Renewables? There’s a fund for that

Three high-profile firms have recently launched fundraises that will focus exclusively on the sector, underlining a growing trend in the asset class.

Renewables funds are on an upward trend. In recent months, three of infrastructure’s most recognisable firms began raising funds that will focus exclusively on renewables assets, namely onshore and offshore wind projects and solar farms.

First, BlackRock is believed to have entered the market for its third renewables-only vehicle – Global Renewables Power Fund III – thought to be targeting $2.5 billion and seeking gross returns between 12 and 13 percent.

Next, perennial II 50 champion Macquarie launched a $1.5 billion fundraise under the banner of the Green Investment Group, a clean energy organisation the firm bought from the UK government in 2017. It is the first fund launched by the GIG since it closed the world’s maiden offshore wind fund on £1 billion ($1.2 billion; €1.1 billion) in January 2017, when it was still known as the Green Investment Bank.

Finally, Stonepeak Infrastructure Partners, a relative newcomer to the asset class, though no longer a rookie after closing its third flagship fund last year on $7.2 billion, is raising a renewables vehicle believed to be seeking up to $1.25 billion in commitments.

For industry followers, these funds may sound like chump change when mega-funds from Blackstone, Brookfield and Global Infrastructure Partners are stealing headlines. But this proliferation of renewables-only strategies deserves a closer look.

Renewables are still relatively new to an infrastructure manager’s toolkit, with strategies only around for a decade. According to Infrastructure Investor data, 50 renewables-only funds have been raised since 2013, closing on a combined $20.9 billion. The highest grossing year was in 2018, which saw five funds raise $4.93 billion.

The three funds mentioned earlier are seeking to raise a total of $5.25 billion. There’s no telling yet when they will close, but already in 2019, $4.55 billion has been raised by renewables-only vehicles.

There are two reasons why fund managers are choosing to compartmentalise their renewables investments: strategy and opportunity.

According to Jeff Eaton, partner and global head of origination at placement agent Eaton Partners, LPs are increasingly seeking exposure to renewables to be invested in stable, contracted assets that easily check the ESG box.

In a recent interview with sister publication Private Equity International, Eaton explained: “It is no longer just a fleeting moment where people think more about ESG strategies. There’s a structural change going on where LPs are going to lower their allocation to fossil fuels, in favour of investing in renewable energy. That’s something we can’t ignore.”

The other reason is that there are many different ways of investing in renewables. One source told Infrastructure Investor recently: “Renewables is a space you have to be in, but you’re not going to get US renewables with a [15 percent return] profile.”

Indeed, the Stonepeak fund will largely focus on the Asian market, while BlackRock has also indicated it would be dedicating substantial amounts of capital to Asian renewables in the near future, which could include a regional-dedicated fund.

Both the opportunity and the scale of the Asian market are thought to be driving these moves towards separate funds. Yet amid the rush and the relatively high return targets, managers would do well to remember the European renewables rush from a decade ago. Namely, they should bear in mind that a large amount of capital is now concentrating on a specific market opportunity that can, arguably, no longer be accessed in the same way.

Particularly in the case of Stonepeak, the pivot to a renewables-only fund is symptomatic of a wider market trend. In June, Digital Colony Management closed its debut digital infrastructure strategy on $4.05 billion, while GI Partners is set for a first close between $700 million and $900 million for its own digital infrastructure fund. The difference is that digital-only funds are newer than renewables and require a higher degree of specialisation.

Earlier this month, we said that sector funds had truly come of age, size-wise, with the Digital Colony close. The number of new renewables strategies being launched right now underscores that point.

The trend in infrastructure right now seems to be: if you want exposure to a specific sector, there’s probably a fund for that.

Write to the authors at jordan.s@peimedia.com and zak.b@peimedia.com

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