Institutional Investor is proud to recognize leaders within the allocator community for their outstanding contributions to portfolio development at the second annual AlphaEdge Recognition Dinner. Prior to the event, we sat down with Dan Revers, recognized in the category of Founder of the Year.
Dan is a catalyst for change. Before he founded ArcLight Capital Partners, LLC in 2000, he was a Managing Director in the Corporate Finance Group at John Hancock Financial Services, where he oversaw the origination, execution, and management of a $6 billion portfolio consisting of debt, equity, and mezzanine investments in the energy industry. At Wheelabrator Technologies, he contributed to the development, acquisition, and financing of domestic and international power and energy projects.
He is a graduate of Lafayette College, where he earned a BA in Economics, and Dartmouth College’s Amos Tuck School of Business Administration, where he received an MBA. To date, he has three decades of experience in energy finance and private equity investing. At ArcLight, a Boston-based, $8 billion+ infrastructure asset manager, he manages the overall investment, asset management, strategic planning, and operations of ArcLight and its funds.
The following has been edited for length and clarity.
What is the biggest challenge facing the industry today?
The energy transition has unleashed a tidal wave of infrastructure capital. Government policy is directing money towards the transition, and institutions are picking up on it investing in related venture capital, growth capital, and infrastructure. However, the desire to put capital to work has gotten ahead of the investment thesis in areas like offshore wind where investors lost billions of dollars, in what was supposed to be to be lower-risk, lower-reward infrastructure investments.
We’re seeing a similar scenario play out in in battery storage where there is not a well-defined commercial construct in place that provides visibility into long-term risk and reward. Nonetheless, billions of dollars are being invested in battery storage projects.
How can we make energy transition better for U.S. pension plans?
U.S. pension plans should focus the majority of their transition capital on technologies that are well understood and business models that are well-defined. Investors got behind EV charging stations because everyone got behind the EV trend but EV charging stations will replace gas stations, and gas stations don’t make much money selling gasoline: They make it by selling milk, food and lottery tickets.
As I see it, renewable power is the largest and most actionable place for U.S. pension plans to invest in the transition. For many years, people have invested in operating hydroelectric plants and found ways to improve them technically, operationally and commercially on the back of dozens of years of historical hydrological data. I think there is an opportunity to employ the same approach to wind and solar power plants. Over the next few years, nearly 100 GW of wind and solar plants will be over 10 years old, creating an opportunity to invest billions of dollars to refurbish and repower plants where the wind and solar production is now well known. Before now, the only way for institutional investors to invest in renewables was in the development of new-build plants, which entails a number of additional risk factors and a relatively long J-Curve. Investing in operating plants limits these risks and dramatically shortens the J-Curve.
Is it possible to be a global investor because of energy transition topics?
We are navigating this challenge by taking a practical approach to ESG, focusing on KPIs that are measurable and make a difference in the assets we invest in. Some investors outside of North America take a more programmatic approach to ESG, which can be challenging for an energy focused infrastructure investor to navigate, but we are adapting. Some have little or no appetite for fossil fuel exposure including low-carbon natural gas-fired power generation which makes it even more difficult.
The other challenging aspect of the transition is a push by limited partners to consolidate their relationships across the private markets and allocate larger commitments to fewer managers. As a mid-size, energy infra specialist, we’re often on the wrong side of that equation but we are leveraging our experience and detailed knowledge of the global energy complex to remain relevant with these investors
Is a specialist better than a big name?
When it comes to the energy transition, we think specialists will have an advantage. ArcLight was one of the first firms to focus on energy infrastructure, which was not very well-known asset class at the time, but when I was at John Hancock Mutual, I saw an interesting opportunity to invest equity in the projects we were providing senior debt that had an attractive risk reward proposition. We invested heavily in these projects, but it eventually outstripped Hancock’s ability to invest so we went out and raised a sector focused fund
At the time, Infrastructure was not an established asset class, so we were pioneers doing a lot of educational work regarding the asset class and eventually investors understood this could be an interesting addition to their portfolios. Fast forward to 2024, and now infra is one of the largest and fastest growing assets classes in private investment
Who are your mentors?
When you’re on the investment side, you need to constantly evaluate and balance risk and reward. John Hancock was my first buyside job, and I learned valuable lessons from our CIO and CRO Roger Nastou, and Margaret Stapleton. Given our portfolio at the time was largely fixed income, they taught me to focus on downside protection which has served me well in evaluating infrastructure investments.
If you weren’t in this business, what would you be doing?
I have no talent when it comes to artistic things, but creating ways to look at a new and evolving asset classes has allowed me to be creative in different ways. Coming up with an plan of execution is something I can see myself doing after my time at ArcLight in a variety of fields, although I don’t have a specific one in mind right now.
What do you think can be done to improve the industry?
I think to some extent, private equity was a mysterious business when I started. The industry has come a long way since then standardizing documentation reporting, but there’s a lot of wood to chop.
I think it is also important to maintain open lines of communication with LPs. Our partners like to hear from us in good times and in bad.
What makes ArcLight special? Where do you see ArcLight in 10 years’ time?
I think what makes it special is our focus on market fundamentals and our hands-on approach to investing that includes specialized in-house resources and partners, such as our 2,000 operations partner; and our data analytics team that analyzes the commodity markets. These resources are a bit different than most managers and makes us looks more like a strategic than financial investment firm.
In addition, many members of our senior leadership have been in place for nearly 25 years and has seen the entire investment process, from origination to exit play out over 60 times.
What’s the good behavior?
When you invest in ArcLight, you get mind share as well as returns. We spend time a lot of time with LPs doing teach-ins and thought pieces. Introducing them to new and interesting areas of investments, or other ways to invest in more mature markets, creates a common base of understand that benefits both the GPs and LPs.
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