Renewables fund aims to attract pension capital

LONDON Fri Sep 14, 2012 1:38pm BST

LONDON (Reuters) - A new 500 million euro renewables fund aims to attract capital from pension and sovereign wealth funds through a low-risk, long-term investment strategy which would give higher returns than government bonds, one of its founders said.

The Real Asset Energy Fund (RAEF), managed by Solar Investment Group, plans to start investing in renewable power plants which are already in operation, mainly in the wind and solar sectors, from the first quarter of next year.

The fund aims to invest in more than 30 medium-sized renewables plants in five or six countries, initially in Germany, Italy and the United States, Luca Concone, founding partner of RAEF, told Reuters on Thursday.

It may also look at investing in Britain, Poland, Turkey and Canada.

RAEF has raised 100 million euros so far and aims to complete its first closing by the end of the year, followed by its second closing by March next year.

The fund aims to meet the needs of institutional investors like pension funds, insurance companies and sovereign wealth funds which are risk-averse and want stable, long-term returns.

"For us, stability is the name of the game. Any kind ... volatility and risk, we shy away from," Concone said.

Such risk-averse investors, who have trillions of dollars of assets, are increasingly considering putting capital into renewables as they seek to diversify their portfolios away from equities and seek higher returns.

LOW RETURN

Traditionally such funds favoured government bonds until the European debt crisis.

"Short-term government bonds are not making enough money for them. Real estate and equity bonds are not returning what they need," Concone said, adding that pension funds need net returns of between 6 and 7.5 percent a year to pay out what they promised to pension scheme participants.

Unlike other renewables funds, which typically sell their assets after 7 to 10 years and see returns of around 7 percent from wind and solar projects, RAEF will invest in assets for 20 to 25 years and pay an annual dividend of 8 to 10 percent.

By comparison, 30-year U.S. treasuries are yielding less than 3 percent, while yields on some shorter high-grade government bonds are negative.

"Most of (global pension funds') fixed-income portfolios currently return less than 3 percent a year and many equity investments have consecutively lost money over the last three years," Concone said. "There is now a critical need to diversify and invest in assets that are not correlated with the broader financial markets."

The renewables sector is growing and investment worldwide reached a record $260 billion last year. New investment surpassed fossil fuels for the first time as fossil fuel prices rose and energy demand grew, especially in emerging markets.

(Editing by David Holmes)