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per year by 2030 to fund the green and digital transitions, the European Economy Commissioner says. With public funds stretched following the Covid-19 pandemic, the private sector has a vital role to play in meeting these funding requirements.”


Project pipeline Pension funds are being proactive in this area, including the South Yorkshire Pensions Authority.


“Our fund managers are working on larger scale renewable projects and addressing intermittency,” Graham says. “Directly, we are looking at ways to finance the bringing forward of major development sites, which includes things like the site infra- structure,” he adds.


“These are all focused on providing income streams which are increasingly important given the fund’s cashflow dynamics.” GLIL’s portfolio spans an array of projects, from renewable energy to logistics, transport, utilities and social infrastructure. “Recently, we invested in Invis Energy’s portfolio of 11 operational onshore wind farms, which provide around 11% of the Republic of Ireland’s installed wind capacity,” Frith says. “We have also doubled our equity stake in Semperian, which invests in essen- tial local services, such as schools and hospitals across the UK.” Frith adds an important point here. “Our fund members repre- sent pensioners from across the country. We are, therefore, supportive of providing better opportunities and public services wherever they are needed.”


Rewards may vary When it comes to the risk-reward profile of infrastructure assets, this is placed at the centre of South Yorkshire Pensions Authori- ty’s assessments. “We would regard projects of this sort as around the midpoint of our risk exposures as the income streams are fairly secure and for more local projects where we tend to be a direct investor we tend to act as a senior lender with step-in rights which reduces exposure further,” Graham says. “The rewards vary but the hurdle rates we use to determine which projects to consider give a margin over the actuary’s return assumption, which means we are achieving our core objective to ensure we have enough money to pay pensions,” he adds. From a Greater Manchester Pension Fund perspective, Dowdall says: “We only make investments appropriate to our targeted return and risk tolerance to meet stakeholders’ objectives.” For Fawcett and workplace pension provider Nest, the risk-re- ward picture varies. “There are core assets with stable cash- flows which are relatively low risk and in contrast new projects with construction and technology risk,” he says. “While we have a focus on lower risk assets, we expect our managers to also seek out higher returns by taking construction risk with


30 May 2022 portfolio institutional roundtable: Private markets


proven technologies, for example, financing construction of a new wind or solar farm.” Frith says GLIL looks, on the whole, at core infrastructure pro- jects. “By definition, the cashflows are much more certain than many asset classes that our pension fund investors allocate to. Therefore, the volatility of returns is expected to be low. “However, returns are also lower than certain other asset classes, for example, private equity,” Frith adds. “At a portfolio level, investment in infrastructure can improve the risk-adjusted returns of the portfolio due to its diversifying characteristics. GLIL targets a return of CPI plus 4% to 6%.”


Diverse portfolio For Armanini, infrastructure is about growth and impact. “Through buy-and-build strategies, our focus is on acquiring, building and managing a diverse portfolio of European infra- structure assets that can deliver long-term sustainable growth while having a positive impact on society,” he says. Recent examples include its investment in Zenobe – a market leader in the UK for grid-scale batteries and electric buses. “As the use of renewables increases, companies like Zenobe can provide the support required to cope with sudden variances in supply,” Armanini says. “Another is our investment last year in EnergyNest, a Norwe- gian thermal storage company which specialises in capturing and recycling surplus heat generated from industrial processes – or using it to generate renewable electricity,” he adds. In its 2021 whitepaper Scaling up institutional investment for place-based impact, the Impact Investing Institute studied the


An increasing challenge, as the definition of infrastructure broadens, is projects lacking scale and needing significantly more


work to be investable. George Graham, South Yorkshire Pensions Authority


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