Developing an Optimal Dividend Payout Model for Clean Energy Investment Firm

By MIT Sloan Action Learning

CleanCapital is a New York-based clean energy investment firm with a portfolio of more than 100 projects in 11 states. While planning to launch a new commercial and industrial solar investment corporation, the company turned to MIT Sloan’s Proseminar in Corporate Finance/Investment Banking for help developing an optimal dividend payout model.

“I was raising $300 million of equity and needed to implement a thoughtful dividend policy, so I asked an MIT Proseminar team to create a proposal,” says Nick Devonshire, Director of Investments at CleanCapital.

The MIT student team studied a variety of different dividend payout policies, ranging from paying all cash flows out in dividends to reinvesting all funds until the exit date. The team then tailored a policy to maximize incentives for CleanCapital, striking a balance between minimizing downside risk, incentivizing management, and avoiding agency conflicts. The students also tested their proposed policy for robustness. While Devonshire had investment bankers working on this, they still found themselves huddled over the MIT team’s work.

“It was creative, well-tested, and at the midnight hour it was exactly the kind of out-of-the-box thinking my team needed,” Devonshire says.

Marcus Imbert, MFin ’21 says working on this project taught him a lot about applying theoretical models amid all the uncertainty of the real world. “It was fascinating to put the knowledge acquired at MIT Sloan into practice and see its impact,” he says. “Discussing case studies in class can be fun, but having the chance to be involved in an actual live deal of significant size was one of the most exciting experiences I had as an MFin.”

Devonshire points out that two of the team members went on to accept full-time roles at leading infrastructure investment funds. “The depth of knowledge around energy and finance at MIT is unparalleled, and I am thrilled to see students using the Proseminar as a launchpad into a career combining the two,” he says.

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