Strathclyde Pension Fund has approved £50m to be invested in the Pensions Infrastructure Platform and revealed the initiative is considering investments in solar energy.
Renewable energy investments have become popular with schemes looking for government-guaranteed income but recent political changes to subsidies have created uncertainty for institutional investors.
Renewable energy can be a compelling investment
In October the National Association of Pension Funds and the Pension Protection Fund, which launched the platform, they were in the midst of a manager search and were targeting ‘money in the ground’ by the end of 2013.
Details released by Strathclyde, one of the founding members of Pip, show the platform's equity fund will be managed by Dalmore Capital and will invest primarily in the secondary public-private partnerships in areas such as health, education and transport.
The fund might also invest in ‘Private Finance 2’ structures at the construction phase of healthcare, education or transport projects.
“Dalmore believes a number of interesting opportunities may emerge over the next couple of years to partner with high quality contractors and operators,” said a report to the committee by its executive director of financial services.
There is also an option to invest a small proportion in ungeared PPP or solar projects which can offer inflation linkage.
The NAPF has confirmed it is in final discussions with Dalmore Capital to act as the manager for the equity mandate of Pip.
“Pip is working towards a first close with its founding investors. Discussions are ongoing with regard to an investment management role for Dalmore Capital,” said chief executive Joanne Segars.
Strathclyde has agreed to invest £50m after an investment of £100,000 was made in June 2012 to fund the start up costs of the platform.
The fund has a target return of RPI plus 4-5 per cent and "was projected to generate an acceptable level of return with high correlation with inflation over a 25-year period", according to a report from the fund approving the mandate.
Strathclyde and the NAPF declined to comment further on the structure of the investment.
Hans Holmen, senior consultant at Aon Hewitt said the appeal of infrastructure investments is that they are long-term assets which provide essential services to the community. "They are often in monopolistic positions and have the ability to generate stable cash flows," he said, adding this income is often linked to inflation.
There is continued support around Europe for renewable energy, he said. "Renewable energy can be a compelling investment but it all depends on the country, the technology and the nature of the support packages the government puts in place for these technologies," Holmen said.
Schemes are most interested in on-shore wind and solar as they become more cost competitive with fossil fuel technology. Whereas offshore wind is "quite an expensive technology, you have to spend a lot of money to build" them, he added.
Dalmore Capital could not be contacted for further comment.
