Equilibrium, a Portland, Oregon-headquartered real assets-focused investment firm, will target $300 million for its second water-focused vehicle, according to a regulatory filing released last week.
According to the filing, the vehicle is named Water and Wastewater Opportunity Fund II and had not secured any commitments as of November 20.
Among the executives listed in connection to the vehicle is Jay Pierrepont, Equilibrium’s chief operating officer and president of asset management.
Equilibrium declined to comment.
On its website, Equilibrium describes its water and waste strategy as focused on projects in agriculture and food, in addition to municipal wastewater, that can provide contracted revenue streams.
The Water and Wastewater Opportunity Fund II’s predecessor, Wastewater Opportunity Fund (WOF), launched in 2015 and closed on $184.3 million in 2016.
According to a 2015 memo from the $8.45 billion Contra Costa County Employees Retirement Association, WOF targeted a net IRR of between 16 and 18 percent, including an 8 percent current income component. The fund had a term of seven years from close with three one-year extensions, carried a management fee of 2 percent and a 20 percent carry, according to the memo.
The fund’s strategy focused on construction of a portfolio of anerobic digesters that use agricultural waste, food waste and municipal wastewater to produce methane later sold to power producers on contracts with terms as long as 20 years. Exits, according to the memo, would come in the form of refinancings that provided capital to pay back investors, the sale of facilities to tax credit investors such as wealthy individuals or the listing of facilities on public markets through the master limited partnership structure most often used to exit energy investments.
“WOF will build its processing facilities in strategically selected locations that are within reach of food or agricultural waste generators,” wrote CCCERA chief investment officer Timothy Price. “By partnering with WOF, these producers can lower their disposal costs due to less costly disposal, though WOF still receives a tipping fee [a premium disposal fee processors typically pay to municipal treatment facilities].”
Earlier this month, Agri Investor sister publication Infrastructure Investor reported that a recent survey of LPs by private fund advisor Bright Harbor Advisors found water and wastewater treatment to be the most attractive strategy among the 81 percent of respondents that have added a sustainability, impact or ESG mandate to their strategy.
In a 2016 overview of water-related investment opportunities in the US West, Equilibrium wrote that recent drought in the region had alerted many institutional investors to opportunities in water and that there were then 25 firms active the sub-sector.
Equilibrium’s paper stressed the need to build win-win partnerships with design-build-operate firms that can plan water facilities; the utility of investment horizons longer than five to seven years on water investments and the imperative to understand local watersheds and water district regulations.
After categorizing separate types of water-related opportunities under the headings “Water Storage and Distribution” and “Strategic Water Assets and Water Storage,” Equilibrium identified “Wastewater Treatment” as the strategy with the most near-term potential.
“Despite regulatory hurdles, California and Texas are the best Western states for Water and Wastewater Infrastructure Investments – near- and long-term. Arizona’s water market is relatively efficient, but future water supply risks limit investment opportunities,” the report’s authors wrote. “When water assets are fully valued and market priced, the laws of supply and demand will kick in.”