. Coinciding with the launch, NSAM said William Barry had been hired to serve as its managing director, joining from African developer eleQtra. Three other professionals will initially round up NSE’s staff, Barry told Infrastructure Investor.
“There is a very limited amount of liquidity for early-stage developments,” he said. “We have a very real opportunity to take projects through the development phase, manage development risk, then take them through construction while also managing that risk. Our goal is to exit after six to 18 months of operations, because there’s a lot of liquidity on the backend of operational projects.”
NSE, he explained, will primarily target assets where it can “get in, get out” in a limited period of time. It will seek projects ranging between $30 million and $100 million in total cost. “Our focus will be on deals that have got shorter fuses: solar, some wind, smaller-scale hydro.” The strategy aims to fetch IRRs of 16-20 percent.
The unit’s investment thesis, Booth added, lied in Sub-Saharan Africa’s vast unmet demand for power, “the number-one bottleneck” to development. On the investors’ side, the rationale built on the need for “real economic diversification”.
“People who are trying to be prudent and conservative end up concentrating allocations into highly correlated assets,” he noted, lamenting institutions’ large exposure to developed markets. “You need to be in markets driven by totally different factors, not overly levered and that don’t follow the same economic cycles.”
Yet he cautioned against the risk of creating overly high expectations among investors. “It’s very important that we don’t go too fast. We don’t want to be raising money and then be sitting on hoards of cash, it’s not in anybody’s interest. But I do think there’s a huge opportunity to scale things up.”
Above all, he concluded, success would require discipline. “It’s not only about finding projects. It’s also about dropping the ones that aren’t going to work early.”