Investment process of real asset investments
The Aquila Group employs a holistic, solution-oriented approach to investment management, from the development and implementation of a strategy, to the management of and exit from an asset.
Our investment process follows a predefined structure, designed to ensure maximum investment oversight. Aquila Capital’s independent, asset-specific investment teams utilise their extensive sector network and experience to screen the market for potential investment opportunities. The investment teams are responsible for the due diligence analysis and economic assessment of targeted assets. They identify the risks involved in order to determine the potential viability of investments and optimised risk-return profiles. Throughout the entire investment process, the investment teams work closely with the Group's independent teams in Fund Management, Risk Management, Valuation, Product Structuring & Tax, Compliance and Product Legal to ensure a comprehensive audit of all assets and to identify additional value creation potential. This approach provides a comparatively thorough analysis of opportunities at an early stage of the acquisition process. Additionally, during the structuring of the investment, care is taken to align the structure as best as possible with the requirements of the investors.
An investment is made only if it passes the in-depth analysis of the investment, portfolio management, risk management, liquidity management and valuation teams and due diligence by external advisors.
Once an asset has been on-boarded, Aquila Group manages the asset over its entire lifetime to fully realise its value. The Group’s independent portfolio management, risk management, valuation and reporting functions ensure continuous supervision and rigorous investment oversight and operational management over the entire lifecycle of an asset.
Aquila Group’s portfolio management team applies an “expert in asset class” approach. Each portfolio manager has proven expertise in his/her respective asset class, enabling the Group to meet and manage the diverse requirements and challenges that real asset investments entail.
The portfolio management function plays a key role both during the asset acquisition phase and once the asset has been on-boarded. Following the acquisition of an asset, the portfolio management team ensures best-of-breed management and oversight of the asset over its entire lifetime. It works closely together with the Group’s independent investment management, liquidity management, risk management, reporting, valuation and legal execution teams to conduct a broad range of processes and activities that underpin the long-term success of an asset for its investors.
In order to fully realise the value of an asset, the team monitors the market environment, prepares and analyses performance reports, conducts on-site visits and implements problem solving measures. It serves as the key point of contact for all external investment managers and plant operators as well as for internal departments and liaises with all parties involved in the investment project.
Further responsibilities include contract management, deadline management, the analysis and explanation of actual versus target performance, the identification of any necessary measures that need to be implemented as well as the organisation of required resolutions from governing bodies. Furthermore, the portfolio management function closely supports the risk management process by providing support in maintaining asset risk profiles for each company and ascertaining potential liquidity risks and performance metrics.
Aquila Group’s dedicated risk management team ensures that stringent risk management principles are identified, implemented and adhered to, both during the asset acquisition phase and once an asset has been on-boarded.
The risk management function is involved throughout the entirety of the Aquila Group's investment process. The risk management team’s initial involvement in the investment process occurs as they provide approval for the selection of external due diligence providers and the relevant associated costs. As a project acquisition develops a final risk management approval is required to proceed with the execution of the deal. The risk management team’s project analysis is based on an in-depth assessment of the underlying model assumptions, the sales contract, the purchase price mechanism and the due diligence findings.
As the investment process progresses, the risk management team will define key performance metrics for the asset to adhere to through its lifetime while also providing on-going risk assessment reports. Furthermore, the team is involved in the risk assessment of external services, such as asset due diligence and in the review of the statements and reports that are produced as part of the due diligence process. Further responsibilities include the analysis and approval of investment proposals from internal and external investment managers and conducting a plausibility check of how the purchase price has been determined and of the valuation of the asset provided by the valuation team. In addition, the team conducts an in-depth risk review of the contracts that are to be drafted (purchase price agreement, LOI etc.) and plays a key role in the structuring of acquisition companies and investment vehicles. The team assesses the compatibility of the company structures with defined company criteria and regulatory requirements, creates reports on product risks, assesses risks related to asset financing and collaborates with internal parties on reporting issues. Further key tasks include the screening, evaluation and creation of efficiency analyses and profitability calculations and organising and obtaining necessary decisions from governing bodies.
Once an asset has been acquired, the risk management team conducts quarterly risk assessments of the asset, creates and maintains a range of risk documents, including risk profiles, risk reports and ad-hoc reports, prepares and implements contractual negotiations and new contracts and monitors contract management and deadline management. Taking an active risk management approach, the risk management team works closely with the portfolio management team to limit/eliminate risks. Furthermore, it collaborates with the valuation department, which has to receive sign-off from the risk management team before making any changes to the valuation methodology or key assumptions concerning the asset or the calibration and back-testing of valuation models. Finally, the risk management team is provided with decision-making powers when assets are sold or (intermediate) companies are liquidated.
The Group’s independent valuation function is responsible for determining the fair value of assets whose prices cannot be determined easily in the market. The fair value is ascertained by using well established valuation fundamentals that are based on discounted cash flow models and observable market factors.
The valuation team takes responsibility for valuation following the acquisition of an asset and during its lifetime. The value of each real asset investment is assessed on a quarterly basis. The valuation forms the basis for the price calculations of the custodian bank, reporting and as a component of performance measurement. The valuation is based on prevailing market parameters, such as current interest rates and the market price for risk, as well as observable required returns for similar transactions.
The intrinsic value of debt securities is examined also by the valuation department.
The valuation methodology remains essentially the same across the different asset classes. The valuation methodology and its results are audited annually by an auditor from one of the Big Four firms.
Aquila Group’s dedicated reporting function produces a broad range of reports tailor-made to meet the specific needs of institutional investors, including monthly, quarterly and annual reports.
Institutional investors are provided with a detailed quarterly report that contains information on the performance of their investment and provides in-depth information on the operating environment of current investment projects. It also contains information about the relevant market environment and the current project pipeline, where relevant. Furthermore, investors are provided with an annual report at the end of each financial year.