apital-intensive investments can help businesses enhance their operations, capture a larger market share, and boost revenue and profits. These distinctive types of investments—which are typically large-scale, long-range, and high-cost in nature—encompass multiple facets and complexities.
Often, capital investments entail the acquisition of businesses, buildings, land, vehicles, and equipment, as well as major construction and maintenance projects. Regardless of the assets and intricacies involved, the key objective for investors is to grow capital and generate long-term value.
Continuing, Gillam says: “Small business loans from the SBA [Small Business Administration] or USDA [US Department of Agriculture] can provide smaller-sized capital. These loans typically require a personal guarantee and are usually capped out at about $7 million. These loans tend to have more liberal lending standards, but they are small and not usually helpful to mid- or larger-sized businesses. A third option on the very high side of lending is issuing public or private bonds. These bonds are usually in the range of $500 million to $1 billion and higher, so they only apply to a small number of very large businesses and projects.”
What’s missing in Alaska, Gillam says, is funding between the high end of small business loans ($7 million) and the lower end of private and public bonds ($500 million). “There is little capital available in this gap, and it’s an obstacle for the economic growth and development of Alaska business,” he elaborates. “This is the space that McKinley Capital is trying to fill with both private equity capital and private debt capital available to qualifying Alaska businesses.”
Recently, McKinley Capital added a Direct Lending Program to its roster of services. The program provides one-stop capital solutions for Alaska businesses needing financial investment to thrive and/or grow in the current, post-pandemic economy. Gillam says, “This program fills a known void in Alaska for corporate capital options that are greater than those offered by the Small Business Administration but less than those offered by the investment-grade bond market.”
Another potential partner for investors is PT Capital, an Anchorage-based private equity firm. The company focuses on investment opportunities in high-potential markets in North America and Europe, including Alaska, the Pacific Northwest, Iceland, and Finland. “We tend to invest into private companies and work with management teams to grow the companies and create shareholder value,” says CEO, Co-Founder, and Chairman Hugh Short.
Established in 2013, PT Capital invests in attractively valued companies in industries that are well-positioned to benefit from increasing economic activity in its target regions. Its portfolio includes successful investments in remote housing, scrap metal recycling, tourism, telecommunications, and, more recently, helicopter service providers. In the aggregate, the firm’s portfolio of companies has a combined enterprise value of more than $300 million and manages more than 950 employees across the United States, Iceland, and Finland.
McKinley Capital Management
Wells Fargo provides investment banking solutions through its affiliate, Wells Fargo Securities. “Wells Fargo Bank provides commercial loans, lines of credit, asset-backed loans, letters of credit, treasury management services, depository services, and many other related financial services,” says Wells Fargo Alaska Commercial Banking Leader Sam Mazzeo, who is based in Anchorage. “Wells Fargo is a leader in arranging syndicated loans [offered by a group of lenders who work together to provide credit to a large borrower], bond issuances, and other financing structures.”
After a great idea, access to capital is one of the biggest hurdles for growing a business, Gillam says. This is especially true in many technology, manufacturing, and natural resource projects where the costs to operate are typically front-loaded before the project can produce any revenue. However, private investors bring capital to projects to help them reach their operating potential.
A good example of this is McKinley Capital’s investment in 60Hertz Energy. 60Hertz is a maintenance software designed to manage and monitor assets that are in remote, off-grid locations for sectors such as mining and rural electricity. “Microgrids are very important in Alaska, and the cost of power in rural Alaska is one of the greatest challenges to overcome, not just for the consumption of power but also for the basic human needs of food and shelter,” says Gillam, a second-generation Alaskan. “It is hard to afford such luxuries when the cost of power consumes most of a household’s cash income for the year.”
Wells Fargo
At PT Capital, team members execute on sourcing and placing investments, among other specialized services. Many companies cannot complete these services on their own because they lack the capital and/or the expertise, making PT Capital a vital resource. “We work with the management team on the operating day to day; we develop a strategy to develop a long-term plan,” Short says.
McKinley Capital’s focus in Alaska typically falls into one of the following categories: Arctic and situationally relevant technology; transportation and logistics; energy, mining, and exploration; tourism; and seafood. A prime example of a large-scale project that met the firm’s investment criteria is Alaska Cargo and Cold Storage—a joint venture of industrialist Chad Brownstein and McKinley Capital Management.
Wells Fargo has a substantial presence in Alaska’s major markets, ranging from natural resources to seafood and energy, according to Nick Williams, a leader within Wells Fargo’s corporate and investment banking team. Williams is based in Seattle and works directly with Alaska clients on equity investments, typically involving customers buying or selling businesses.
In his role on the investment banking side, Williams often works with companies seeking to tap debt and equity capital markets, as well as an advisor for merger and acquisitions. Currently, Williams says he is seeing more capital investing activity taking place in the seafood industry, including new ships being built to replace antiquated vessels. Another example of a significant capital investment is the new cold storage facility in the works at the Ted Stevens Anchorage International Airport. The 190,000-square-foot cold storage and climate-controlled air cargo transfer facility—slated to open next summer—will provide the seafood industry with enhanced options for cargo transfer cold storage and seafood processing.
Williams says that over the past decade he has noticed the growth of another form of large-scale capital investing: infrastructure funds. These specialized funds raise large amounts of capital to invest in infrastructure-related assets in various sectors, such as utilities, cold storage container terminals, and railroads. “They’re looking for long-life assets with predictable cash flows; in return, they tend to be a cheaper source of capital,” Williams says.
PT Capital
Investments vary based on the amount of capital committed, the investor’s timeline, the investment entity, and the investor’s specific goals. In general, private investments tend to have a longer investment hold time, with investors looking for a return after about seven to ten years, Gillam says.
Most of PT Capital’s investors are comprised of institutions that include larger asset managers in the Lower 48 and life insurance companies. “I saw a unique opportunity in Alaska,” says Short, explaining the rationale behind PT Capital’s inception. “There hadn’t been an institutional private equity firm started out of Alaska when we launched back in 2013… When we formed, I went out and found investors in and outside Alaska. They were interested in our track record, our reputation. We were able to raise a substantial pool of money.”
Wells Fargo, on the other hand, has a different approach to facilitating investments for businesses. The bank funds loans from its balance sheet with its capital. “Wells Fargo is a national leader in arranging syndicated loan structures for its largest business clients,” Mazzeo says. “In addition, Wells Fargo Securities can underwrite and distribute bonds for its corporate clients that have access to public debt markets.”
Capital management firms are constantly seeking to identify potential new investments, which often requires an individualized approach, according to Short. “Alaska is not a place where you cold-call people,” he says. “You pick up the phone and invite someone out to lunch. It’s really relationship-based in Alaska. We believe our approach in Alaska—with our network, with word-of-mouth and being in the community—is super important.”
He adds, “In other places, like Finland, we have advisors and bankers who help identify potential investments.”
Gillam, as the head of a global finance firm, feels that the world has a keen interest in investing in Alaska. The reason: Alaska has an underdeveloped economy, rich natural resources, and the security of US law and the US dollar—and this makes for an attractive investment opportunity. “We opened our private investment business in 2019 because we believed that our public investment experience and discipline, combined with our Alaska knowledge and location, could help us effectively identify private investment opportunities and bring investment capital to Alaska,” Gillam says.
Gillam adds that he appreciates McKinley Capital’s long-term relationship with the Alaska Permanent Fund Corporation, which was the founding investor in the Na’-Nuk Investment Fund through its Emerging Manager Program. “As of December 31, 2020, we have vetted more than sixty-six deals worth more than $750 million,” he says. “Through our private investment business, we have brought Peter Pan Seafood back to US ownership, helped Astra get its spaceport operating in Kodiak, and just announced a 55-year lease with the state of Alaska for a cold storage facility at Ted Stevens Anchorage International Airport—all while being singularly focused on providing a return for our investors.
“I believe Alaska’s best days are ahead. I am excited to be helping create jobs and infrastructure in our state while delivering returns for our clients.” 