Interest in renewables is playing into the hands of alternative investment funds. Listed closed-end impact funds continue to invest in new energy projects, and investor inflows are following suit. Yet for now it is mainly British investors who recognise the benefits.
Analysts Charles Maynadier and Paul Chabran track several stocks in the renewable sector at Amsterdam-based Van Lanschot Kempen. They said it’s largely a British business in which about a dozen providers are currently active. The investors also are mainly British. Maynadier and Chabran currently see less interest from Europe, noting that this could change.
In 2010, UK-based Greencoat Capital was one of the first investment companies to list a closed-end fund on the stock exchange with an emphasis on impact. The UK firm now has several such funds, with stocks such as Greencoat UK Wind and Greencoat Renewables, allowing small and large investors to step into a “piece” of a private renewable project. Parties such as Octopus Energy, Aquila European Renewables and Bluefield Solar Income offer similar opportunities.
Growing interest outside UK
So while Europeans invest little in them, Privium Fund Management in the Netherlands is definitely interested. The fund house has positions in Greencoat UK Wind and The Renewable Infrastructure Group, among others. Director Mark Baak reports “a huge growth in listed closed end funds with impact investments such as wind farms and solar farms”.
“Some of these funds have grown in size by hundreds of per cent in recent years, enabling a lot of impact investments,” Baak said.
Van Lanschot Kempen’s Maynadier and Chabran concur that these types of funds are growing, noting that they are also broadening in terms of horizons, thematically and/or geographically. Parties that initially started with solar energy projects are now also investing in wind energy projects, for example, or decide to broaden from UK projects to European projects. Because that offers more diversification opportunities and a wider range of investment projects.
Chinese walls may pose risks
Privium’s enthusiasm for these types of listed closed-end funds has several reasons, according to Baak. “It is an accessible way to invest privately, where you are close to the funds and pick up an illiquidity premium. In addition, the risk-return is attractive.”
In practice, it is “medium to high single-digit figures” after fees, according to analysts Maynadier and Chabran. Most of this is paid through dividends. Still, they do place a note on these types of vehicles. The structure is complex and the funds are often managed externally, which can deter investors from investing in them.
While these types of vehicles may grow in terms of assets, this does not always equate to higher returns, they noted. Interested parties will have to do their research, said the analysts, also because there may be Chinese walls between different funds from a single provider. “Can they use other funds to dump assets, for instance from their private equity fund to their listed fund? That is a risk.”
The analysts concluded that for many investors, this will be an additional hurdle, while there are other ways to play the sector. “Now if this was the only way to get into renewable energy…. But there are plenty of other opportunities. You can also buy big utilities or developers and operators.”
Democratising alternatives
Privium’s Baak does see opportunities, besides renewable energy, similar closed-listed funds could also invest in impact venture capital funds or impact private equity funds. “Moreover, besides a larger investor like us, who invest €5 million to €40 million per fund, there are also many smaller investors who want to invest in private market funds. They hardly have access to them now, because the entry threshold is very high. With 50,000 euros, it is difficult to get into illiquid investments. So these kinds of hybrid funds also help to democratise alternative impact investments.”
He therefore sees the Netherlands making strides when it comes to sustainable variants of well-known listed vehicles such as HAL Trust. “I expect that within a few years there will also be a number of such initiatives listed on Euronext Amsterdam.”
This article originally appeared on InvestmentOfficer.nl.