Sourcing and evaluating potential investments sit with the Origination and Execution team of InfraRed. InfraRed’s approval processes require an early-stage evaluation of investment opportunities for compliance with investment scope, robustness of proposition, sustainability, likely success and the bid costs or due diligence costs to which the Fund will be exposed. A New Business Form (“NBF”) is presented to the Resource Allocation and Deal Selection (“RADS”) committee once the opportunity is sufficiently well defined to assess its potential suitability for an infrastructure fund. The RADS committee, of which the head of Origination and Execution and various fund managers are members, decide which opportunities to pursue and allocate the necessary infrastructure team resources, including senior deal sponsorship. The purpose of the RADS is to ensure that the origination & execution team’s resources are focused on opportunities with the best potential, and to balance the allocation of resource across the various funds being managed by InfraRed.
When seeking to acquire an investment, the proposition is considered and recommended by an Advisory Committee which includes representatives of both RES and InfraRed . It is then fully assessed by the Investment Committee, which comprises key senior individuals at InfraRed. InfraRed has delegated authority (with agreed limits set by the Board) and gives the final approval before an investment may proceed, but first an investment is progressed through InfraRed’s well established three-step approval process described below:
First: an Authority to Proceed paper (“ATP”) is presented to the Investment Committee (i) as soon as abortive costs are to be incurred, (ii) where InfraRed is likely to incur reputational risk in pursuing the transaction further, or (iii) if the transaction’s fit with TRIG’s investment strategy needs further discussion. The ATP analyses an investment’s risk-reward dynamics, identifying the key value drivers and risks. It summarises the business plan, the corporate acquisition structure, the financing terms, the acquisition budget, and certain counterparty due diligence and ESG considerations in accordance with the United Nations’ supported Principles for Responsible Investment and Sustainability Development Goals. It also screens for adherence to the investment strategy and portfolio construction of the Fund and any relevant policies and restrictions. The ATP allows an investment’s rationale to be tested at an early stage, before significant time and costs are incurred, and for a framework for addressing issues that may arise during detailed due diligence to be agreed. If the ATP is approved, a deal team is formed, which will undertake detailed due diligence in readiness for the second step of the approval process. A potential investment can be subject to various rounds of ATP’s as the investment proposal is being developed.
Second: an Investment Committee paper (“ICP”) is submitted to the Investment Committee by the deal team. The ICP comprehensively analyses the investment rationale, including corporate structuring and risk mitigation strategies.
Due diligence is led by the InfraRed infrastructure origination & execution team with support from the Operations Manager, RES, and may include use of professional expertise including engineering and/or technical consultants, environmental/sustainability consultants, accountants and taxation advisors, financial modellers, lawyers and insurance experts. These advisors may produce due diligence reports which are intended to provide a second and independent review of key risks. In addition, InfraRed will carry out a credit and performance risk assessment on contractors, subcontractors, equity partners, and other parties as appropriate. InfraRed may also carry out a peer review of key documents when appropriate.
All investment evaluations are supported by financial modelling. Investments are considered using a base case which is then assessed by sensitivity analysis on key variables, including fluctuations in revenue and costs.
Third: due diligence sign-off is required prior to completion of an acquisition by members of the Origination & Execution team to whom various responsibilities have been delegated by the Investment Committee at the ICP stage. This sign-off covers all aspects of technical, legal, environmental, counterparty, tax and other due diligence matters. As a final independent oversight, InfraRed’s Operational Risk and Governance teams ensure that all delegated responsibilities have been satisfactorily completed prior to investment. If the conclusion of the due diligence shows that there has been a material adverse change to the project’s return, the Investment Committee will reconsider the proposal.