Saturday, July 27, 2024

New GP Elda River bucks consolidation trend with spin out from Magnetar 

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There’s been an unstoppable trend of larger GPs swallowing independent infrastructure managers, with the acquisition of GIP by BlackRock and the acquisition of Actis by General Atlantic grabbing headlines in January. Spinouts from larger asset managers, then, seem against the grain.

However, there’s still such activity in the US mid-market, with notable spinouts from the past few years such as Lotus Infrastructure Partners (formerly Starwood Energy) and Greenbelt Capital Partners (formerly Trilantic North America’s energy team). 

Now, Eric Scheyer and Adam Daley, the co-heads of Magnetar Capital’s energy and infrastructure group, are taking the $1.5 billion platform independent.

Daley and Scheyer joined Magnetar when the firm was launched in 2005. The two now retain a majority control ownership of the platform-turned-GP, with Magnetar-related affiliates retaining a passive minority stake. Scheyer and Daley declined to disclose the equity breakdown in terms of percentages and number of shareholders.

The two did disclose that Elda River Capital Management, the firm’s new name, has retained all funds, assets and team members that it had while at Magnetar. Daley and Scheyer will be managing partners and co-founders of the firm, joined by two other partners and co-founders, Craig Rohr and Michael Dean, who are also ex-Magnetar.

“We’ve been planning this for some time,” said Scheyer. “Why is now the right time, after all these years? We think an independent, pure-play energy transition manager is best positioned to capture this large opportunity set.”

Scheyer continued: “Allocators want to allocate to pure-play, independently owned businesses, portfolio companies want to deal with specialists. We think that this will be the best way to create value for all constituents, most importantly our investors.”

Against the grain

This goes somewhat against the grain, with many LPs cutting down on the number of manager relationships in recent years. Indeed, Torbjorn Caesar, chairman and senior partner of Actis, told Infrastructure Investor in January following the acquisition by General Atlantic that the consolidation was “driven by the LPs”, stating “they are the ones who select to work with fewer GPs”.

Daley says that while this is a fine strategy for large-cap GPs, the strategy makes less sense in the mid-market, Elda River’s target market.

“Being independent and structured the way that we are is a really good way to go and partner with mid-sized businesses to help them accomplish their objectives,” he said. “The opportunity set [in the mid-market] is very large; it’s a big market. There’s room for a lot of different participants here, both very large managers as well as managers that are more targeted.”

Despite bucking the trend, for Elda River, much of this spinout will be ‘business as usual’, continuing its Magnetar-born strategy of making mid-market, energy transition investments across five verticals: renewables and power, energy and energy infrastructure, energy storage, industrial decarbonisation and digital infrastructure.

“We will continue to do what we’ve done, but we will have two clear business lines – an infrastructure equity business, and then we are also building out a private infrastructure credit business,” explained Scheyer.

He continued: “We don’t have a defined approach, as in ‘we can only do this’. So we’ll invest in common equity; we’ll invest in structured equity; we’ll invest in credit. We’ll make generally control [investments], but we’ll also have non-control investments. But we do require significant governance because we have to be actively engaged with the companies we’re working with because we have to create value by doing so.”

Existing credit investments from Magnetar – which will also move to Elda River alongside its equity-based counterparts – include a convertible debt investment with Arcadia, an energy data company, and a first lien secured loan to Black Mountain Energy Storage.

At Magnetar, credit investments were done out of the same fund as equity investments. However, equity was core to the strategy. While Daley and Scheyer declined to comment on a potential fundraise for a dedicated infrastructure debt vehicle, they doubled down that they would have two lines of business – equity and debt. 

Elda River is currently deploying capital from its fourth fund vintage MTP Opportunities Fund IV, formerly the MTP Climate Infrastructure Fund, which was launched in 2021. An SEC Form D filed in March 2023 discloses that the fund had raised, at that point, $626.2 million, ahead of a $1.25 billion target. The strategy targets a 12-14 percent net IRR, according to a document from the Plymouth County Retirement Association.

The fund, and its predecessors, have been rebranded to the new Elda River name. Daley and Scheyer declined to comment on whether or not a fifth vintage is in market, or if it plans to be soon.

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