NewNet Investor Profile, Mark Nydam, PCG Asset Management

1 December 2009

Mark Nydam

PCG Asset Management (PCG AM) offers research and investments in private equity funds, direct investments and co-investments, and specialised fund products. PCG AM oversees the investment of over $9bn annually.

Mark Nydam is a managing director responsible for PCG AM’s cleantech investment practice. Prior to joining PCG AM, he was a principal at Booz Allen Hamilton where he directed clean and new energy technology related to private equity engagements in the Middle East. Before that, he founded advisory firm Signal Hill Advisors. Previously, Nydam was a principal at L.E.K. Consulting. He spent three years working as a Foreign Affairs Officer for the U.S. Department of State.

Why clean energy?

‘PCG started about twenty years ago and was the first advisor to get the California Public Employees’ Retirement System (CalPERS), involved in private equity investing. We then expanded the business to include most of the major public pension funds in the US.

Over the years, as we identified areas that we felt these institutional investors should be investing in and if we became aware that an appropriate fund product did not exist, then we would look to create that fund product.

Starting in 2004, we identified the cleantech space as an area that long-term institutional investors should start focusing on. At that time there were not really any institutionally-focused fund products. With CalPERS we started an initial programme of about $200m, a fund of funds-focused programme which was structured in an appropriate way for institutional investors. In 2006, we followed that with the creation of our current clean energy and technology fund, which was about $600m in size. This has funds from LPs including CalPERS and NYCERS, amongst others, and is a fund as a well a direct investment product.

I joined the firm two years ago, having created the $100m cleantech programme for Kuwait Petroleum. Taking all those programmes together, we advise on and manage approximately $1bn.’

What is the split between PCG’s fund investments and direct investments?

‘I would say it is about 70 per cent fund investment and 30 per cent direct investing. Because we are a rather large investor in the cleantech space and because we take rather large positions in the funds we invest in, it is quite easy for us to negotiate co-investment rights and therefore having a pool a money available for co-investment rights allows us to cherry-pick the deals we believe are very attractive where we can make a direct investment.’ Because we are a rather large investor in the sector, we can often negotiate co-investment rights that add an additional source of attractive deal flow. Our clean energy and technology team is extremely proactive in sourcing investment opportunities through our global relationships, but the additional insight into the GP universe adds value to our co-investment efforts.

Why have you also chosen to invest directly?

‘What we are trying to do with the direct investment portfolio is to create a portfolio of investments across the cleantech space, which is very broad and has exposure to a diverse set of sub-sectors. Our intention is to create a portfolio that gives our investors exposure across the sector. Essentially, we are trying to increase the alpha return by making sure we choose only the best investments.’

What do you look for in a clean energy fund?

‘We focus on funds that are solely concentrated on the cleantech and alternative energy space. There are some funds out there that are look at both cleantech and IT but, we prefer to stick to focused clean energy and technology managers.

We target managers that have more than one fund under their belt. Our view on the cleantech space is that it is a more complicated space than many of the other technology spaces. That is because it is intimately bolted onto the worldwide energy sector as a whole. You require an intimate understanding of the global energy business and how it works before you can be a good cleantech investor.

If you go back and look at 1995, there were only 25 cleantech funds, now there are something like 1,700. Our view is that those managers who have been involved for a few years have a perspective and have gained some experience. They have seen the downturn in this field, and we are therefore much more comfortable investing in those people who we trust. The other aspect we take into account is the need to construct a risk-adjusted portfolio that is appropriate for our investor base. It means we are probably going to weigh our portfolio a bit more heavily towards later-staged private equity rather than the earlier stage. We have a rough 30-70 split there, with 30 per cent focused on the venture stage, with 70 per cent looking at the later stage.’

Which areas are of particular interest?

‘I think just as a general statement, each of the sub-sectors within cleantech is forging its own development and path to maturity. I think going forward, taking the current energy and economic environment into account, we would like to remain in the efficiency area, be that software or companies that are involved with green buildings. That is because the payback on those kinds of investments for a corporate investor, are quite short and quite attractive and so it is really a no-brainer in the current economic environment.

I think sectors where there is a requirement for large capital investments, where you are really looking at a ten to15-year payback, given the current debt markets, will be affected in the near term. Over the long-term, we still believe that the whole cleantech space is very, very attractive but in the short-term, capital intensive sectors will experience a hard time over the next year or so.’

What challenges do you face?

‘I think for us right now the challenge is finding direct investment deals that are going to thrive in this current financial environment. There are lots of opportunities. We have cash and we are actively looking to invest, but the challenge is working out which companies are going to do well over the next few years given the environment. That is probably the biggest challenge right now.

Another challenge that is out there, but is getting less so over time, is finding deals with management teams that are not recycled management teams out of Silicon Valley. These people do have experience in taking a technology and commercialising it and bringing it to market, but the downside is that very few of these people have any experience in the energy business. They really do not understand how the business works and how something that might happen in the Middle East or Nigeria could affect how successful they are going to be in their cleantech business. So that has been a challenge at times.’

What are the advantages of operating in this space?

‘The advantages of the cleantech sector differ by sub-sector. There are many sub-sectors where the economics still make a lot of sense, such as energy efficiency. Payback in that sub-sector is 12-18 months and then it is pure return thereafter. That makes a lot of efficiency companies very appealing. Another advantage as a sector, given the current climate, is there is still strong public policy support. Certainly Europe has retained that strong support and now with the new administration, the support in the US will also grow. Particularly with the Obama administration, emphasis on green infrastructure in the US has come to the forefront. The fact that we play 70 per cent of our investments in late-stage clean energy investing is going to be very attractive for us and help us out as a company.’

What is the biggest issue facing the clean energy sector?

‘One of the issues is the drop in the energy price. This is causing many inexperienced investors to not keep their eyes on the long-term, because you need to look at global energy supply and demand going forward. A lot of these investors back off, and you are going to see a lot of delays in bringing products to market.’

Could this be of benefit to the more astute investor?

‘I think so. We are still seeing a lot of great deals that we like very much over the medium and long-term, which we might not have seen, had the environment not worsened. I think for the right investor, it does provide investment opportunities.

The other thing we are seeing is valuations dropping. For some of the sub-sectors out there, we were seeing bubble characteristics, and the downturn has injected some reality back into asset values which is naturally beneficial in the long run.’

How can you see things evolving going forward?

‘I think the public policy support for cleantech, as well as pure energy supply/demand factors and the economic benefits of implementing clean technologies will continue to drive this sector forward. I think the downturn in the economy will not hinder it growing but at the same time I think the downturn is causing a rationalisation in a lot of the asset values, removing some of the bubble characteristics.

We are clearly still very optimistic for the space and for the institutional investor. As the space matures, increasing amounts of capital will be needed to commercialise a lot of these technologies. Cleantech is very capital-intensive. Institutional investors tend to have a lot of capital at their fingertips and enjoy investing larger amounts so I believe there is a nice agreement between what the space requires and what the institutional investors can provide.’

Copyright © 2009 NewNet

Tags: private equity

This story was published on Tuesday, December 1st, 2009 at 6:56 pm and is filed under investors, profiles. You can follow any responses to article entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “NewNet Investor Profile, Mark Nydam, PCG Asset Management”

1. HARISH REDDY says:

   18 February 2010 at 11:36 am

   Dear Sir, I wish a good luck, thanks a lot for your company view and service that you are doing a invaluable assistance to our earth and environmental buy funding different companies in these fields. Let me Introduced myself I am Harish Reddy CEO of GKNS Energy Pvt Ltd from India looking a project investor to produce 6.6MW from MSW in India and we have a scope up to 11Mw.
   Details of Project:
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   Project: CDM Project approved
   Location: India South Part
   Total Cost: $18.5M
   Finance required: 100% or 85% Debt
   Status: PPA and MSW agreements stage
   Duration for Commission: 20-22 Months
   Tenure Period: 9-12 year from commission
   Direct investor/Project finance/Banker/ Funding Company and agents are welcome

   Kindly let me know you feedback:harish@gknsnenergy.com

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