Capital Commitment: A Billion-Plus for American Infrastructure

Vinson & Elkins Partners Robert Seber, David Peck, and Megan James, counsel to Ridgewood Infrastructure, share the story behind the private equity firm’s latest success and the legal work that went into it.

Ridgewood just completed the final closing of its second fund — Water & Strategic Infrastructure Fund II — and you each played a major role. What should we know about the fund?

Robert: The fund’s investment strategy centers on essential infrastructure in the United States. So, assets in sectors that form the foundation of the US economy — like water, energy, transportation, and utilities. As the name suggests, this is Ridgewood’s second infrastructure fund. And at $1.2 billion, its final close landed well in excess of Ridgewood’s $1 billion target.

Megan: The fund is targeting the lower middle market — meaning, companies on the smaller side with attractive valuations and high growth potential. The mix of limited partners in the fund was incredibly diverse: public pensions, corporate pensions, insurance companies, endowment funds, asset managers — you name it.

David: These leading institutional investors hailed from across the world — North America, Europe, Asia, and the Middle East. They included partners that Ridgewood had worked with before, as well as new ones. Attracting investment at this scale and breadth was a remarkable achievement, and it speaks to the sterling reputation that Ridgewood has built.

Remarkable indeed. But it didn’t happen overnight.

David: It didn’t. Infrastructure Fund II launched back in 2022, and had raised nearly $700 million by its first close in August of that year. But in 2023 and 2024, global infrastructure fundraising declined sharply. So, seeing this through took some real commitment.

Robert: Right. Investors base their decisions to invest with a private equity firm in large part on the firm’s track record of realizations — meaning, the returns that it’s delivering to investors from sales or other exits. As the dealmaking environment weakened in recent years, funds had fewer opportunities to make successful exits, which made it harder to timely return capital to their investors.

Megan: Yet despite the headwinds, Ridgewood was able achieve significant realizations from its first infrastructure fund — and on attractive terms, too. This strong track record — alongside Ridgewood’s impressive discipline and long-term engagement with its limited partners — helped Fund II surge past its fundraising target and defy the broader market trend.

Tell us about your role in helping organize the fund. Were you involved in the entire process?

Robert: From a legal perspective, absolutely. We also worked closely with Ridgewood’s placement agent, Eaton Partners, who led the work to identify prospective investors and bring them on board.

Megan: On the front end, we focused on establishing the fund’s structure, ensuring that it would be in compliance with the many relevant securities laws and regulations, and developing the private placement memorandum.

The PPM was essential for generating interest in the fund. It gives a detailed picture of the fund’s strategy, terms, risks, objectives, and more — everything that potential investors would need to know before deciding whether to make a capital commitment.

David: We then turned to the limited partnership agreement, which governs Ridgewood’s relationship with the fund’s investors. The LPA essentially defines how the fund will operate, along with the parties’ rights and obligations. A big part of our work was to draft the LPA and negotiate with the limited partners on the terms.

Complex work.

David: It was, especially on the tax side. Many US infrastructure funds attract capital primarily from entities based in the United States. But this one had numerous offshore investors, and raised a substantial share of the $1.2 billion from outside the United States.

Of course, private equity funds always have a range of tax considerations to contend with. But when offshore investors are involved, the considerations become more complex, and it requires creative thinking to ensure that the fund operates efficiently from a tax perspective.

Megan: So, David and I met regularly with Ridgewood and the limited partners to talk through the key tax-related questions. For example: What will the tax structure look like? How much leakage might there be? Will there be dividend income? Will the income be treaty-eligible?

Ridgewood actually built a model to explain the various tax-related outcomes. We participated in the development of that, and created a flip book describing the tax structure, the basic tax consequences of investing, and the choices that investors could make.

You must have a great working relationship.

Robert: We do. The Ridgewood people are driven, resourceful, and forward-thinking, with deep, industry-specific knowledge and experience — all qualities that position a business to succeed. But their collaborative mindset is what really stands out, and is what has made them a delight to work with for so long.

How long have you and Ridgewood been working together?

David: More than a decade now. Ridgewood Energy initially came to us to advise on its second oil and gas fund, which it formed to invest in offshore exploration and production projects. That fund raise also turned out to be another big success.

Robert: And that success strengthened our relationship, paving the way for us to work together on several more oil and gas funds. Years later, when Ridgewood decided to expand into infrastructure, they again sought our counsel, and we’ve continued to work together since.

What about internally — how did that workflow look?

Robert: You know, the three of us have been working together for many years — on many types of matters. So, we’ve got our workflow pretty much down to a science. It’s highly collaborative, just as when we’re engaging with clients.

Credit the excellent associates and counsel on the team, too: Matt Hortenstine, Alice Zhang, and Jack Daum in New York, alongside Lauren Meyers in Dallas. Slotting in seamlessly, as they did, isn’t easy to do, and their high-quality work and service were integral to Ridgewood’s success.

The fund is already working on deals, if I recall correctly.

Megan: Correct, and it has been for some time. More than $400 million — or about a third of the total fundraise — has already been committed. These deals include investments in a water public-private partnership, a wastewater treatment company, a cold storage and transportation company, and a solar developer.

Robert: This variety is part of the beauty of advising private equity firms. Developing the relationship is like planting a tree. Every new fund, every new investor — every new industry, deal, or project — is an opportunity to grow another branch.

Megan: And if you provide sound legal advice, you can be the nutrients that help foster that growth. You can help not only with the formation of the fund, but with the many questions that arise over its lifecycle. This is the most rewarding type of client relationship, and exactly the type we feel we have with Ridgewood.

Any thoughts on the infrastructure outlook?

David: You know, for companies that aspire to make a real-world impact, there are nearly always headwinds to overcome. Economic, regulatory, geopolitical — sometimes all three. In some years, they are stronger than in others, and the combination that emerges in the years ahead is anyone’s guess.

Robert: Very true. But I would say — and I think David and Megan would agree — that there is cause for optimism. However the economy evolves, infrastructure will be necessary to power it. And as a law firm, we feel well positioned to help the brightest minds in this space seize the opportunities that arise.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.