EDGE Chats: Brendan Duval, Managing Partner, Glenfarne Group, LLC

– This is Duke University – We launched Glenfarne with a very simple thesis

Infrastructure is a huge business area, or business model, that if you pick the right places, you can act as an entrepreneur Typically in infrastructure, there's a mindset it's not really an entrepreneurial sector You build a billion dollar toll road, as a an entrepreneur or buy a multi-billion dollar gas company We took the approach that putting small amounts of money out the door early on in the business, we could develop new projects and new companies from scratch and then use that to build a company around And we've been relatively successful in that

And as of today, we've launched three specialist companies Prime Energia that does back up capacity, power provision to the grid That's growing at a great pace We've set up another company, Fontus Hydro, that is an owner-operator of run-of-river hydro projects, generally smaller projects, 20 megawatts or less And we're about to make our first investment in that sector

And then we've launched a business called Integrated Fiber that is especially in biomass power, but with a twist where there is a colocation with a wood or forest product industrial operation And we own the whole business And the first project for that is located in Tallahassee, Florida Where is the sort of innovation in finance? One area that we're operating in, sort of infrastructure innovation, and we see it in renewable energy in North America and a lot of new ideas where the scale of investment per location is small And so we've seen the business models of the rooftop solar, and everyone can build them, everyone can install them, but how do you originate new rooftops? And how do you finance them on a system wide basis? And the solar cities, and the various outfits have sort of, cracked this model

But we've looked at how do we do it for more midsize assets And for us in infrastructure, a true infrastructure asset, in my opinion is typically a five hundred million dollar asset or above Just so you've got enough critical revenue and EBITDA that you can deal with personnel changes and what not without it changing EBITDA We're looking at assets that are 50 million dollars and we put ten of them together and they're a 500 million dollar business And when we do that, it allows us to go from a local banking relationship, where the family in Chile had to put a personal guarantee on the loan, and it was repaid over five years, and it had a high interest rate

We can put a New York financing on, and we can get long term debt, low levels of amortization with very low interest rates, and we can originate those assets on a system wide basis that the acquisition cost is acceptable and reasonable So that's one area where we're operating The other area is, and we were seeing it through all of the infrastructure investors, is getting further back up the value chain down to the development level So when we started out at Macquarie, everyone said we just want to own operating assets But now everyone, including the most risk adverse, are saying I've gotta get close to the development because it's the only way to get some differentiation between cost and value

I think one of the things to point out in infrastructure if you're sort of going into the finance side of it, and I'll do a comparison to say private equity or hedge funds In hedge funds, there's a lot less personal interaction with the outside world You've got your trading strategy, you can work hard, you can work all night and sleep all day, and your strategy may work I'm generalizing, I'm not in hedge funds In private equity, it's making bigger calls and your ability to influence management as an investor over time

And you can have a private equity strategy that bumps around for a couple of years, and eventually you replace the CEO and it takes off In infrastructure, everything you do and all of your magic happens the day you make the decision to buy it Because a true, true infrastructure asset that's a long term toll road concession, you can't do that much to influence how people come on the road And so up front, it's huge contract analysis, huge contract negotiation, and super, super detailed financial modeling So what we find in infrastructure is that the modeling capabilities and the volume of scenarios you run, swamps the private equity version of it a hundred fold

The other thing is to come up with that innovative financing and the right terms and conditions in the contract, you have to spend a lot of time just thinking about how to do it And so, I find that the hours slaving over a contract or financial model when you're young, usually it's first the financial model and then when you get a little bit older it's the contract, just takes a lot of hours and you have to love looking at one or two basis points of an IRR And if you don't love that, and you're not willing to work those long hours, it's very hard to be successful

Source: Youtube

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