First look

Keeping up with the transition
Investment manager consultancy bfinance last week published its latest insights into renewable energy and the sector has, it said, undergone “substantial changes” since bfinance last produced a similar report in 2019. The full report can be downloaded here, but here are some key takeaways:

• Managers turn developers: Greenfield investment is now in the mainstream and investors need to separate construction and development risk. Construction premia in shovel-ready projects have dropped significantly and managers have moved to take on more development risk, including the hiring of internal O&M teams. This leads to questions about fee structures, which often contain milestone payments to what was previously external contractors.
• Not all PPAs are created equal: Investors should be wary of the different types of power-purchase agreements, with some “significantly more exposed” to merchant-power prices than others. The “fundamental premise that ‘contractual revenue’ in renewable energy translates into ‘price certainty and minimal counterparty risk’ is changing”, the report stated.
• Walk the ESG talk: While observing that standards are improving, bfinance noted some still falling short in ESG, with greenwashing a “growing challenge”. Some managers, it added, talk about ESG but lack an ESG section in investment committee documents. “Even ESG-related industry awards are no guarantee of strong integration,” bfinance said. Duly warned.

CMA ruling to get UK taps running again
More than a year after UK water quartet Anglian Water, Bristol Water, Northumbrian Water and Yorkshire Water appealed regulator Ofwat’s price controls, the matter has been drawn to a close after the Competition and Markets Authority ruled in their favour.

In September, the CMA provisionally reversed Ofwat’s 2.96 percent allowed return to 3.5 percent – the final ruling last week brought this down to 3.2 percent.

While the matter is now finally settled, it’s not quite water under the bridge.

“The CMA’s decision provides greater certainty to the water sector and to the UK regulated utility sector in general. This helps confirm the value of regulated utility assets, potentially paving the way for a number of deals and transactions to take place,” Colm Gibson, head of economic regulation at the Berkeley Research Group, told The Pipeline.

Less impressed was Martin Malinowski, regulatory economist at Ofwat, who wrote that “if CMA appeals become part of the plan from the outset, economic regulation has probably had its day”.

Take 2 for MEAG’s infra debt strategy
German institutional investor MEAG – the asset management division of insurance groups ERGO and Munich Re – closed its second infrastructure debt fund on €1 billion last week, above its €800 million target.

The only surprise about this fundraise, which collected commitments for investments throughout Europe and the US, is how soon it came after MEAG’s first foray into the infra credit space. The investor launched MEAG Infrastructure Debt Fund II around seven months ago, just a year after closing the fund’s predecessor on €660 million.

MEAG’s secret sauce is its affiliation with Munich Re, which gives “a big competitive advantage”, according to Thomas Bayerl, the firm’s head of illiquid assets debt.

Acciona’s Bestinver in €100m first close for maiden fund
Spanish asset manager Bestinver is also benefiting from its parent, Acciona, having reached a €100 million first close for its debut global infrastructure fund, four months after starting fundraising. Bestinver Infra FCR, targeting around €300 million, has received commitments from both institutional and retail investors, with 60 percent coming from existing LPs. It aims to wrap up fundraising in the next 12 months.

Wasting little time, Bestinver expects to close on its first investments in the coming weeks. They include a 5 percent stake in a global renewables portfolio and minority interests in a highway and two hospitals, all in Spain. Head of infrastructure Francisco del Pozo, an infra veteran who spent nine years at Macquarie, said: “Being part of Acciona has granted us access to very high-quality assets that act as the fund’s base investments.”

Bestinver, which manages over €6.4 billion, wants its infra AUM to hit €1.5 billion over the next five years.

Essentials

Are infra GPs adequately measuring covid’s impact on their portfolios?
Members of the Infrastructure Investor Global Passport will be meeting Wednesday this week to answer: has the market accurately assessed infrastructure valuations throughout the pandemic? On hand will be MetLife’s director of European Infrastructure Annette Bannister, Local Pensions Partnership’s head of asset management Colin Simpson, Arjun Infrastructure Partners’ partner and head of research Serkan Bahçeci and EDHECinfra director Frederic Blanc-Brude, live with a whiteboard from his house! To join, visit https://bit.ly/3cGuVNn.

Grapevine