BlackRock Real Assets has closed its third global renewables fund on $4.8 billion, almost doubling its $2.5 billion target.
BlackRock launched Global Renewable Power Fund III, which did not have a hard-cap, in early 2019 and reached a $1 billion first close in December that year. However, the momentum of the fundraising materially changed in the summer of last year, David Giordano, head of renewable power at BlackRock, told Infrastructure Investor.
“If I was going to pick the inflection point, it was around July or August,” he said. “Everyone settled into the new reality. There was an orientation towards sustainable investment strategies. Places where maybe we weren’t getting as much traction as we maybe expected, we saw a massive acceleration.”
Giordano was specifically referring to investors in the Asia-Pacific region and in parts of North America. The two regions each accounted for 20 percent of the fund’s proceeds, while the UK and Continental Europe provided 30 percent each.
“We had excellent traction in Europe and UK. That momentum increased,” Giordano noted. “Where we saw a lot of interest pick up was in the US. We got some late entries from public pension plans where sustainability was not as big a priority for them but through the pandemic that became a much bigger focus. We’re seeing a big enlightenment happening across the APAC region.”
UK-based institutions came into the fund “much more strongly in a way we haven’t seen before,” added Jim Barry, global head of BlackRock Real Assets.
“There’s been a very substantial change in the last two years and GRP III has played into that structural shift, which in my mind will dominate the next decade,” explained Barry.
That’s underlined by 90 percent of all new power generation built worldwide last year being renewable power, which Giordano said was one of the primary drivers of the successful fundraising as investors look to future-proof their portfolios.
“You can make money and earn a yield on fossil fuels and gas pipelines in the immediate to medium term, but if you’re thinking long-term investing, renewables is the opportunity,” he maintained.
The 12-year GRP III is set to continue the strategy of its predecessors, the last of which closed on $1.6 billion in July 2017. The series tends to invest in late-stage development projects in OECD markets and targets net returns of between 9 and 10 percent.
GRP III has made three investments to date, including a commercial and industrial solar and storage development platform in the US, European wind developer Windvision and New Green Power, a Taiwanese solar development company. While the strategy remains unchanged, Giordano does expect a shift in the geographic deployment of the series.
“We saw in our second fund a pivot more towards the APAC region. I think for this fund as much as 40 percent could be deployed in that region,” he outlined. “It’s an area of the world which is the last bastion of the feed-in tariff.”
However, in addition to bringing what Barry described as BlackRock’s “halo dimension”, the firm also plans to use its experience and team to stand out from what has become a crowded market.
“We’re across the full spectrum from utility-scale and distributed,” Barry said. “The team has the capability to underwrite this risk and the best risk-adjusted return comes from where there is less capital competing.”
Giordano added that NGP in Taiwan is an example of this, with many international investors flowing into Taiwan’s offshore wind market, which he described as the “obvious chunky deployments”.
The duo are also unconcerned about some frothy valuations reaching the renewables market and maintained they offer a different approach than the one provided by several other renewables GPs.
“The challenge is not just there’s managers out there with a lower cost of capital. The challenge is they are not underwriting to the same discipline,” Barry argued. “The assumptions they are putting into their models are just ones we wouldn’t put in because we have too much experience.”