INSIGHT by Schroders
Schroders Greencoat, the specialist renewables and energy transition infrastructure manager of Schroders Capital, today announces the launch of Schroders Greencoat Global Renewables+ Long-Term Asset Fund (LTAF).
This is the UK’s first LTAF exclusively dedicated to renewable energy and energy transition infrastructure, and a landmark opportunity for UK pension savers to invest in this strategically important asset class while benefitting from stable, diversifying and inflation-linked investment returns.
The new fund will target infrastructure supporting the energy transition across the UK, US, and Europe, providing access to attractive, long-term investments in private markets. It will deploy capital across wind and solar assets, as well as a range of energy transition assets including hydrogen, heating and storage.
LTAFs are regulated, open-ended investment vehicles designed to enable a broader range of investors, with longer-term horizons, to invest efficiently in illiquid and private markets. Their structure is particularly suitable for the UK defined contribution (DC) and UK charities markets, providing savers with access to a previously untapped opportunity, as well as through defined benefit (DB) pension schemes.
The Schroders Greencoat Global Renewables+ LTAF builds on Schroders Capital’s track record of providing innovative products focused on client needs. It builds on the launch of the UK’s first LTAF, the Schroders Capital Climate+ LTAF, last year, adding to the suite of private market solutions offered to DC schemes and other clients.
This is part of Schroders Greencoat’s suite of semi-liquid funds, which offer more liquid and operationally simple access to private assets investments. It will be managed by Schroders Greencoat alongside its Luxembourg-domiciled sister fund, the Schroders Capital Semi-Liquid Energy Transition Fund, launched in January. Schroders is already a market leader in offering structures which provide greater access to private assets through its range of listed vehicles, with six funds spanning private equity, real estate and credit, available within its Schroders Capital Semi-Liquid range.
“We are pleased to be introducing this groundbreaking LTAF, which, will offer investors a powerful combination of strong returns potential with a unique risk profile, while directing essential capital towards decarbonising and electrifying our energy sources.
“This new LTAF reflects Schroders Greencoat’s consistent track-record of being at the forefront of innovative private market offerings, which in this case also includes a diversified portfolio base. Alongside wind and solar, a dedicated portion of this portfolio also taps into newer technologies associated with energy-transition-related infrastructure, like hydrogen and district heating, which have the potential to generate superior returns across a longer period.”
-Duncan Hale, Portfolio Manager at Schroders Greencoat
“Schroders Capital now has two of the five authorised LTAFs currently available, putting us at the forefront of the evolving private market.
“With the DC market expected to make material investments into private markets over the coming years, the ability to access dedicated renewable energy and the energy transition exposure is an attractive and highly diversifying potential addition to DC members’ portfolios.
“It’s exciting to be able to offer DC members and other investors access to these assets, which meet both their need for stable long-term returns and sustainability goals.”
-Tim Horne, Head of UK Institutional Defined Contribution at Schroders
Schroders Greencoat Global Renewables+ Long-Term Asset Fund is available to UK registered pension schemes, UK life insurance companies holding the units for the purpose of tax exempt business, UK registered charities.
Schroders is a global investment management firm with £726.1 billion (€846.1 billion; $923.1 billion) assets under management, as at 30 June 2023. Established in 1804, Schroders continues to deliver strong financial results in ever challenging market conditions, with a market capitalisation of circa £7 billion and over 6,100 employees across 38 locations. The founding family remains a core shareholder, holding approximately 44% of Schroders’ shares.
Schroders has benefited from a diverse business model by geography, asset class and client type. It offers innovative products and solutions across four core growing business areas; asset management, solutions, Schroders Capital (private markets) and wealth management. Clients include insurance companies, pension schemes, sovereign wealth funds, high net worth individuals and foundations. Schroders also manages assets for end clients as part of its relationships with distributors, financial advisers and online platforms.
Schroders aims to provide excellent investment performance to clients through active management. It also channels capital into sustainable and durable businesses to accelerate positive change in the world. Schroders’ business philosophy is based on the belief that if we deliver for clients, we will deliver for our shareholders and other stakeholders.
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| Key Risk Considerations
Renewable energy infrastructure assets tend to have a significant element of their revenues derived from long dated government support programs (e.g. Renewable Obligations) or contractual arrangements with creditworthy counterparties (e.g. Corporate Power Purchase Agreement) As such investment strategies focused on these assets tend to be classified as “secure income” or “low risk” as the well-contracted income generation is a key component of the return composition.
The principal risks associated with such strategy are:
• Power price – the wholesale market price of electricity is volatile and is affected by a variety of factors. A long-term decline in the market price of electricity, gas or green benefits (whether or not from changes in anticipated supply and demand) from the levels anticipated could have a material adverse effect on an investment.
• Inflation – while some renewable energy projects have explicit links to inflation and power prices are expected to demonstrate implicit linkages the wholesale market price of electricity, the mixture of investments and different geographies covered may mean that the real purchasing power of the investment might not keep up in higher inflationary environments. In contrast, low inflationary or deflationary environments could have an adverse impact on absolute returns.
• Availability of the assets to generate energy – down time outside the budgeted schedule will result in reduced generation and therefore income. On an asset by asset level this could be detrimental to returns, but this can be mitigated through a portfolio of investments.
• Contracts – like all contracts, counterparties have the potential to become insolvent. Strong covenants and penalty payments are good countermeasures. However, our best recourse is active engagement with the counterparties which not only means problems are telegraphed earlier, but the portfolio management team can step in where required.
• Regulation – most renewable infrastructure assets rely on support from a scheme overseen or paid for by the government. Given the sustained fall in the cost of renewable power generation equipment, governments have generally revised their regulations supporting the renewable energy sector from time to time in order to reduce the benefits available to new renewable power generation projects. However, in order to maintain investor confidence, most regimes have a grandfathering principle which ensures that the benefits already granted to operating projects are exempted from future government or regulatory change for the life of the project.
• Government Intervention – extreme market volatility may lead to extensive and unprecedented governmental intervention in financial or energy markets. Such intervention may be implemented on an emergency basis, introducing new regulation or taxation which may be unclear in scope, application and duration. It is impossible to predict the impact of any such intervention and/or increased regulation on the fulfilment of the investment strategy.
• Feedstock (in the case of biomass) – unlike free solar and wind, some sub-sectors of bioenergy need to acquire feedstock such as straw. This market can fluctuate with supply and demand mechanics, but risk can be mitigated through strict contracts with strong counterparties. A diversified portfolio of bioenergy assets will result in lower exposure to any one feedstock.
• Sustainability – The fund has the objective of sustainable investment. This means it may have limited exposure to some companies, industries or sectors and may forego certain investment opportunities, or dispose of certain holdings, that do not align with its sustainability criteria chosen by the investment manager. The fund may invest in companies that do not reflect the beliefs and values of any particular investor.
This document has been prepared by Schroders Greencoat LLP (‘Schroders Greencoat’).
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Distributed in the UK by Schroder Investment Management Limited (‘SIML’). SIML is authorised and regulated in the UK by the Financial Conduct Authority and entered on the FCA register under firm reference number 119348. SIML is registered in England with company number 1893220, and has its registered office at 1 London Wall Place, London EC2Y 5AU. Schroders Greencoat is part of Schroders Capital. Schroders Capital is the private markets investment division of Schroders and references to Schroders Capital in this document are references to affiliates of Schroders plc that together comprise this business.
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