Exclusive: Iona eyes up to £250m for fourth fund

The London-based manager is looking to broaden its investor base to the Middle East and Asia after receiving backing from UK pension funds.

British bioenergy fund manager Iona Capital is in the midst of raising its fourth vehicle which could reach up to £250 million ($323.2 million; €296.4 million), Infrastructure Investor understands.

Iona Environmental Infrastructure IV’s hard-cap is significantly higher than the firm’s previous three funds of £70.5 million, £60 million and £45 million. The first two vehicles are now fully invested, while the third is approximately 50 percent deployed.

The firm has secured an £80 million cornerstone investment from GLIL, a partnership established by the Greater Manchester Pension Fund and London Pensions Fund Authority which the West Yorkshire Pension Fund, Merseyside Pension Fund and Lancashire County Pension Fund joined late last year. A further £20 million has also been contributed by the Strathclyde Pension Fund.

However, with the pooling of the UK pension schemes slightly diluting its potential UK investor base, Iona is believed to be in negotiations with institutions from the Middle East and Far East, including sovereign wealth funds, to take the fund to its £250 million hard-cap by the end of the year.

The new vehicle is expected to target an IRR of about 13 percent, according to the Strathclyde pension scheme. Continuing Iona’s previous strategy of investing in anaerobic digestion plants, biomass combined heat and power and energy-from-waste technologies, it is thought to have a pipeline of over £350 million, with approximately 20 projects in an advance stage of diligence with tickets sizes ranging from £10 million to £40 million. Documents from Strathclyde suggest an initial target for the fund of £150 million. 

Potential investments from the fourth fund are understood to be less dependent on a feed-in tariff from the UK government which was cut last year and could face further decreases. They could also target more complex waste projects than Iona has tackled in the past.

Strathclyde also noted that compared to elsewhere in Europe, “there is still significant potential for expansion” of bioenergy projects in the UK. Bioenergy generation reached record levels of 29.6TWh last year, according to UK government figures.

Iona Capital declined to comment.