EUROPE - A €600m clean energy vehicle initially targeting German insurers will capture European pension funds when they become subject to Solvency II in a couple of years, according to Frankfurt-based fund manager Prime Capital.
Managing director Werner Humpert told IP Real Estate a renewable infrastructure investment company launched this week would at first appeal to German institutions looking for a conservative selection strategy, early cash flows and ongoing yields.
"For now, it works just like a fund for pension fund investors," he said. "But for insurers faced with Solvency II, it requires them to provide less equity [as collateral].
"We don't know what Brussels will do, but, in two years' time, the same regulations that now apply to insurers could soon apply to pension funds. Pension funds are fighting it, but, in the long run, the regulators will win."
The investment company will issue 25-year profit-participation notes as a means of providing long-dated exposure to low-complexity, pan-European renewables such as wind power and solar PV.
Early distribution and continuous capital repayments will modify the notes' duration effectively to 10 years in order to match insurers' liabilities.
"The legal form is tailored to institutional investors who want more than just investing into a funds, but intend to implement their allocation into renewable energies into a bespoke pooling solution," Humpert said.
In a statement released this week, the company said it intended to become one of the largest clean energy producers in Europe, generating power from 12 existing facilities across the region.
The vehicle will target small and medium-sized projects, "which represent the vast majority of developed assets and is where the capital shortage is most pronounced", said Humpert.
He added: "We are currently seeing many more opportunities than we will be able to invest in."
Prime Capital will avoid development risk by investing in already operating assets with the potential to generate income from day one.
The focus on low-complexity assets is also designed to mitigate risks by focusing on mature assets with low construction and operational risks compared with traditional infrastructure assets.