Arcano eyes secondaries with near €300m sustainable infra fund close

Arcano Capital, one of Spain’s largest fund of funds managers, has held the final close on its debut sustainable infrastructure fund with secondaries set to be a component of the vehicle’s investment strategy.

The Madrid-headquartered firm raised €292 million for Arcano Earth Fund, beating its €250 million target, according to a statement. The fund of funds vehicle invests in sustainable infrastructure in Europe and North America, focusing on the energy transition, water, digital infrastructure and sustainable transport sectors.

“The market timing is favourable for sustainable infrastructure investments and our fund is well-positioned to capitalise opportunities in our target sectors,” said Pierre Sáenz, the fund’s managing director. “Post-covid-19 stimulus packages and industry megatrends (energy transition and digital infrastructures) will enable AEF to deliver long-term value to our investors.”

The fund will invest via primaries, secondaries and direct co-investments and has already deployed at least 86 percent of its capital to 18 investments. It has yet to make any secondaries investments, a spokeswoman for the firm told Secondaries Investor.

The AEF team analysed more than 30 secondaries opportunities in Europe and North America, none of which met the fund’s target return, the spokeswoman added.

“Due to the high visibility of the cashflows of the infrastructure assets, the sellers are using cost of equity discount rates lower than that of the funds, which lead to higher premiums on [net asset value] and equivalently lower expected returns for the secondary buyers,” she said.

Arcano expects the fund to be fully committed “in the coming months”, the statement noted.

The firm is seeking €300 million for its latest dedicated private equity secondaries fund, Arcano Secondary Fund XIV, according to Secondaries Investor data.

As of end June, around 4 percent of the capital set to be raised for secondaries is for dedicated infrastructure or energy secondaries strategies, according to Evercore’s H1 2020 Secondary Market report. Infrastructure accounted for 6 percent of the $18 billion in deal volume in the first half of this year, double the 3 percent by proportion for the same period last year.