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War places energy security at heart of BlackRock’s new perpetual fund

The new vehicle, which aims to help drive the global energy transition, will initially focus on Europe, balancing its portfolio over time.

BlackRock Real Assets will initially place energy security at the heart of its new open-ended, energy transition-focused infrastructure fund, as a result of the Russian invasion of Ukraine and its knock-on effects on the energy sector.

The group has been planning the launch of a lower-risk, lower-return and perpetual offering for over a year, with Jim Barry, chief investment officer of BlackRock Alternative Investors, first revealing such plans to Infrastructure Investor in February 2021.

At the time, it was billed as a broad sustainable infrastructure fund, which would have “renewables at its heart”, he said. However, the war has shifted the fund’s initial focus as it begins to garner capital.

“The strategy in our mind was always global, as are most of our other funds,” Anne Valentine Andrews, global head of BlackRock Real Assets, told Infrastructure Investor. “This is the evolution given what we’ve seen in Ukraine and the humanitarian crisis and where we’re seeing opportunities arise. Given the REPowerEU announcements and the ways they’re looking to wean themselves off Russian gas, there’s been a slight increase in terms of the investment in Europe for this fund.”

She added: “We’ve seen a lot of opportunities from existing relationships, both on the renewables side and deploying LNG. There’s a lot of opportunity out there so we thought it was quite timely given the added focus infrastructure and sustainability in general is getting in the market.”

Other assets the fund – dubbed at this stage Perpetual Infrastructure Strategy – will target include regulated utilities, natural gas storage and transport facilities capable of incorporating hydrogen, battery storage, electrification of transport and waste, BlackRock said in a statement. Digital infrastructure assets, including data centres and grid digitisation technologies, will also be included, as will PPPs in social infrastructure, although these sectors are set to account for less than 15 percent of the overall portfolio, Valentine Andrews said.

In a statement, BlackRock said it “will seek to deploy capital into fully integrated businesses … as well as assets”, adding that “through its investments in these businesses, BlackRock will take an active approach in helping companies transition to lower-carbon business models over time”.

Despite the initial focus on Europe, Valentine Andrews explained the portfolio will balance out over time.

“Energy security has been added to the list of priorities alongside energy transition. If we had been talking a year ago, energy security wasn’t being discussed as much as it is now. We believe this is good in the long-term for the transition and in the medium term we need to make up for the shortfall of Russian gas not being imported anymore. It will be good for the US as a gas exporter and we see opportunities from that as well,” she added.

New core structure

Valentine Andrews declined to state any return targets for the fund, although she said it will target core infrastructure with a focus on yield. The new core, evergreen structure allows BlackRock to pursue deals it previously had to turn down on a risk-return basis. Its global renewable power fund series targets 12-13 percent gross IRR, while its Global Energy & Power Infrastructure Fund series targets gross returns of 14 percent.

However, BlackRock has not begun formally marketing the fund, Valentine Andrews said, instead at this point speaking to “key clients who want to be seed partners with us”, a group of about 10 investors. She added that the fund will be brought to the broader market next year.

“The concept of open-ended funds was less prevalent in infrastructure but is more accepted now,” Valentine Andrews reasoned. “There is a lot of interest from European investors but we’re also seeing interest from North America. Asia will come, but the main interest will be America and Europe. Infrastructure keeps maturing and the risk return parameters continue to evolve.”