EUR500m RAEF to invest in renewable energy power plants
Solar Investment Group SIF, a Luxembourg-based regulated Fund, is planning a new, 25 year, Infrastructure Fund focused on acquiring renewable energy power plants. The Fund, called Real Asset Energy Fund (RAEF), will be the third Fund managed by the team and, subject to regulatory approval, will begin investing in Q1 2013.
RAEF will acquire power plants once the construction phase is complete and will manage them until the end of their industrial life (typically 20 years). The Fund will invest in a relatively large number (30-35) of medium sized power plants in five to six key strategic markets (including Germany, USA and Italy) to diversify risk and optimize returns. Investments will be focused mainly on fuel-independent, mature technologies (such as wind and solar) that have stable revenues and limited operating complexity.
Renewable energy power plants generate cash flow by selling electricity to the grid at prices that are supported by long-term government backed incentive schemes or Power Purchase Agreements with state-owned or private utilities. RAEF's team will actively manage the asset companies to obtain a stable flow of distributions that will be passed on to investors. RAEF aims to pay an annual dividend of 8-10% whilst protecting the principal investment, which will be returned to investors at the termination of the Fund. Most Renewable Energy and Infrastructure Funds have significant volatility derived from a Fund life that is misaligned with the underlying assets. RAEF will not be forced to sell assets after seven-10 years and therefore will be almost entirely uncorrelated with the market, unlike the mainstream asset classes normally preferred by long-term investors: Infrastructure, Real Estate, Bonds and Equities.
The Fund has been designed specifically to meet the requirements of institutional investors including Pension Funds, Insurance Companies, Sovereign Wealth Funds, as well as large Family Offices, Endowments and Foundations that are risk-averse and require stable long-term returns that match their investment horizon. RAEF will also offer an annual window of liquidity to meet unexpected needs of investors over the 25 year period.
The Management aims to raise EUR500m and to complete RAEF's funding by Q1 2013.
Luca Concone, CEO, says: "Global pension funds have an increasingly large gap in their funding because they can no longer safely invest to get the benchmark returns targeted within their models. Most of their fixed income portfolios currently return less than 3% per year and many equity investments have consecutively lost money over the last three years. There is now a critical need to diversify and invest in assets that are not correlated with the broader financial markets. RAEF, compared to the Government bonds of the countries in which it invests, will aim to pay a hefty premium for a risk that is not too dissimilar.
"If equities double or halve in value, RAEF will still target distributions of 8-10% per year. If interest rates go from 3% to 1% or from 3 to 6%, RAEF will still target distributions of 8-10% per year. If the real estate market crumbles RAEF will still target distributions of 8-10% per year.
"All viable risk reduction strategies will be implemented in the management of RAEF's portfolio and we will hold the assets for their entire useful life, whilst returning the cash generated to shareholders on a yearly basis (assuming a terminal value of zero). Very few funds do this. That is why we decided to set up RAEF and that is why the Fund will be unique.
"The world needs clean energy. Nuclear power requires vast investment and is deeply unpopular with the general public. Renewable energy sources are the only viable alternative and are already the largest contributor to the increase in global energy production in the last year."
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