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UK pension funds and insurers to boost renewable infrastructure investment: AlphaReal

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A survey of UK pension funds and insurers that collectively oversee GBP359.82 billion in assets, commissioned by AlphaReal, the specialist manager of secure income real assets, found that 90 per cent plan to increase their allocation to renewable energy in the next 12 months, while the remaining 10 per cent say they might make increases. 

Of those planning to make increases in investment to renewable energy over the next year, 8 per cent will make increases of 4-6 per cent; 12 per cent say they will raise allocations by 7 per cent; 21 per cent will make increases of 8 per cent and the majority (59 per cent) expect to increase by more than this.

The bulk (45 per cent) of respondents’ current allocations to renewable energy are between 11 and 15 per cent. 21 per cent say they invest 16-20 per cent in renewable energy; 16 per cent of respondents invest 6-10 per cent; and 18 per cent of investors allocate between 1-5 per cent.

In the next three years, UK pension funds and insurers predict allocations will be significantly higher than today. 5 per cent say they will boost allocations by 1-5 per cent; 7 per cent say 6-10 per cent; one fifth (21 per cent) say 11-15 per cent; two-fifths (39 per cent) say 16-20 per cent; while just over a quarter (28 per cent) say allocations will increase by 21 per cent or more.

Looking at returns from unlevered renewable assets net expenses, 5 per cent of UK pension funds expect between 2.5-5 per cent per annum; more than half (54 per cent) say between 5-7.5 per cent; more than a third (38 per cent) expect 7.5-10 per cent; while 3 per cent look for returns in excess of 10 per cent a year.

When asked to select their top three reasons for investing in renewable infrastructure assets, the vast majority of respondents (85 per cent) cited income generation. Almost three-quarters (71 per cent) said they use renewable assets to diversify their portfolio, and more than two-thirds (68 per cent) of investors interviewed cited that the asset class is a way to align with their ESG investment objectives. 

Over two-fifths (44 per cent) of respondents say renewable assets are a good means to generate long-term cash flows, while one third (32 per cent) are motivated by the return potential.

In terms of need for immediate yield post investment, 88 per cent of respondents say this is a requirement while 12 per cent say it is not. 

Stuart Hanson, Associate Director, Client Solutions, AlphaReal says: “Pension funds and insurers’ growing appetite for renewable infrastructure recognises that these assets can provide an attractive risk-adjusted return alongside positively contributing towards the transition to clean energy.”

Ed Palmer, CIO and Head of Sustainability, AlphaReal says: “AlphaReal has a long track record in managing renewable infrastructure. We can offer our clients flexibility in how investments are structured and manage renewable infrastructure allocations either within our existing funds or by creating bespoke mandates. By diversifying investment across low carbon technologies such as wind, solar, and energy storage, working with quality counterparties we aim to provide high levels of contracted, index-linked cash flows that match our investors’ liability profiles.”

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