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Interview “Are infrastructure projects sufficiently structured, Dr Sandhövel?” 34 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 35 “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? 36 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. 37