The rise of sector-focused credit strategies

Much as renewables are driving sector-focused equity fundraising, the same movement is being seen on the debt side, with digital infra potentially not far behind.

A few weeks ago, we wrote that renewables were leading the specialist fundraising charge, based on the results of our Q1 unlisted fundraising report. The latter was headlined by the final close of BlackRock’s $4.8 billion Global Renewable Power Fund III, with four of the 13 funds closed during that quarter dedicated to renewables.

Those Q1 renewables closes were on the equity side, but it’s worth pointing out that renewables are also driving growth in sector-focused credit strategies. Here are a few examples: earlier this week, we reported on the launch of First Sentier Investors’ renewables-focused infra debt strategy, in partnership with parent MUFG Bank; Minneapolis-based CarVal Investors closed its CVI Clean Energy Fund on $490 million this week, targeting “credit and hard-asset investments in the clean energy sector, primarily in North America”; last December, ADM Capital launched a $500 million renewables debt fund focusing on small- and mid-sized projects in Asia; and in September 2020, French manager Acofi Gestion reached a €120 million first close for its second European renewables debt vehicle.

When ADM Capital launched its fund in December, co-founding partner and joint chief investment officer Christopher Botsford noted the alternative energy market for private sector lending was “set to grow substantially”. CarVal Investors would certainly agree, having originally targeted $250 million for its CVI Clean Energy Fund, it closed on almost double that amount. And as strategy lead Tony Togher made clear, the launch of First Sentier’s renewables credit platform – which will also include a blind-pool vehicle – is very much based on client demand: “We don’t build funds that we don’t think anyone will show up for.”

What’s more, while renewables are clearly driving the rise of specialist credit strategies, there are early signs that digital infrastructure might not be far behind. As we reported in March, Digital Colony, which manages the largest equity fund focused on digital infrastructure, is turning its sights to credit opportunities in the space. “We have seen a little bit of a back-up in the traditional senior lending marketplace in pockets of digital infrastructure,” Marc Ganzi, the sector veteran at the helm of Colony Capital and subsidiary Digital Colony, said during a recent earnings call. “So, we think now is the right time to form capital, and we think this is the right time to be in the digital infrastructure credit solutions business.”

Is any of this too surprising? Not really, when you consider that infrastructure debt has been one of the pandemic’s ‘winning strategies’, while renewables and digital infrastructure have clearly emerged as two of the most promising and resilient growth sectors post-covid. But it is a very welcome indication of the asset class’s depth and maturity, as we start the 2020s.