Kendall Sustainable Infrastructure (“KSI”) invests in projects that generate regular distributions with attractive yields. Investments include energy and water projects that sell their production under long term contract to attractive counter parties, such as utilities, municipalities and large commercial entities.
Traditionally, Private Equity is associated with a “J-Curve” predicated on a favorable exit resulting from expectations of company growth and market enhancement. Our approach is focused on investments into core infrastructure projects that have completed development and are already cash flowing or about to cash flow.
Investments in sustainable infrastructure assets provide direct access to the core commodity of energy without the volatility associated with other methods. Furthermore, by utilizing on a non-depleting input such as light, wind or water, these projects eliminate price risk associated with purchased commodities such as fuel.
The Case for Infrastructure
Infrastructure as an asset class can represent a less correlated or even non-correlated return to typical public markets and real estate. Generally, these investments are involved with movement and storage of goods, people, water, and energy. It is estimated that $45 trillion will be required to modernize and expand water, electricity and transportation systems in the U.S., Canada and Western Europe over the next 15 years. These assets can provide portfolio diversification with the potential for stable cash yields. The demand for core plus private infrastructure has been particularly strong because these investments seek to offer long-term exposure to relatively stable, economically insensitive, inflation protected cash flows. These assets have the potential to generate low volatility, consistent growth of cash flows and returns that are uncorrelated with other asset classes, resulting in very attractive diversification benefits for investors.
Distributed Infrastructure: Scaling Through Repetition
Solar and Wind have accounted for over 50% of newly installed generating capacity since 2014. Solar has ranked first or second in new electric capacity additions in each of the last 5 years. Solar’s increasing competitiveness against other technologies has allowed it to quickly increase its share of total U.S. electrical generation from just 0.1% in 2010 to nearly 2% in 2017.
Globally, sustainable infrastructure represents a market in excess of $300 Billion annually. The distributed segment represents an attractive niche in this well established industry. These projects are smaller but retain many of the complexities of larger institutional scale projects. Success depends on efficient execution. Core to capturing value these less efficient markets is our relationship driven approach which allows us to scale through repetition.
Our approach originates from macroeconomic drivers of change affecting the way core necessities are developed, delivered, and consumed. Second, we conduct regional regulatory and micro economic market analysis. Third, and critically, we identify the optimal development partners in a region, where we can work collaboratively on a portfolio of projects. Finally, we conduct individual project diligence focused on mitigating risk before making an investment of capital.
Infrastructure projects have a life-cycle that includes development, construction and operations. We add value during development which allows us to control the quality of a fully constructed project. Our development partners appreciate the insights that we provide during development, our emphasis on quality, and our problem solving attitude.