Duncan Hale, portfolio manager at Schroders Greencoat, spoke to A Word About Wind about changes in the Greencoat strategy since its acquisition by Schroders Capital; competition for assets after the pandemic; and offshore wind deals.
How has life changed since becoming Schroders Greencoat?
Schroders bought 75% of Greencoat Capital three years ago, and we were happy to be acquired. Before that, we largely focused on two areas: roughly 50% of our assets were in the listed investment trust and roughly 50% were in private markets; and were largely, not exclusively, focused on UK defined benefit pension schemes.
The most interesting aspect for us was we can now offer what we do to a broader range of investors. Schroders has helped enlarge our geographical footprint, from the clients we’re talking to, and the different channels. In terms of geographies, we’re focused on the UK as well as Europe and growing in the US.
For example, we launched the UK’s first long-term asset fund (LTAF) for defined contribution (DC) investors focusing on the energy transition in 2024, and we recently launched the UK’s first wealth-dedicated infrastructure LTAF. Through these we can deploy capital across wind and solar assets, as well as hydrogen, heating and storage.
How has the expanded investor based changed your strategy?
On the defined benefit (DB) side, they are very-low risk investors that are looking to us for secure income from the long-term, very low levered, very highly contracted, inflation-linked, UK-focused cashflows. As we’ve gone into other geographies, we haven’t torn up what we did previously but we are taking marginally more risks, whether that’s with asset types like hydrogen or maybe we’ll take slightly more risk in terms of being slightly less contracted, maybe taking on more leverage, and projects earlier in their life cycle.
After the pandemic, we saw a lot of competition for assets and rising prices. Has that eased now?
Yes, 100%. From a buyer’s perspective, you’ve had a double whammy. There are less people in the market because some of the players, like sovereign wealth funds, have moved out of the UK, so you’ve got less money chasing deals.
But at the same time the buildout has continued at pace so the number of projects in the market is higher. That supply-demand dynamic between capital and projects has flipped the market on its head.
And where do you personally focus your investments?
I’m a member of the team responsible for the portfolio management of the two semi-liquid funds, so both the LTAFs as well as the Luxembourg-based funds. Effectively, we are doing a Schroders Greencoat-wide portfolio where it’s diversified by the technologies that we invest into, which are wind, solar and other energy-transition-aligned infrastructure. That includes hydrogen, heat networks, industrial-size ground-source heat pumps, and batteries.
Which types of investments do you pursue in offshore wind?
We have done lots of off-shore wind in the UK, as well as in Germany and the Netherlands We’re largely operational investors. Taking development and construction risk in offshore wind is not something we’ve done in the past, which effectively means we haven’t been in the US market. Given what’s been happening there, I don’t think we will be investing into offshore wind in the US any time soon.
However, we do like onshore wind in the US. We have a breadth of experience across different technologies out there – onshore, solar – and we are willing to hunt for where the best opportunities are. If we were to see an asset that doesn’t sit neatly in a predefined bucket then we are always happy to explore that.
How do you decide which of these newer opportunities to pursue?
First of all we look to understand what cashflows can be produced by an asset; we are not looking to take technology risk. It’s really important to us that we have long-term relationships with developers, and so these newer areas are where we are generally working with those partners. If they have a new idea then, given our track record of delivering, I think people are generally happy to show it to us. That can lead us to some very interesting assets.
Generally, if you look at the economics of projects, they’re moving in the right direction. There’s been a recent hiccup in terms of how much things cost to build, but directionally the long-term trend is positive, leading to an expectation that over time the costs of building out the energy transition will improve. As we’re making long-term investments into these assets, that’s a key risk that we need to focus on. We need to ensure we are paid appropriately over 40 years for an asset that we need to amortise over 40 years.
What do you see as the biggest risks to investment in 2025?
One is the patchwork of government policies, but there are positives too. We’ve started to see the start of reform around Solvency II, which could at some point unlock capital from insurance companies to invest in the energy transition. There is a lot of capital on the insurers’ balance sheets, which would be great to unlock.
The grid is also an important element and that’s going to help unlock what’s happening in the UK and other parts of the world, but political uncertainty is a key driver.
Strategic communications, insight and events for the global energy transition.