Aquila Capital has launched a fund to co-invest alongside APG in European hydropower infrastructure.
Aquila is targeting European institutional investors for the 20-year fund, offering access to an investment programme launched last year for the Dutch pension fund group.
Earlier this year, Aquila invested in 33 hydropower assets in Norway for APG. The facilities will be used as a seed portfolio for the fund.
APG only takes minority stakes in assets being acquired by Aquila, requiring the investment manager to find other co-investors for each deal. The new fund will provide a pool of co-investment capital for the strategy, according to Oldrik Verloop, co-head of renewable infrastructure at Aquila.
APG has committed €250m of capital to the strategy, which is targeting returns of between 7% and 9%, using leverage of less than 60%.
Verloop said he was not aware of another fund in the market offering exposure exclusively to hydropower.
He said most institutional investment in renewable energy had been concentrated on solar and wind power, meaning the fund would diversify investors’ infrastructure portfolios even if they had existing renewables exposure.
Research by Aquila shows that only 7% of European institutional investors’ have exposure hydropower, while 37% are invested in solar power and 29% in wind power. The survey also shows that more than half (52%) of investors plan to diversify or increase the size of their renewables portfolios.
According to data provider Preqin, a number of notable hydropower transactions have taken place over the past 12 months, including the £1bn financing of the Tidal Lagoon Swansea Bay project in the UK by InfraRed Capital Partners and M&G.
Aquila is focusing predominantly on Norway, which Verloop said was home to the biggest hydropower market in Europe, and other Nordic countries. It will also consider the UK, and has made investments in the past in Turkey.
The Luxembourg-domiciled Aquila European Hydropower Fund is closed-ended and has a 20-year life. Investors can exit at six-month intervals.
Verloop said Aquila did not have a firm capital raising target in mind, but hoped to reach a first close before the end of the year.