Article by Genevieve Cua. Published Tue, Jul 23, 2024 · 04:04 PM

When home-grown infrastructure investment firm Seraya Partners raised US$800 million for its maiden fund at end- 2023, it’s a fair bet that few have heard of the firm.

The company sought funding of US$750 million for the themes of green and digital infrastructure investments. That it surpassed its target reflects the appetite not only for infrastructure as a private-market asset class, but also for exposure to the Asia-Pacific, where the funding gap is wide.

Globally, countries in the Asia-Pacific are among those most vulnerable to the climate crisis. The Asian Development Bank has estimated that Asia will need US$1.7 trillion in annual investment in infrastructure through 2030 to meet current demand.

For its portfolio exposures, Seraya has picked two themes that play into megatrends – green data centres and facilities that support the energy transition challenge. It succeeded in attracting a roster of blue-chip investors, including the Alberta Investment Management Company, Asian Infrastructure Investment Bank and BlackRock funds.

Seraya’s Fund 1 aims to invest in mid-market deals. Its proposition combines the income-generating profile of infrastructure assets with a returns kicker that is in line with private equity assets. To date, more than half of the capital has been deployed. A second round of capital- raising is planned for 2025.

Seraya managing partner James Chern says the firm was founded with a vision for a “truly local, Asia-focused fund management company in the infrastructure sector”.

“Drawing on our experience with large global and regional funds, our firm is dedicated to investing in Asia, championing local teams, and developing innovative investment opportunities within our region.”

Chern was previously a founding member of I Squared Capital, a global infrastructure fund manager with US$40 billion in assets. Managing partner and sibling Ivan Chern was former managing director of RRJ Capital, a US$12 billion private equity fund.

Managing director Khan Yow says the firm’s stamping ground is the mid-market space, where the deal flow is “rich” and deal values range between US$50 million and US$100 million. “We are builders of companies. In the infrastructure segment, we’re relatively small compared to our global peers. Large firms are under pressure to deploy very big-ticket sizes, but in Asia we don’t believe there are all these big-ticket sized deals out there for unlisted infrastructure.”

Seraya Partners began to seed investments soon after its founding in 2020. This meant the fund could begin to generate revenues almost from the get-go, thanks to long- term lease contracts.

Yow said: “We have a compelling story and thesis. But the ultimate factor which probably is the tipping point, is that we have real, actionable deals that our investors see, that they can underwrite. They know that when the rubber hits the road, there is something to put money against.

“At the asset level, the deal has to be profitable from day- minus-one, where even before we put in the capital, we have a clear path to revenues… We have to plan carefully so that our deal pipeline supports the growth of the portfolio companies. It’s not just about assets, but about the assets being operated by a competent, strong team that can grow them.”

The first investment was in Empyrion Digital, which started when Seraya acquired a data centre from a family business in 2021. Empyrion is positioned as “green by design”, which means it focuses on energy and water efficiency through the adoption of new technologies. The efficiency components are designed upfront and integrated into the construction and operations.

Empyrion’s first centre, SG Dodid1, is in Serangoon North. The firm has since expanded into South Korea, where it is building a 40 megawatt centre in Gangnam, Seoul, that is expected to be completed in 2025. It is also exploring facilities in Japan and Taiwan.

A second key investment is Cyan Renewables, which owns and leases specialised vessels to support all phases of offshore wind farm projects, from installation to operations. It acquired its first ship in 2023 in a deal with Belgium’s DEME, and secured a long-term charter with turbine maker Siemens Gamesa for work in offshore Belgium.

“Cyan’s vessels are the shovels and spades, and core to the operation of wind farms, where there is a huge shortage of vessels. The wind farm operators don’t want to have the capex of US$50 million to US$100 million on their books. We provide the solution on a lease basis,” says Yow. “We’re probably the first in Asia, and we believe one of the biggest in Asia for such an idea.” Cyan aims to own and operate a US$1 billion portfolio of vessels by the end of 2025.

A third area is Astrid Renew, which will focus on renewable energy and energy storage solutions.

Yow says Seraya aims to achieve a stable “bond-like” return profile, but with “enough juice for upside with growth opportunities”. It aims to focus on developed Asia, in countries where respect for rule of law reduces country- specific risks.

“Infrastructure as an asset class is well-established with big, limited partners, who primarily invest for yield because they want stable cash flows. But if you just go for yield, returns are not very interesting. You’re just clipping a coupon.

“We try to achieve a blend. We get decent yield for investors, but to have the extra juice, we also offer value creation. We’ve started as early as possible to build our companies. In the underlying assets, we stick to the principles of infrastructure investments – which consist of long-term contracts, stable and strong counterparties, predictable revenues and good equipment.

“But we also have people and talent which can build the companies to a larger scale and create future opportunities for exit. We take an outsized share of our portfolio companies, which enables us to guide, build and grow the companies. We think that’s how we can command interest among investors who want to put money with us.”

Seraya Partners itself has close to 20 employees. Empyrion and Cyan each has between 30 and 50 staff.

Empyrion Digital is headed by Mark Fong, who has more than two decades of experience in technology and data centre industry. Cyan Renewables is headed by Lee Keng Lin, who has a track record of working in the renewables, port logistics, maritime ventures and offshore energy industry.

Seraya is headquartered in Singapore, and has offices in Tokyo, Seoul, Kuala Lumpur, Taipei and Esbjerg, Denmark.

Source: The Business Times, https://www.businesstimes.com.sg/wealth/home-grown-fund-aims-plug-asias-digital-and-green-infrastructure-gaps