Specialisation creates opportunity

Ridgewood Infrastructure is a value‐add investor focused on water and other essential infrastructure at the smaller end of the US market. The investment team is led by Ross Posner and Michael Albrecht, former heads of Allstate’s Infrastructure and Real Asset group, who together have more than $3 billion of infrastructure investment experience, including more than $1 billion of water-focused investing.

The firm is part of the affiliated Ridgewood Companies, a leading real asset investment manager currently with more than $5 billion in total capital and commitments focused on investments in infrastructure and energy.

We sat down with Posner and Albrecht to discuss their water-focused investment strategy, and the opportunities they are evaluating.

Q: Why are you focused on opportunities in the water sector?

Ross Posner: Water and wastewater infrastructure is central to public welfare in the United States, and the scale of investment required to maintain, renew, and enhance US water infrastructure is enormous. Still, many market participants find it very challenging to identify compelling water investment opportunities.

Michael Albrecht: Ridgewood Infrastructure specifically focuses on relatively smaller water infrastructure investment opportunities in fragmented areas of what we call the ‘lower middle market’. We look for companies and other constituents who desire a specialised partner that will add value to their process and help them create a fit-for-purpose solution to their water asset needs. Over the course of our careers, we have developed deep water industry expertise and strong relationships with executives, business development professionals, and technical personnel across the sector – from water utilities to EPCs, and beyond.

RP: We believe our experience, knowledge, and longstanding relationships in the water sector enable us to be a value-adding partner.

Q: What do you look for in these water investment opportunities?

RP: At the highest level, Ridgewood Infrastructure seeks opportunities to forge partnerships that create mutually beneficial results for community and industry stakeholders. As Michael noted, we focus on relatively smaller-scale opportunities requiring between $50 million and $150 million of equity. We focus on identifying water infrastructure investments in businesses and assets that provide essential services to their users, and we look for investments that operate under a long-term contract or regulated revenue construct, primarily with strong, investment-grade quality off-takers.

MA: We’ll invest in both brownfield operating infrastructure businesses and assets and at the construction or growth stage, but we always require key contracts or regulatory protections to be in place with strong, creditworthy counterparties.

Q: Are there water sub-sectors in which you are finding especially interesting opportunities?

RP: We see a critical need for new infrastructure that can bring water from regions where it is plentiful to those where it is more arid. Looking through that strategic lens, we invested in the Vista Ridge Water Pipeline, which will supply around 20 percent of the fresh water to the city of San Antonio, and have evaluated other opportunities to invest in water transmission infrastructure.

MA: We are also looking for ways to create scale and efficiency in the highly fragmented regulated water utility sector. There are more than 65,000 regulated water and wastewater utilities in the US, and the vast majority of them service fewer than 6,000 customers, which is often sub-scale in terms of operational and cost efficiency. These utilities are regulated monopolies and many of them have been undercapitalised, which creates an opportunity to improve operations by, for example, reducing system leakage.

As an example, we recently invested in a company called Undine, LLC, which is consolidating smaller-scale regulated water and wastewater utilities in Texas and other regions that we have targeted. Undine has already acquired several utilities in the Houston and Dallas markets..

RP: Another area of the water market we find very interesting is commercial and industrial re-use and treatment. Many community stakeholders—from universities to military bases to industrial manufacturing facilities – are seeking ways to economise their water usage to both reduce their environmental footprints and increase their bottom lines.

Q: Why are operators choosing to partner with Ridgewood Infrastructure?

MA: I think this goes back to our specialised focus, differentiated experience, and longstanding relationships. We are not newcomers to the water space; the entities and individuals with which we partner appreciate that this isn’t our first rodeo – that we’ve been around the block and are knowledgeable and realistic about risks and opportunities. We have the ability to get into the weeds in a way that other firms cannot. Given the breadth of our backgrounds in the space, we also have the ability to add value financially, strategically, and operationally.

RP: The strength of our platform is also hugely important. The affiliated Ridgewood Companies were formed in 1982 and currently manage more than $5 billion focused on infrastructure and energy. I think our partners appreciate the fact that we’ve been around for more than 35 years, as well as our ability to support their operations as strong and longstanding collaborators.

Q: How does ESG play a role in your investment strategy?

RP: Ridgewood Infrastructure’s core values include a commitment to ESG and sustainability. In addition to being important from a risk management perspective, active evaluation and management of these factors can be integral to Ridgewood’s value creation activities.

MA: We recognise a broad-based increasing emphasis on ESG by investors, as well as government and corporate stakeholders. And in the water and wastewater space, there is growing recognition of – and focus on – opportunities to be environmentally sensitive and enhance resource management.