German asset manager KGAL is preparing the launch of its fifth European renewable energy fund, with a target of €750 million, Infrastructure Investor has learned.
The firm is in the preliminary stages of launching Enhanced Sustainable Power Fund 5, as it continues to deploy ESPF4, which closed on €750 million in October 2019. ESPF4 was launched in 2016 with a target of €500 million, although LPs approved an extension to the €600 million hard-cap in July 2019.
KGAL confirmed work was underway for ESPF5, with an anticipated first close in Q2 this year. Portfolio manager Carsten Haubner, who joined from Siemens Bank last year, said it would continue with the 7-9 percent IRR target employed by ESPF4. Haubner added the new vehicle will continue to expand the greenfield elements of ESPF4’s investment strategy, as well as building on ESPF4’s expansion into new European markets.
ESPF4 has invested in what Haubener described as “new markets” such as Bulgaria, Poland and Hungary, and confirmed the fund will continue to look for new opportunities in Eastern Europe, as Western Europe becomes more concentrated.
“We’ve seen a yield compression due to increased liquidity and increased number of market participants,” he explained.
Last year, KGAL re-hired Thomas Engelmann as head of energy transition, following nearly seven years as head of investment and transaction management in infrastructure with Allianz Global Investors. Engelmann’s role focuses on investments such as battery storage and hydrogen, although the latter will not form part of the ESPF5 strategy.
“We will not introduce or bring to a market a combined portfolio. We separate electricity generation from these assets,” Haubner said.
Engelmann, who first joined KGAL in 2008, had helped establish the firm’s renewable infrastructure business – he assisted in raising €230 million and €500 million for ESPF1 and ESPF2, respectively – before heading to Allianz in 2014.