Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Aware Super looks abroad for green finance opportunities
Aware Super has made a $50 million co-investment in the Washington-based Galway Sustainable Capital (GSC) alongside Macquarie Asset Management (MAM). GSC, which finances “emerging sustainability transition assets”, has made US$309 million in commitments across 27 investments in its first two and a half years in operation and recently took a majority stake in Forsite Renewables.
The investment will diversify Aware’s A$10.2 billion private equity portfolio geographically and through exposure to financial services, and has at its back the A$520 billion of funding and tax incentives of the US Inflation Reduction Act (IRA).
“GSC has exceptionally strong tailwinds as many solutions for the global energy transition challenge require significant upfront capex, creating an opportunity for financing these solutions for years to come,” said Alex Satchcroft, Aware Super portfolio manager for private equity. “The additional push arising out of the IRA will also fan existing sectorial tailwinds to potentially deliver strong risk-adjusted returns for our members here in Australia.”
Satchcroft said that the fund’s private equity program aims to deploy 50 per cent of its capital into co-investments, with the MAM partnership “further proof of (its) growing market presence”.
“Aware Super shares our objective of meeting the demand for energy transition and sustainability solutions over the next decade,” said William Demas, head of Macquarie Asset Management Green Investments for the Americas. “We look forward to working with Aware Super and Galway Sustainable Capital to support the development of projects and companies seeking to rapidly accelerate the transition to net zero.”
Aware has previously played the sustainability thematic through a partnership with Birdwood Energy to create a renewable and battery energy storage system and by co-investing in the Palisade-owned Intera Renewables – which holds five of Palisade’s operational renewable energy assets – alongside HESTA and the Clean Energy Finance Corporation.
Green capital heads offshore
The investment in GSC follows an emerging trend of superannuation money chasing lucrative offshore energy transition projects, with the industry fund-owned IFM Investors recently committing to invest A$19 billion in infrastructure and energy transition projects in Britain by 2027 and a coalition of industry funds recently warning that more money will be enticed abroad should Australia fail to accelerate its own efforts.
The group of funds, which includes AustralianSuper, Cbus, Hostplus, CareSuper, HESTA, UniSuper, Rest and IFM, said that “the Australian energy transition still risks falling behind as investors find more compelling opportunities overseas,” citing the IRA and other policy packages in the EU, Canada and Korea.
“Capital is flowing to places with more attractive investment opportunities, strong climate and energy policies and growing demand for clean energy and low carbon goods and services,” the funds wrote in a paper titled “Super-powering the energy transition in Australia: A policy blueprint to facilitate superannuation investment”. “Australia can’t afford to be left behind.”
