A partner’s willingness to use its own balance sheet to stand alongside UniSuper as a foundation investor in a green energy fund was a key factor in the $124 billion super fund’s decision to commit US$400 million to unlisted renewable energy assets, the Fiduciary Investors Symposium heard.
UniSuper head of private markets Sandra Lee said while US$400 million isn’t UniSuper’s largest single investment, it was nevertheless “meaningful”, and the fund was given additional confidence by its partner’s willingness to have skin in the game.
Lee said UniSuper assessed a number of potential partners when it was considering both the scale and the structure of an unlisted investment in renewable energy.
“When we were surveying the market and looking at various climate or renewable or green strategies…you can’t decide on every [single] one, you have to pick the right one for you,” she said.
“Four hundred million dollars for us was meaningful. It’s not our largest single investment, but the other factor that was important to UniSuper was this was a new fund.”
Lee said the partner it selected was already known to UniSuper through its place on UniSuper’s panel of managers, “but this was a new strategy”.
“With everything new you do that the same level of detailed due diligence,” Lee said.
“We never go, ‘well, you’re known to us, so you must be better than the rest’. That’s absolutely not how we work. But the other big thing for us was [they were] willing to back themselves. [Their] balance sheet came in and stood alongside UniSuper being the anchor investor.”
Sharing the risks
Lee said for UniSuper “that was a key element”, and the partner’s willingness to share the risks of the investment and to back its own strategy would be “viewed very attractively by most investors”.
“So that was how we arrived at that sort of quantum. We wanted it to be meaningful, and it wasn’t [our] largest [investment], but we’ve got plans…as partners, to grow that over time.”
When discussions started between UniSuper and its potential partner, that partner had an initial portfolio of six renewable energy businesses, three of which it had created itself.
This approach was part of its solution to how to find value in markets that are already attracting a lot of capital and where, in some instances, the price of assets is inflated.
In the past six years it had created nine separate businesses that operate across the energy transition supply market, diversified geographically and by technology.
Lee said the investment in a green energy fund was a continuation of UniSuper’s commitment to investing in decarbonisation, which she described as “the overarching, pervasive thematic of our generation”.
“We focus on high-quality companies, with the potential to have long-term sustainable earnings,” Lee said.
“We consider ESG, but we want to understand the potential for how these companies could thrive and be resilient in a decarbonisation environment.
“And then finally, as a fund, we have a commitment to net zero by 2050, and asset-class emissions targets as well. Some of the other ways we’re accessing this whole decarbonisation thematic is via non-traditional ways – so, obviously renewable energy is very traditional, but we’ve got an investment, for example, in timberland, four timberland assets across Australia and New Zealand.”
The right opportunity
Lee said that UniSuper’s investment in came about as it was “in this space looking for, as you say, the right opportunities”.
“And we always sort of approach the process with doing very deep, comprehensive due diligence. That will mean sort of looking across the market, globally for partners, potential right managers; but also the right strategies.”
Lee said that some caution is warranted; the label “energy transition” means different things to different investors and managers.
“For us it was about focusing on what was important to UniSuper,” she said.
“I should [say] this is just a UniSuper approach; clearly, it’s not the only model in this world. Everyone does renewables in their own way and differently.
“But for us, it was about finding a partner and, you know, manager that could exhibit the right capability, the capacity, the credibility, but also proven experience and track record.”
Investing in infrastructure with a partner is something of a departure for UniSuper, which has traditionally had a “very direct investing approach”.
“We’re big infrastructure investors,” Lee said.
“We’ve been doing it for over two decades and we like meaningful positions. We like governance rights, including board representation. But for this particular strategy, I guess we went into a fund, and people said, ‘Oh, that’s interesting, it’s a bit of a different strategy’.
“But with renewables, the focus for us was on getting onto a platform, because renewables is just hard work. We wanted the diversity of geographies, we wanted it to be across different regions, across different mature technologies. As an asset owner, we’ve obviously got an in-house team, but we don’t have the same breadth of the network that these guys have.
“It was very hard just to get that by going direct into a particular project. So we thought this was a good way to access the strategy, the thematic. And then obviously, once we decided on that, it was just who would we decide as the right partner.”
Lee said the renewable energy space is competitive and “every manager’s got an energy transition product or strategy of some sort”.
“It was pretty competitive, we actually did diligence quite a few parties, partners, stakeholders,” she said.
“UniSuper has been investing in this particular sector for a while now, via global listed markets, but we wanted to do something from an unlisted perspective.”
This article was edited on 28 November 2024 to remove the identity of UniSuper’s partner in a green energy fund to avoid implications for the manager’s marketing of the fund in the Americas. The fund is not open for public investment.
