Pension fund JV backs biogas project with opening investment
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Leeming Biogas project under construction
The infrastructure joint venture set up by London Pension Fund Authority and Greater Manchester Pension Fund has announced its first investment – £60m towards renewable energy assets in the UK.
Speaking to Room151, GMPF assistant executive director, Paddy Dowdall, said that the investment is expected to make an annual percentage return “in the low double digits”.
This exceeds the target for the whole vehicle of CPI plus 3% to 5%, and allows for future investments in lower risk, lower return schemes, including debt instruments he said.
He said: “I look at investments from the point of view of a ‘risk cube’. There are three dimensions of risk – whether the infrastructure is built or not, whether you get paid by the fact it is available or by how much it is used, and whether you are paid through debt or equity.
“We judge that although these renewable energy assets are not yet built, they are less risky because they use proven technology and have contractual mitigations.”
Investment manager Iona Capital will be responsible for sourcing and managing individual projects.
It will immediately provide £9m towards Yorkshire-biomass plant Leeming Biogas, with several more projects in the pipeline.
The joint venture will finance projects from planning consent through construction, with the intention of holding the operational plants through their economic life – expected to be around 25 years, according to Dowdall.
Dowdall said he was confident that both funds would manage to invest the remainder of the £500m committed to the joint venture within three years.
In the context of moves by the government to force pooling of Local Government Pension Scheme investments, he said that the JV would be open to new members, and that the two existing shareholders could increase their commitments.
The government has indicated that it wants local authorities to come up with around six to eight pools of between £25bn and £30bn or be forced to do so. A consultation on the criteria for the arrangements is due out next month.
Photo (cropped): Steven Depolo, Flickr.
