Harnessing decarbonization and digitalization tailwinds in mid-market infrastructure

^{Pablo Pallás, Managing Partner, White Summit Capital}

Despite the challenging fundraising environment, large infrastructure funds are raising sizable amounts, buoyed by the growing demand for decarbonization solutions and clean energy. In 2024, average fund size hit $1.5bn from 106 funds closed, the second-highest total in over two decades, according to Preqin Pro.   

But as the upper market becomes more crowded, competition for large-scale deals is heating up. Pablo Pallás, Managing Partner at Madrid-headquartered White Summit Capital, spoke with Jayda Etienne, Deputy Editor of Preqin First Close, about opportunities in mid-market infrastructure, attracting institutional investment, and capitalizing on strong tailwinds in Europe.

What is your role at White Summit Capital?

I’m one of the managing partners, alongside Gonzalo López who founded the company in 2011. We started by looking for energy infrastructure deals and opportunities in Europe on a case-by-case basis, then for the right investor, and putting the two together. But in 2022, we decided to have our own fund because the market and opportunities were rapidly evolving.

You recently announced the first close of your Decarbonization Infrastructure Fund at €350mn. Why is now is a good time to invest in sustainable infrastructure?

What we anticipate over the next 10–15 years are two mega trends in infrastructure – digitalization and decarbonization. Digitalization is anything to do with communications, data centers, and the movement of data from one place to another. Decarbonization relates to any solutions addressing the changes that society and the economy must undergo to become more sustainable. Although political impetus for the energy transition across Europe and the US has somewhat waned compared with a few years ago, these long-term trends are unquestionable. The economy needs to be electrified, and transportation has to become more sustainable. This presents huge opportunities, not just for this fund, but to make an impact by backing and scaling solutions that are trying to accelerate the energy transition.

Have you done any deals with this fund?

We’ve done three deals so far. One is with Powesco, an energy efficiency-as-a-service company operating in France, with an initial investment of €150mn. The team provides energy audits for office buildings and then offers the landlords a number of improvements to reduce energy usage. We went to them and suggested they change their business model slightly to prioritize securing long-term contracts with landlords. That way, the cost of capital is lower, and you can then fund the energy improvements yourselves. Now, Powesco finances its customers’ energy efficiency projects and reimburses itself from the energy savings. In Europe especially, this is a necessary and important solution because there isn’t an abundance of cheap natural gas, so energy savings are going to become even more valuable.

Why are you focusing on mid-market infrastructure?

It has the right companies at the right size. Many of these energy transition-related infrastructure companies are still in the building stage. Investments of between $50–150mn support these nascent businesses, and as an infrastructure fund there’s not much competition. If your ticket size is $400–500mn, you might miss out on a lot of these opportunities, so for us it was important to have a fund that was size appropriate. Many mid-market infrastructure businesses aren’t able to access bank financing because it’s still too early or they’re too small. Therefore, we’re targeting an opportunity-rich market segment, while also filling a market need. Once we grow and scale these businesses toward the $500mn-plus stage, there will be lots of liquidity options from bigger GPs and large-cap infrastructure funds.

What’s attractive about the sustainable infrastructure opportunities in Europe?  

There’s growing and sustained demand for energy security and energy independence. Europe needs to build things. It needs to rely less on external sources of energy to thrive. And for its economies and industries to be competitive. So, there’s lots of support, both from institutional investors and from the EU and governments, to build as much infrastructure in Europe as possible. 

Is there interest from international institutional LPs in European infrastructure?

The tailwinds are very strong, and investors across the globe recognize this. What we see with institutional LPs, whether they’re in the US, Canada, or Europe, is that they want to invest in sectors where there is strong long-term growth, because they usually have commitments of 10–15 years. That’s why we see a lot of interest in digital infrastructure and renewables.  

Is there a mid-market space for data centers in Europe?

Scale is very important for data centers. It’s all about computing power and size, so it’s mainly billion-dollar mega deals. But these massive digital infrastructure projects require more sustainable energy and more efficient use of energy resources. That’s where we see the link to the energy transition, and how our expertise and focus on emerging companies in the sustainable energy and decarbonization space can be profitable. There aren’t many large data centers globally – definitely not in Europe – so they need building. That’s a lot of construction and development risk to take on, and a huge balance sheet to manage.

How has the fundraising landscape changed since 2022?

When we started fundraising in 2022, there was lots of interest, but the energy transition space was a little bit more dogmatic. What we’ve seen more recently is that while ideology is important, it’s the economic drivers that make the difference. If you were to target opportunities that are heavily subsidized or where the numbers don’t work without a massive grant from some institution, then investors are more hesitant. Nobody wants to be relying on a government subsidy and suddenly the political winds shift. So, our LPs are focused on future-proofing – ensuring investments will be profitable over the long-term. If they have a positive environmental impact on top of that, then that’s a bonus.

What is your fundraising strategy as you approach the second close?

Getting to that first close is always complicated because everyone wants to wait and see who else has committed capital. Our first group of investors mainly included institutional LPs, such as the European Investment Fund which committed €150mn, plus other global asset managers and insurance companies. That was very good news for us. If the fund grows and we continue to invest well, then they will likely up their investments. For a fund of our size, we mostly attract capital from institutional investors – funds of funds, small pension schemes, and perhaps some private wealth platforms. Also, US-based managers with a mandate for European GPs or managers outside of their core market – we’ve had interest from a few of those. 

Jayda Etienne is Deputy Editor of Preqin First Close. It’s quick, easy, and free to subscribe here.

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_{The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin accepts no liability for any decisions taken in relation to the above.}