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    Ancala’s third flagship successfully concludes fundraising with more subscriptions than needed, reaching €1.4 billion

    London-headquartered Ancala Partners has successfully concluded its largest fundraising effort, surpassing the initial target of €1.2 billion to reach a billion. Initiated in early 2022, fund III has garnered attention beyond the typical audience associated with Ancala Partners.


    Partner, Karen Dolenec said “With a re-up rate of 76 percent, around half of the funds come from new sources.” She mentions that approximately one-third of the fund’s Limited Partners (LPs) are based in the Asia-Pacific (APAC) region. Asian LPs appreciate Ancala’s low-risk approach and the opportunity to access income in Western currencies.


    About one fifth of the commitments, along with approximately €80 million in co-investments, have already been deployed. The three portfolio companies include Avincis (aerial emergency services in various European countries with operations in Chile and Mozambique), Fjord Base (Norway’s largest offshore services supply base), and Noventa, (Toronto-based provider of decarbonized heating and cooling solutions).


    The fund’s primary focus will be on Western Europe, but it has the flexibility to venture beyond, provided the investments align with Ancala’s criteria for infrastructure investments, such as downside protection, clear earnings visibility, and high barriers to entry.


    Dolenec commented “We come up with ideas amongst ourselves. Then we look for a warm lead and are mostly successful, but we will cold-call if necessary.”


    Ancala’s managing partner, Spence Clunie added “We are almost 50 people, and everyone participates. This leads to a diversity of investment ideas.”


    The fund has a duration of 12 years, with the provision for two yearly extensions. This is unchanged from prior vintages and adhering to an
    industry standard has its advantages.


    Clunie said “Our vanilla fund structure is easy to explain to LPs and hence allows meetings with investors to focus on what Ancala is doing and what it expects to deliver.”


    Ancala reports that the performance has surpassed expectations, with the preceding funds outperforming the targeted net return of 10-13 percent and a cash yield of 5 percent or more. The organisation emphasizes not getting caught up in classifying this as a core or core-plus profile, as the company doesn’t strictly adhere to conventional risk/return categories. This position has implications for how the company talks about its part in enhancing the performance of portfolio companies.


    “We aim to add value to our portfolio companies, which can be confusing as value-add is definitely not our risk-profile.” mentioned


    Irrespective of the classification of these terms, Dolenec and Clunie concur that there is greater potential to generate value in the mid-market. Despite the increasing prevalence of more sophisticated IT systems and management programs available to companies each year, there are still areas for enhancement. Ancala maintains that its capacity to add value has remained consistent over time.


    Cluine stated “We have consistently been able to focus portfolio company management teams on what we want to achieve. We can help with the return profile, ensure inflation-protection is addressed, and drive operational improvements through
    our proactive approach.”


    Dolenec added “The trend for better systems is helping us and giving us more tools.”


    This statement suggests that private capital holds significant influence in enhancing the performance of infrastructure companies, especially in the pivotal mid-market segment.


    Clunie affirms the validity of this assertion. “This is part of the reason why we’ve exceeded our targets. And a lot of it is common sense; rather than just rolling over a contract, we can help improve it by suggesting amendments. And because we invest in essential services, [portfolio companies] can usually get these changes through as long as they are reasonable. That is the benefit of having downside protection.”


    Ancala manages assets totalling over €4 billion, and typically, the companies within Ancala’s portfolio have experienced a revenue growth of 40 percent since Ancala’s investment. Among these portfolio companies is Portsmouth Water, currently undertaking the construction of the first significant water reservoir in the UK in over three decades, intricately connected to the broader and diverse narrative of private enterprise.


    Ancala manages a total assets under management (AUM) exceeding €4 billion, and, on average, the revenues of Ancala’s portfolio companies have seen a growth of 40 percent since Ancala’s initial investment. Notable among these portfolio companies is Portsmouth Water, actively engaged in constructing the first major water reservoir in the UK in over 30 years, intricately connected to the broader narrative of private investments in UK water. Additionally, Ancala holds a substantial investment in Spanish biomass-burning plants, which, despite once being considered a pivotal part of the renewable future, has faced challenges and has not aged as positively over time.


    However, when questioned about an asset class that might not appear as an obvious investment today compared to five years ago, Clunie’s response directly addresses the core of the net-zero debate. “We’ve had no investments in fossil fuels-related companies in Funds II & III, as the long-term strategies for European governments have been unclear.”


    The company made an investment in a liquefied natural gas (LNG) gasification terminal in Wales in 2019.


    Regarding upcoming technologies of interest, Dolenec highlights battery energy storage systems as a clear candidate to consider, especially as they have transitioned into a lower-risk category. Clunie is keeping an eye on hydrogen, but he is not ready to invest in it just yet.


    In relation to competition from other General Partners, the landscape is evolving rapidly. Given the ongoing trend of consolidation, there is a possibility that more independent infrastructure managers might seek refuge under the support of well-capitalized private equity entities.


    Clunie, however, is in no hurry to put up the ‘for sale’ sign. “Yes, we have had calls. In the current climate, it would be rather strange if we didn’t, but there is no need for us to sell as we are raising funds – and we like the autonomy.”


    Fund III marks the second Ancala fund closure within an eight-month period. Earlier in the summer, Ancala successfully raised £551 million for its Essential Growth Infrastructure Fund, which resembles a continuation fund.


    Credit: Infrastructure Investor


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