Carlos Michel
Principal
Fondo de Fondos
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View from the Top

Bankable Projects Demand Reliable Partners

Wed, 02/21/2018 - 12:04

Q: Why should an energy project developer rely on Fondo de Fondos as a capital source?

A: The answer is twofold. First, there are only a few institutional investors in the market so project developers have a prevalent necessity to turn to financial entities for capital. Second,  the added value we can provide. Fondo de Fondos has 12 years of experience in private equity funds across different sectors, added to our team’s cumulative experience in transaction structuring, analysis and consulting services for project sponsors. It is important to have policies in place to determine project viability, to best harness our interest in placing capital. Fondo de Fondos’ energy investment vehicle was launched in 2014 and we are pleased to see that the funds we are associated with, such as Partners Group, Riverstone, Actis or Thermion, are winning projects in Mexico’s oil and gas licensing rounds and the long-term electricity auctions.

Q: What is your assessment of development banking and energy projects?

A: Fondo de Fondos serves as an administrator of development banking’s public resources and institutional investors’ private funds, primarily for pension funds. We evaluate, analyze and locate projects with the best riskyield ratio to comply with the characteristics of what our clients look for. In the particular case of development banking, which supports these projects not with debt but with capital, it can leverage our experience in structuring a capital transaction. With respect to pension funds, they now have the option for the first time in their history in Mexico to invest in infrastructure and energy projects but lack the in-house teams to evaluate and analyze these opportunities in the best way possible. Fondo de Fondos is outsourced in an advisory capacity for pension funds interested in these kinds of investments. The critical aspect of converging these three sectors — development banking, institutional investors and fund managers — lies in capitalizing on the expertise of each player. Development banking has project access and debt issuance experience, pension funds provide fresh capital to spark economic growth in infrastructure and 
energy and we bring to the table our experience with analysis, project implementation and our management and reporting capabilities to ensure the best yields. 

Q: What are the required elements for an energy project to reach financial closing?

A: There are three key factors that must undergo a thorough analysis, in which a clear outline of the inherent risks and mitigators is a necessity. First, project risk, which implies the aggregation of factors such as project type, cost and the project’s construction plan. Fondo de Fondos has investment norms and policies that we must follow, so projects under complex or risky construction conditions are not up for consideration. Second, reliable partnerships. All parties involved, including project operators, project sponsors and shareholders, must be sector-specialized, have an impeccable reputation and a successful track record of Mexican projects. Third, addressing market risk, which boils down to securing final product clients to ensure profitable returns. 

Q: What unlocked energy business lines is Fondo de Fondos targeting?

A: Considering the profile of the investors we work with, we will definitely focus on the least risky projects, with a portfolio of 10 to 12 projects in power generation, energy storage, energy transport and oil and gas exploration and production. The latter is the riskiest subsector but these risks can be mitigated by strong investments and generate good yields. We are evaluating two sectors with high demand: electricity generation, given the lack of power producers in the market, and energy infrastructure. Mexico is largely underdeveloped in this last area, which justifies our evaluation of hydrocarbon and natural gas storage projects as well as transportation via oil and gas pipelines. For the next public bids, we are also examining electricity transmission towers and substations.