German alternative asset manager Aquila Capital is looking to tap growing demand for renewable energy investments outside the UK with the launch of a new high-yielding investment company.
Aquila European Renewables Income Fund wants to raise up to €300 million (£260 million) for a flotation on the premium segment on the London Stock Exchange next month.
The renewables sector is currently popular with shares of the funds trading at an average 10% premium over net asset value (NAV) as investors warm to the environmental agenda and respond to dividend yields of around 5%. The sector was further boosted this month when US Solar Fund (USF) raised $200 million (£153 million) in its initial public offer (IPO).
Aquila’s proposed fund will be a diversified portfolio investing in solar, onshore wind and hydroelectric power in continental Europe, including the UK and Ireland. Like existing renewables funds it will earn revenues from government subsidies supporting carbon-free energy and long-term supply or power purchase agreements (PPA) with companies.
It will target a total annual investment return of between 6% and 7.5% with ultimately 5% of that coming from dividends, although the company envisages the yield will start at 3% this year and rise to 4% in 2020 as it invests shareholders’ money.
The company believes the spread of technologies and geographies will make it less volatile than some of the 10 other investment companies in London’s £7 billion renewables infrastructure sector.
Numis, the corporate broker handling Aquila’s initial public offer (IPO), says it is expected to use less leverage – or borrowing – than existing listed renewables funds.
Hamburg-based Aquila has €8.2 billion (£7 billion) assets under management, €6 billion of which are in ‘real assets’ such as real estate. The proposed fund manager is Christine Brockwell, who has 13 years’ experience in renewable energy and is backed by an investment team of over 40, which includes a dedicated PPA desk.
The company says it has a ‘sizeable, enhanced pipeline’ of new investments. Last month it bought a portfolio of wind and solar energy rights in Spain. Despite this, the investment company plans only to have a small amount of projects under construction.
According to the company’s marketing literature, under a fifth of the portfolio will be exposed to hydro power, while a third will be in wind and over two-fifths will be in solar energy.
The trust will hold a continuation vote after four years. Its charges will be tiered with Aquila paid an annual management fee starting at 0.75% of NAV up to €300, falling to 0.65% for assets between €300 million -€500 million and 0.55% above that.