Download Are infrastructure projects sufficiently structured

Interview
“Are infrastructure projects
sufficiently structured,
Dr Sandhövel?”
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UPDATE II /2015
INTERVIEW
Editor-in-chief Marty-Jörn Klein talks to
Dr Armin Sandhövel, CIO Infrastructure Equity at Allianz Global Investors
Dr Sandhövel, Allianz Global Investors successfully placed the
Allianz Renewable Energy Fund (AREF) in 2013. By the end of
2014, the entire capital of AREF – amounting to nearly half a
billion euros – had already been invested in ten wind power and
photovoltaic projects. What were the biggest challenges you
faced when investing this money?
Dr Armin Sandhövel: Generally speaking, the biggest challenge
is to identify suitable investment projects. Every investor in
the market is currently searching for good infrastructure
investments. Renewable energies in particular benefit from
a stable environment. In light of that, we have made every effort
to secure attractive projects offering an appropriate risk-return
profile and very good diversification.
ABOUT DR SANDHÖVEL
Dr Armin Sandhövel has been focusing on energy themes
since 1994. He joined Allianz Group in 2001. He was
appointed Chief Investment Officer in September 2012,
and since then has been responsible for the infrastructure
equity asset class at Allianz Global Investors. Under his
guidance, Allianz GI successfully launched its first renewable
energy fund in summer 2013: Allianz Renewable Energy
Fund S.A. SICAV-SIF, with total equity capital of 150 million
Euros. Together with his team, he is currently working on
an appropriate successor product, for which fundraising is
scheduled to start this autumn.
Investor demand significantly exceeded the expected 150 million
euros of equity capital to be placed by AREF 1. What was the
recipe for success?
We are generally seeing very good acceptance of this form of
investment among investors. Infrastructure is a good addition to
a portfolio, and is generating good returns at present. Since some
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“Returns of between 5% and 8% were observed in the
market in 2014, depending on what risks investors were
willing to take.”
investors are unfamiliar with the long duration of infrastructure
investments, it is the collaboration within Allianz Group that is
proving to be a particularly strong selling point for investors.
Allianz Climate Solutions – the centre of competence for
renewable energies at Allianz – act as advisors to AREF. Equally,
our competence as one of the world’s largest property insurers
guarantees a broad knowledge base of technologies and the
trends that are driving them. Overall, Allianz offers a strong and
sustainable foundation in this respect.
has proven to be successful, and is also consistent with the approach
adopted by Allianz for its own investments.
The market for renewable energies has repeatedly suffered
setbacks in past years. What protective mechanisms has Allianz
Global Investors put in place to avoid the repercussions of such
setbacks wherever possible?
Various countries have indeed changed their legislation. Some
amendments were beneficial for us – for example in Germany and
France – while others, such as Italy’s move to retroactively cut
feed-in tariffs, were disadvantageous. This topic shows just how
important it is to diversify a portfolio across borders. Additionally,
keeping track of the regulatory environment in each country is
absolutely crucial to enable prompt responses to any changes.
What net returns do these investments generate over what sort of
investment horizon?
Returns of between 5% and 8% were observed in the market in 2014,
depending on what risks investors were willing to take. This is
precisely where the various projects on offer differ. Investors are
well advised to study the strategies of the asset managers very
closely. If the sums are based on very high sale price forecasts for
the plants, investors should critically challenge the validity of such
assumptions. Our investments are based on the conservative
assumption that we will operate the plants over their entire lives,
and will not have to sell them to generate our returns. This strategy
Over the next three years, the European Union plans to
invest 315 billion euros in infrastructure projects with the
involvement of private investors. What sort of general
conditions do you feel are necessary for such investment,
and where do you see the most interesting projects for
institutional investors?
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UPDATE II /2015
INTERVIEW
For the EU to set up such a programme it is fundamentally a very
good signal for the market. The biggest challenge facing the
market is not, however, raising the financing. On the contrary –
thanks to the historically low interest rates, there is plenty of
external financing available. Finding the right investment projects
is more important. For this reason, investors must also carefully
select asset managers who are capable of joining forces for the
long term, with the right market players in this increasingly
complex environment. We are well positioned with our products
and our partners, but the market is challenging.
currently challenging market environment, we are confident in
our ability to secure attractive projects for our clients with our
successor product. We plan to hold initial talks with potential
investors this autumn.
Dr Sandhövel, thank you for sharing your thoughts with me.
In light of the success of AREF 1, Allianz Global Investors is
planning to launch another pooled investment vehicle for
institutional investors. What sort of investments are planned
for it, and when do you expect the fund to be launched?
Basically, we want to build on the AREF structure, while modifying
it slightly to offer investors an attractive product. For example,
we can imagine integrating smaller parts of the power grid or its
interfaces in wind and solar parks, if such a move generates a
worthwhile return. Moreover, we are looking to Scandinavia where
interesting investment opportunities may arise. In spite of the
Marty-Jörn Klein, Editor-in-chief was talking to
Dr Armin Sandhövel.
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