Infrastructure + Case Study: Power Transmission Platform July 2022 AC Capitales – Legal Disclaimer This presentation is strictly confidential and is being furnished to you solely for your information. It may not be reproduced or redistributed to any other person, and it may not be published, in whole or in part, for any purpose. By receiving this presentation, you become bound by the above referred confidentiality obligation. Failure to comply with such confidentiality obligation may result in civil, administrative or criminal liabilities. The distribution of this presentation in other jurisdictions may also be restricted by law and persons into whose possession this presentation comes should inform themselves about and observe any such restrictions. 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These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Fund’s actual resources, reserves, results, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. These forwardlooking statements are based on numerous assumptions regarding the Fund’s present and future business operations and strategies and the environment in which the Fund expect to operate in the future. Forward looking statements speak only as of the date of this presentation and the Fund expressly disclaims any obligation or undertaking to release any update of or revisions to any forward looking statements in this presentation, any change in the Fund’s expectations or any change in events, conditions or circumstances on which these forward-looking statements are based. Information in this presentation is as of December 2019, unless otherwise indicated. Certain information contained in this presentation is based on, or derived from, information provided by third-parties. The Company believes that such information is accurate and that the sources from which it has been obtained are reliable. The Company cannot guarantee the accuracy of such information, however, and has not independently verified the assumptions on which such information is based. None of the Fund, the Company or any of their respective affiliates or subsidiaries assume any responsibility for the accuracy or completeness of such information. 2 A Infrastructure: Defining Core, Core Plus and Value Add 4 B Executive Summary 6 C Origination 9 D Operational Enhancement 11 E Harvest & Exit 13 A. Infrastructure: Defining Core, Core Plus and Value Add 4 Infrastructure: Defining Core, Core Plus and Value Add The Roots of the Infrastructure Asset Class and its Stand-Alone Categorization … Infrastructure Investment History(1) Infrastructure Classic (Old) Benefits ▪ For decades, Govts. have been eager to attract private capital and pension capital to help fund the infrastructure ▪ Long-term contracts with inflationary protection built into their pricing structures needed • Consistent cash flow ▪ In Australia and Canada, Infrastructure has become a mainstay of pension portfolios Inflation hedge and income o Australia pioneered investing in infrastructure by creating a domestic market (90s) ▪ Provide critical solutions to society, providing a level of demand inelasticity and ability to keep up with inflation (due to price escalators) ▪ Infrastructure is being considered equally vital to the performance of institutional investors’ portfolios as more traditional and standalone asset classes o After +2 decades of sector growth, risks were taken, and returns were enjoyed o Europe, Asia and the US are still, overall, placing infrastructure within “alternatives allocation” ▪ Long-term contracted cash-flows offers insulation from economic cycles and factors Infrastructure Categorization Evolution(2) Low correlation to broader markets • Ties to essential services ▪ This has been exhibited via less correlation to the broader market than traditional asset classes, such as public equities and fixed income ▪ This asset class is typically supported by regulation and often monopolistic Private Equity Separate Infra. Allocation 2007 1) 2) Alternatives 2019 Real Estate Real Assets 2022 Source: IFM (´24) Probitas Partners Infrastructure Institutional Investor Trends: ’07, ’19 and ‘22 Survey Results Stable, risk-adjusted returns positions in existing markets that support consistent yield ▪ Stable cash flows provides upside potential for investors, with scale to build platforms and drive operational initiatives 5 Infrastructure: Defining Core, Core Plus and Value Add …And its Increased Allocation in the Biggest Asset Managers… Biggest Global LPs 310bn 434bn 140bn 315bn 828bn AustralianSuper CDPQ Infrastructure Public Equities 1500bn 356bn ADIA Private Equities Real Estate Credit 570bn CPPIB Bonds Others 6 Infrastructure: Defining Core, Core Plus and Value Add Infrastructure Market Definition and AC Capitales PoV Infrastructure Strategies(1) and AC Capitales Checklist (2) Biggest Investors / AC Capitales definition “ More Stable Canada Pension Plan Investment Board “ ” Investments with a combination of stable and predictable cash flows, ability to pass through inflation and low risk of obsolescence. Their returns tend to be resilient across macroeconomic cycles due to the defensive nature of the underlying assets “ Government of Singapore Investment Corporation ” Fixed-assets that provide essential services with a combination of stable, predictable and inflation adjusted incomes. Highly regulated, high barriers to entry and generates high operating margins AC Capitales General Partner 1) 2) Source: Brookfield Annual Report . Oaktree (’24) AC Capitales internal checklist ” Less Stable Value Add Return Long-term tangible assets with stable long-term cashflows and less vulnerability to economic downturns. Such as regulated networks, transportation and energy sectors Cash Flow Stability Core - Plus Core Risk Fixed-asset intensive Energy Generation Telecomm. Stable cash flow Roads Education Health Renewables Airports Energy Distrib. Highly regulated High barriers to entry Essential services Energy Transm. Water High operating margins Parking 7 Infrastructure: Defining Core, Core Plus and Value Add The Infrastructure Universe Infrastructure Assets Income Driven Growth Driven Despite on the surface looking similar, no 2 infrastructure assets are alike. They cover many different sectors, are at different stages of lifecycle and vary widely regarding revenue frameworks, cash flow/risk profile + Private Equity Style ▪ Utilities ▪ Electric, gas and water networks ▪ Renewable power assets ▪ Hydro, wind and solar generation ▪ Transport assets ▪ Seaports, airports, toll roads and rail ▪ Midstream networks ▪ Pipelines, processing and storage ▪ Data infrastructure ▪ Telecom towers, data centers and fiber ▪ Social infrastructure ▪ Hospitals, schools and public facilities Value Add Return Core Plus Core Risk + ▪ These assets exhibits similar key characteristics ▪ Capital Intensive ▪ High barriers to entry ▪ Low demand elasticity ▪ Long operational and useful life ▪ Relatively stable long-term cash flows (inflation adjusted) ▪ Provide essential services 8 Infrastructure: Defining Core, Core Plus and Value Add Infrastructure’s Secular Trends The Biggest one is Energy Transition Infrastructure Supported by Secular Growth Drivers ▪ Global energy transition will arguably be the most significant structural change undertaken since the early industrial revolution Energy & Environmental Infrastructure • Renewable energy and climate change adaptation methods ▪ The transition was triggered by a massive cost reduction of electricity generation in renewable energy and strong fundamentals suggest a continued trajectory of lower electricity generation cost Resource Efficiency Decarbonization Circular Economy Decentralization • Energy transition investments increased 734% since ‘13(1) Electrification • Strong declines in cost of “green” power(2): Solar US$/MWh Wind US$/MWh Internet of Things Network Sharing Fast & Reliable Edge & Latency- Connectivity Limitations Cloud Adoption EV Batteries US$/MWh Green Hydrogen $/kg Transport & Logistics Infrastructure 3 120 Digital Infrastructure Social Infrastructure 3 100 E-Commerce 2 0 2 0 1 40 1 20 Connectivity Sustainable Supply Accessible Chains Mobility Automation Healthcare Global Population Consumerization Growth Changing Health & Demographics Wellbeing 0 0 0 1) 2) Source: BloombergNEF, Energy Transition Ivestment trends (’24) Source: Rocky Mountain institute The Energy Transition (’22) 9 B. Executive Summary 10 Executive Summary Growth/Add-On Case Study – Red Eléctrica del Sur S.A The Asset Company with various concession agreements to own and operate a network of approximately 800 kms of power transmission lines and sub-stations in the Southern Andean regions of Peru 55.0% 45.0% Platform Sector(1) 100% IC8020: Electricity transmission companies BR10: Fully contracted income 75.0% II Contracts Grantor Shareholders Type: BOOT MINEM Red Elec. Int. (55.0%) AC Capitales (45.0%) Term: 30-yr Expiration(2): ’31, ’44 and ‘4 Redesur Tesur I, II, (III and IV)(3) Key Investment Highlights 1 2 3 4 5 6 Industry Expertise Strategic Asset Relevant Size Stable and Predictable Cashflows Stable Regulatory Framework Reputable Management Highly experienced operating partner Transmission network that serves 5 different regions of Peru Represented 44.8% of total infrastructure investments of the Fund Fixed income related to investment repayment, in US$ and inflation adjusted Regulations stablished in ’91, driven by technical fundamentals Experienced management team and strong corporate governance All data presented as of January 2017, time of exit of AC Capitales’ Infrastructure Fund I 1) According to TICCS: The Infrastructure Company Classification Standard, EDHECInfra. 2) Redesur, Tesur I and Tesur II respectively 3) Developed/Acquired after AC Capitales’ exit 11 Executive Summary Value Creation Levers Through the Investment Cycle Origination/Sourcing Operational Enhancement Harvest Mode / Exit Active searching Ownership consolidation Diligent negotiations Internal discipline Operational efficiency Exploit network relationships Strong fundamentals Platform development Reap target returns Financial engineering IRR + 1 2 3 4 5 6 7 8 9 10 11 12 YEAR 12 C. Origination 13 Origination A Team Active Searching for Opportunities with Strong Fundamentals and High Expected Returns Active Searching Internal Discipline 1 Investment Origination 2 Opportunity Assessment Redesur won the ▪ ▪ ▪ Experienced asset manager Specialized team members Established proprietary network through access to APOYO Consultoria’s network and experience in public and private infrastructure ▪ Filters to determine if a given opportunity qualifies (3 phases): I) Initial assessment of the investment “go – no go” II) Review more detailed information to prepare an NBO concession in 9 ’ Idea originated by ▪ AC Capitales Proinversion ▪ tender to sell State’s interest Sole bidder. 3 Made the Due Diligence & Execution investment Strong Fundamentals High Barriers To Entry Provide Essential Services ▪ ▪ III) DD before presenting a binding offer Scope of the DD considering specific characteristics, situation and objectives of the potential investment Stable, Predictable And Inflationadj Income Through Long-term Concesión Agreements Highly Regulated High Operating Margins Relevant Minority With Significant Influence Over The Management And Rights 14 D. Operational Enhancement 15 Operational Enhancement A Local Partner Enhancing Value Through an Operations-Oriented Approach Timeline Consolidation of Ownership US$ 4.4 mm to acquire the 15% owned by the State 3.75% owned by Santander for US$ 1.1 million US$ 8.5 mm to acquire 26.25% of the stake and reach 45% of the Company Sold shares to REI 05’ 07’ 3’ 7’ Operational Relevance Permission to qualify (by MINEM) as a strategic partner (as Red Electrica del Sur - Peru) for future concession tenders 5’ Platform Development Financial Engineering Tesur won the concession for 210km, in Arequipa and Cuzco Equity contribution of US$ 11.6 million to develop T2 won the concession for 100km, in Puno 0’ ’- 5’ ’ 1st securitization in Peru to include 2 concessions in a trust asset At the time, the longestterm issue bond in the local mkt (28 yr.) 5’ Securitization’s Use of Funds Value Creation Activities ▪ Prepayment of debt at Redesur and project finance debt at Tesur Consolidation of Ownership ▪ Equity contribution for Tesur II Promoted and actively participated in the buy- out of 2 initial shareholders ▪ Dividend recapitalization to shareholders Tesur I Tesur II Financial Engineering Promoted and co-led local bond, consolidation of operations, growth prospects and distribution to shareholders Platform Development Promoted and actively participated in origination, screening and execution of three greenfield tenders and two brownfield acquisitions Assisted in obtaining permission to qualify as strategic partner for future concession tenders Company multiplied by 2.5x – 3x in terms of EBITDA Dividends of US$ 6.1 million 16 E. Harvest & Exit 17 Harvest & Exit Diligent Negotiation with the Controlling Shareholder, Leveraging their Deep Knowledge of the Asset and Synergies Cash Yield (%) ▪ Due to the good relationship built through the Investment Period… ▪ …Ownership sold through negotiated sale to Red a privately Eléctrica Dividend Recapitalization Dividends + Capital Reduction Internacional, the controlling shareholder 44.4% 43.2% ▪ Entry Value: $25.5mm ▪ Exit Value: $29.0mm 22.1% ▪ IRR: 15.4% 9.2% ▪ MOIC: 1.9x 8.2% 7.4% 7.6% 6.8% 2.4% – 2005 2006 2007 2008 2009 2010 2011 2012 2013 – 2014 – 2015 2016 18 Harvest & Exit Diligent Negotiation with the Controlling Shareholder, Leveraging their Deep Knowledge of the Asset and Synergies ▪ Xx. ▪ X ▪ X ▪ X ▪ X ▪ X ▪ x 19 Harvest & Exit Diligent Negotiation with the Controlling Shareholder, Leveraging their Deep Knowledge of the Asset and Synergies 20
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