Spurred on in part by new federal spending legislation, investors and project developers are preparing for a huge stream of cash to flow to sustainable infrastructure in the coming months and years. To capture and direct some of this flow, a large Canadian pension fund and a leading sustainability-focused private equity firm are teaming up in a partnership to help each other find good investments.
The deal between Spring Lane Capital and OMERS Infrastructure has great timing, coming a few weeks after the passage of the federal Inflation Reduction Act. That should help direct even more capital to those projects, says Rob Day, co-founder and partner at Spring Lane.
Project developers and entrepreneurs are “eager to move even faster than they had before,” thanks to the “serious tailwinds” being blown by the new federal legislature, Day says.
The partnership, announced late last month, is intended to “identify and pursue investment opportunities in growing businesses across a wide range of distributed infrastructure sectors that focus on sustainability solutions,” the two companies say in a statement. Sectors of particular interest include food, water, energy, transport, and waste.
“This is a partnership to jointly explore and execute on co-investments alongside each other,” Day tells CleantechIQ, and each party will “maintain its own investment decision-making on each deal.” But they aren’t going it alone: “We have formalized processes for sharing opportunities with each other and figuring out which ones to work on together.”
Neither party will say how much they expect to invest through the partnership. No deals have been made so far, but the two sides are “already actively collaborating around some early opportunities,” Day says. The two will likely target companies seeking $50 million or more in financing.
He adds that Spring Lane sees the “EV, microgrid, and waste-to-value sectors right now as being particularly active with some emerging strong developer teams.”
OMERS Infrastructure is a unit of the Ontario Municipal Employees Retirement System, and is a good fit for its new private equity partner. Spring Lane “brings a wealth of expertise in identifying, investing in, and successfully scaling growth infrastructure companies of the future,” says Gisele Everett, senior managing director and head of Americas at the infrastructure company. “OMERS Infrastructure brings a strong track record of partnering with, supporting, and creating value in businesses across a broad range of infrastructure sectors.”
Spring Lane has long been active in providing financing and support to private companies in various sustainability fields, and has tended to focus on companies that are “underserved by traditional financial markets,” says managing partner Christian Zabbal. By working with OMERS Infrastructure, Spring Lane can “offer a broader set of capital solutions,” he adds.
The firm manages $400 million overall, having just held, in August, a third close of about $50 million for its second fund. That fund now has $250 million in assets, and the firm intends to raise $150 million more. The firm also hired four people over the summer, including two principals – further proof of the strong growth in the sustainable infrastructure space.
Sustainable infrastructure investment opportunities seem poised to take off. The Inflation Reduction Act officially includes about $374 billion worth of spending on climate change-related projects over the next 10 years. But the real number is actually much higher, according to a Credit Suisse report cited by the Atlantic. Because of the IRA’s use of tax credits, the total spending is likely to be more than double the ‘official’ figure – more like $800 billion, per Credit Suisse.
And when you factor in how federal spending often catalyzes further private investments, Credit Suisse estimates the legislation will lead to $1.7 trillion in total climate spending over the next decade.
The momentum that’s building in the distributed sustainable infrastructure space is in fact underscored by OMERS Infrastructure boosting its presence. The investor had been doing so previously – it says it currently has 31 portfolio companies and C$32 billion ($23.2 billion) in assets across a range of investments – but is likely now to increase that even further, though a spokesman declines to say how much OMERS may target through this new partnership.
It’s likely to be significant, though, and that’s a clear vote of confidence for the space. “When we spun our team out of a family office and started Spring Lane Capital a few years back, it was because we knew that these solutions would only scale with institutional capital, so it’s really encouraging to see it happening,” Day said in a LinkedIn post.
He added: “It just feels like such a vital time in the market for everyone, the beginning of a lot more market activity at ever faster pace and ever bigger aspirations.