The long-term financing of the storage of German commercial radioactive waste is being provided in part through a Luxembourg financial structure that was established earlier this year. Kenfo, the German sovereign wealth fund that established the fund, has given InvestmentOfficer.lu some more details about its investment purpose.
The structure in question is a Reserved Alternative Investment Fund, or Raif. InvestmentOfficer.lu’s efforts to discover more about some of the reasons for which companies were establishing Raifs has revealed some fascinating applications.
Kenfo, a German organisation behind the acronym for Fonds zur Finanzierung der kerntechnischen Entsorgung, or Fund for Financing Nuclear Waste Management, has confirmed that it is connected to a Luxembourg Raif bearing a name that was possibly linked to it.
‘Lux Entsorgundsfonds’
“It is correct that Kenfo established a Raif named ‘Lux Entsorgungsfonds SCSp SICAV-RAIF’ as an option to use it for a very small number of investments,” said Johannes Blankenheim, head of communication at Kenfo.
Kenfo, which manages some 24 billion euro in assets, has a mission and structure that’s found in similar organisations put in place by the various countries who have built nuclear fission plants, who all need to finance the costs of eventual decommissioning of nuclear plants and their long-lasting radioactive waste. Switzerland in the 1980s, for example, established a similar national fund called ‘Stenfo’.
With the return it achieves on its assets, Kenfo reimburses the German federal government for its expenses in relation to storing the waste. To do so, it has invested the 24 billion euro it received in July 2017 from the German commercial nuclear plant operators such as ENBW, Eon, RWE, Stadtwerke München and Vattenfall, which together run some 25 nuclear power plants. Kenfo is registered as a foundation under German public law.
Long-term financing storage of nuclear waste
According to Blankenheim, Kenfo makes investments worldwide as part of its mandate “to ensure the long-term financing of the interim and final storage of radioactive waste arising from the commercial use of nuclear energy to generate electricity in Germany.”
Blankenheim emphasises that Kenfo’s investment in Luxembourg is fairly small, but it plays a role in a long-term financial structure.
“As a German sovereign fund, nearly all of our investments are being held via an investment vehicle being administered and located in Germany,” he said, describing this vehicle as Kenfo’s German Masterfund. “We have a priority of first investment in Germany.”
Kenfo “uses several layers of investment vehicles for the administration of its investments to optimise its options to generate sufficient returns for the financing of the interim and final storage of nuclear waste,” said Blankenheim.
Means to maximise returns
“With establishing the sub-vehicle Raif as a ‘booking entity’”, he said, “Kenfo made sure to have all means in place to maximise return and the infrastructure for investment opportunities both practically and theoretically.”
Blankenheim explained that Kenfo broadly invests its endowment on behalf of the German government, diversified across various asset classes and worldwide. On Kenfo’s website, it’s explained that it incorporates environmental, social and governmental criteria in its investment approach “in a profit-oriented manner.”
“Our sustainability approach combines the exclusion of industries such as nuclear power with the selection of companies in different industries that score the highest regarding their sustainability ratings,” the Kenfo website explains.
Kenfo’s head of investment management, Verena Kempe, reportedly discussed the nuclear waste funding agency’s investment strategy at a Frankfurt conference earlier this month. According to press coverage, she indicated that the tumultuous market environment has led the organisation towards increasing the proportion of alternative investments in the area of private equity in its portfolio. This raises the possibility that the Luxembourg Raif will be used as an umbrella fund for German alternative sub-funds, a strategy that’s been increasingly followed through the use of Luxembourg structures such as Raifs or SCSps, which are referenced in the Kenfo Raif’s name.
Wide range of investments
A look at Kenfo’s annual report shows a global investment strategy with numerous investments in well-known Luxembourg companies, including SES, Spotify and ArcelorMittal. According to the portfolio published last year, 4.52 percent of Kenfo’s holdings were in Luxembourg, also held in real estate and in government bonds.
Blankenheim underlined that the Raif is not intended to raise financing to increase the fund’s assets. “Our legal framework does not provide for any further inflows to the fund’s assets,” he said, describing Kenfo as “a limited-term endowment.”
About half of Kenfo’s 30 employees work directly in investment management and risk management. This requires a wide range of skilled specialists such as portfolio managers, analysts, risk managers and investment controllers to assist in managing a global portfolio in almost all common asset classes, according to the the organisation.
Winding down nuclear fission
Germany announced in 2016 its intention to wind down its nuclear fission power plants by 2022 in favour of renewable energy like wind, solar and wave, with natural gas as a “transition fuel”. Like most European countries, Russia is a major natural gas supplier for Russia, supplying 55 percent of Germany’s natural gas in 2021, and 40 percent in the first quarter of 2022. However, this decision on nuclear fission plant closures is being reconsidered in some quarters due to Russia’s invasion of Ukraine.
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