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Canberra-based Infradebt​ launches ​​infrastructure fund to invest in renewables

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GetUp! founder Simon Sheikh's Future Super is investing $50 million seed finance in an ethical infrastructure fund that will invest in debt securities of wind and solar energy projects, battery storage and other social infrastructure.

Canberra-based Infradebt, a fund manager specialising in private infrastructure debt, has launched the Infradebt Ethical Fund as an open-ended, ethically screened fund with a cornerstone investment from Future Super. 

The Infradebt Ethical Fund (IEF) is the latest in a series of niche superannuation funds that aimed to tap into the growing market of retirement savers seeking investment performance combined with a clear conscience on environmental and social issues.

Infradebt chief executive Alexander Austin said the manager hoped to grow IEF from its seed money of just over $50 million – a wealthy individual has chipped in some money too – to $200 million within a year or two and more than $500 million after five years.

The firm has previously advised on direct investments in infrastructure debt transaction by transaction and the fund is its first pooled investment product. It comes as more than $11 billion of wind, solar and battery projects are under way and the federal government is struggling with energy policy after the Finkel review of energy proved too much for coalition hardliners like former PM Tony Abbott to swallow.

Mr Austin, who previously worked at Access Capital Advisers, said the focus on direct investments in infrastructure projects was appropriate because as the age profile of superannuation fund members lengthens they need access to good quality long-term fixed-income investments with low volatility.

Fills a gap

The approach also fills a gap in the market for infrastructure projects because banks are typically only willing to lend for three to five years – a fraction of the life of a typical wind farm or solar farm.

The IEF already has an investment in the debt of the public private partnership of the Royal Women's Hospital in Victoria, and Mr Austin said Infradebt is aiming for a portfolio three-quarters invested in renewable energy and a quarter in social infrastructure.

The fund expects to finalise five or six investments over the next five or six months. It is working on an investment in a grid-scale solar farm in Victoria and embedded solar rooftop for a client with a large spread of assets across Queensland.

Mr Austin said Infradebt's strength is a very strong knowledge of renewables and a willingness to service small and medium-size projects of 5 megawatts to 20 megawatts that investment bankers typically pass on.

"They are not very popular with investment bankers who want to work on bigger projects, so we are providing that top-level investment banking experience to structure those transactions," Mr Austin said. "That's a good outcome for them but also delivers a very attractive return for investors." He said its management fee is in line with other fixed-income managers at about two-fifths of a percentage point.

Driving wind and solar energy

Mr Sheikh formed Future Super two years ago to appeal to environmentally and socially inclined superannuation savers.

He said Future Super investors understand that they can drive renewable energy investment in the absence of federal government policy and "they can do that because the price of renewables is going down and the price of electricity is not coming down".

Policy volatility also makes debt more attractive because it sits behind an equity buffer which absorbs any losses in the first instance, Mr Sheikh said.

He said Future Super had grown to assets of just more than $350 million with $250 million in its main super fund. It recently dropped its management fee from 1.9 per cent to 1.79 per cent in response to criticism that it was on the high side, and expects this to drop further as Future Super's assets grow.

Source: Australian Financial Review

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