| Pension money in alternative energy heats up |
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| 15/10/2006 | |
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The London Pension Fund Authority plans to allocate €20 million to Impax, the €650 million fund known for its environmentally friendly bets. The move will represent a 7% position in the pension fund's alternative investments category, said Peter Scales, chief executive of the authority. The Authority's assets are more than €2 billion and the alternative segment represents €300 million of that total. Other UK pension funds are also committing more funds to the growing category known as Socially Responsible Investing (SRI). Indeed, the UK's second biggest pension fund, the Universities Superannuation Scheme Limited (USS), has committed €80 million to the space so far this year, bfinance has learned. Some of those funds have been outsourced to Impax. "We don't do this for the socially responsible aspect," said David Russell, senior adviser at USS, "we happen to believe in them from a return perspective, that these are good assets to invest in." When USS first tiptoed into SRI in 2001 it invested just €8 million. Now it is part of an initiative, along with other pension funds and investment banks, to enhance the research capabilities of sell and buy side firms to better address opportunities and risks in the alternative energy sector (see related article). The alternative energy market, estimated at €30 billion, includes renewables, transportation fuels, energy efficiency and carbon. That figure represents 13% of the overall energy market (excluding fuels), according to Impax. Kyoto Costs The growth of these markets is underpinned by the falling costs of alternative energy sources, the rising costs of conventional fuels and legislation. On the regulatory front, efforts to curb greenhouse gas emissions are expected to have direct implications for industry sectors and businesses with the highest emissions. The ratification of the Kyoto Protocol and the advent of the European Trading Scheme (ETS) in January makes this one of the most potent risks faced by UK pension fund managers, who have 70% of their assets listed in equities (40% in the UK and 30% overseas). The sectors that are most likely to face regulatory risk because of their high greenhouse gas emissions are electric power, manufacturing, oil, gas and transportation. With their significant exposure to equities, any impact from climate change on these industries can have a significant effect on the performance of UK pension funds, though these risks are also attracting seed capital in renewable energy and related technologies, presenting opportunities in private equity and venture capital assets. As part of a ten-point action plan developed by the US-based Investors Network on Climate Risk, institutional investors, including US and British pension funds, have pledged to invest $1 billion in clean energy companies in an effort to reduce risks posed by climate change. "It's a slow change but a positive change," said Ian Simm, chief executive at Impax, commenting on the increased appetite of institutional investors to step into the space. Simms, who also manages USS funds, is particularly fond of wind turbine manufacturers such as Vestas Wind Systems and the Spanish group Gamesa. Vestas started to manufacture wind turbines in 1979 in Denmark and has been one of the largest suppliers of the industry since. Gamesa has a dominant position in wind turbines in Spain and China. Amid the excitement, some investors -- although positive in principle -- remain vigilant, concerned by the risk of an early 1990s-type sell-off. There are signs that solar energy has hit the retail IPO market, said Raj Thamotheram, Director of Responsible Investment at Axa, with more than €432 billion in assets under management. Of that €1.2 billion is allocated to Responsible Investments. Said Thamotheram: "Asset owners have to avoid being sucked into a bubble. Valuations have to be right. Corporate governance has to be right. Otherwise we are going to have burnt fingers." He sees no signs of over-valuation, however, in the sustainable technology sector such as waste and water. V.B. |
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