Agenda item

As part of good governance, the Committee periodically reviews the performance of the Fund’s investments. There is a further focused review of different asset classes each quarter. This paper concentrates on Private Markets and specifically the exposure to renewable energy.

Speakers:

Mel Butler, Deputy Head of Investment and Stewardship

Anthony Fletcher, Independent Advisor

Milo Kerr, BCPP

Key points raised in the discussion:

1.    The Deputy Head of Investment and Stewardship noted that the focus of the private markets review was on highlighting the renewable energy exposure in the portfolio.

2.    The Independent Advisor noted that £800 million was committed to private market investments and of that, the current investment in renewables was £200 million or 3.4% of total assets. Based on the idea that all the investments get drawn according to the BCPP proportions, it was expected that the Fund would have £322 million invested in renewable assets or 5.5% of total assets. He noted that around 25% of the Fund’s private market exposure was involved in renewables, and it was anticipated that would increase to 40%. That was about the right level and he noted that a diversified portfolio was important as asset performance differed. He reported that the Capital Dynamics Clean Energy Infrastructure (CEI) fund delivered the worst performance for renewable investment at -5.6% IRR (Internal Rate of Return) and conversely, Pantheon Global Infrastructure Fund III delivered over 30% IRR.

3.    A Committee member noted that as the Government had published a report titled ‘Make Britain a Clean Energy Superpower’, the Fund should invest more than 5%, to mitigate climate change. Another Committee member welcomed greater investment, however noted that private markets were one part of the overall assets allocation and the Fund had other investments in renewables.

4.    A Committee member noted that some of the investments were in biomass and highlighted the case of Drax biomass plant in north England where it emerged that the supposedly sustainable pellets they were using to fuel their plant mostly came from chopping down ancient Canadian forests. He asked whether investments in renewables were monitored to ensure those were genuinely green. The Independent Advisor explained that Drax had been perceived to be a green investment, Aviva Infrastructure Income Fund had biomass assets written off and Capital Dynamics struggled to make returns from green energy from wind.

5.    The Independent Advisor noted that review of asset performance was undertaken to ensure delivery of the environmental benefits. BCPP was monitoring the Quinbrook Infrastructure Fund which was a large solar project in Kent, to ensure that the environmental impact would be positive. The BCPP representative noted the layers of oversight by BCPP in identifying and allocating to private markets managers, ensuring they fulfil their mandate.

6.    A Committee member asked how long it would take to realise investments; and asked how the percentage invested by the Fund compared to other funds. The Independent Advisor noted that for infrastructure assets it could take twenty years in addition to the initial five years for development. He noted that whilst there was little data on benchmarking performance between funds, from his own experience he noted that Wiltshire invested much more; the Surrey Fund was in the middle.

7.    A Committee member queried what the percentage investment in renewables was by the Fund across the whole portfolio. The BCPP representative noted that there was a measure - it was not heavily relied upon - and that could be provided.

8.    A Committee member noted that the advantage of Drax was that it had a close link to the electricity distribution network. The Independent Advisor explained that the large solar project in Kent worked because Quinbrook used a spare interconnector and nearby land. He noted that onward electricity transmission could be a problem. The Committee member noted that the Government would need to solve that issue nation-wide with the shift to electric vehicles.

RESOLVED:

Noted the Fund’s Private Markets renewable energy exposure and review from the Fund’s independent investment advisor.

Actions/further information to be provided:

1.    17/24 - The BCPP representative will provide the Committee with the percentage investment in renewables by the Fund across the whole portfolio.