First Sentier unveils renewables-focused infra debt strategy

First Sentier Investors has launched a private debt platform focused on loans to the renewable energy sector, in collaboration with MUFG Bank.

The firm’s head of fixed income, short-term investments and global credit Tony Togher, who is set to lead the new strategy, told Infrastructure Investor that the firm has secured an unidentified cornerstone investor through a standalone First Sentier-managed trust structure. That commitment has been used to fund the strategy’s first tranche of renewables loans which settled in April.

“We have a cornerstone investor who committed to funding those loans and we will be following it up with a broader product offering looking to gain institutional or investor interest in a broader sense,” Togher said.

First Sentier intends to launch a separate commingled infrastructure debt fund in future, the timeline for which is yet to be decided. The firm declined to comment on the potential size of the fundraise.

The fund will focus on the renewable energy sector, Togher said, tallying with the ESG objectives of the firm’s parent Mitsubishi UFJ Financial Group (also the owner of MUFG Bank).

“Some of the loans [for the fund] will be similar to those that are housed in this [initial] portfolio. The infrastructure [for the fund] is in place, but the actual fund repository that would house these assets to the broader list of investors is yet to be established,” he said.

The initial loans backed by the platform’s cornerstone investor are concentrated on the wind sector, a result that was “not by design necessarily, but [followed] our due diligence process and the availability of assets”, Togher added.

Togher highlighted the strong demand for assets of this nature, noting the new platform has been launched partly in response to client requests for access to debt strategies with an ESG focus.

“We don’t build funds that we don’t think anyone will show up for. Not only has it been our desire to diversify our product suite offering, but it’s also been a desire driven by our existing relationships with investors who have for some time been looking for access to bank loans in the broader sense […] particularly in relation to renewables assets,” he said.

“We expect that the multi-investor fund offering that we come out with will be well patronized”.

In a statement, MUFG Bank co-head of debt capital markets Siong Ooi said: “We anticipate that there will be strong investor demand for this type of asset. MUFG Bank will seek to originate and structure future investment opportunities for First Sentier Investors to meet this demand.”

MUFG recently raised its target for investments in sustainability-related financing to ¥35 trillion ($319 billion; €265 billion), after achieving 19 percent of its previous ¥20 trillion target in FY2019.

Demand for infrastructure debt strategies, including ESG-linked strategies, has been on the rise. When ADM Capital launched a renewables debt fund in December, co-founding partner and joint chief investment officer Christopher Botsford noted the alternative energy market for private sector lending was “set to grow substantially”.