ATP chief outlines appetite for future climate change investments

Giant Danish fund expects to commit more after initial clean tech/renewables and sustainable forestry investments.

In less than a week, ATP, the Dkr355bn (€48bn) Danish public pensions giant, has rolled out one of the biggest institutional investment programmes in the climate change space, with plans to do more as and when it sees market opportunity. It started last week with an €292m ($400m) investment in a global clean tech renewable energy fund run by New Jersey-based Hudson Clean Energy Partners, which will also be heavily focused on biomass (biological matter used as fuel) and second-generation biofuels. Then the fund, the fourth largest pension plan in Europe, announced a commitment of €400m in sustainable forestry with an initial €24m purchase of 38,000 hectares (roughly 95,000 acres) of timberland at Upper Hudson Woodland in New York State. While there is no connection between the two ‘Hudson’ investments, you could be forgiven for thinking that ATP, which runs supplementary labour market pension contributions for 4.5 million Danes, had caught something of the Obama zeal on climate change. Lars Rohde, chief executive of ATP, told Responsible Investor that the fund plans to extend its climate change-related investments, but will bide itstime: “We think these are key investments for the markets of the future and we will make more allocations. The question is how we do it and what is available in terms of product in the market and if it is attractive.” Rohde says the starting point for the current investments was a general recognition that climate change solutions will be key drivers for future institutional returns. The clean tech/renewables private equity mandate with Hudson CEP will see the fund investing in solar, wind and hydro investments in Spain, Germany, the USA and the UK. A large portion of the investment is also earmarked for the expansion and development of energy solutions within less tested forms of energy, such as second-generation biofuels and biomass. Rohde believes the biofuels sector has learnt from the major food versus fuel critiques levelled at first generation biofuels such as biodiesel and ethanol and he sees good return prospects allied with the potential solving of future energy problems. Rohde says: “Another major point is that we consider the clean tech/renewables investments as risk diversification that fit into an inflation protection bucket for our total investments along with index-linked
bonds, infrastructure, real estate and timberland. The reason is that in markets such as Spain we see contracts for clean public/private energy projects with minimum prices for energy which are inflation adjusted and so we find this area quite interesting.” In terms of returns, Rohde says ATP expects low double-digit numbers but on a relatively secure, risk-adjusted basis.
He says the fund also sees the renewables allocation as diversification away from a traditionally high exposure to the oil sector. While the fund manages public pensions money, Rohde says there is no external pressure to make ideological environmental investments: “We go for the highest possible risk-adjusted return under law and there are no footnotes made on us to invest in a certain way. That said, there will undoubtedly be people that are happy with this strategy, but it’s a pure investment decision. ”Researching the climate change/renewables space has not been easy, says the ATP chief says: “We have had internal research on this for quite some time. It’s labour intensive and figuring out how to play the space isn’t easy.”
Notably, ATP tends to manage most of its money in-house, only going to market for potential alpha generation or specific expertise, and then hiring managers using its own in-house research team: “Wehave mandated Hudson because we don’t have these competencies internally, so we also see it as transfer of knowledge from them to us. There are listed fund managers in this area, but for us private equity was the purest way to invest in this area.”

“It’s labour intensive and figuring out how to play the space isn’t easy.”

Rohde says ATP was impressed by the competencies and experience of individuals at Hudson CEP. The New Jersey-based renewables specialist is run by former Credit Suisse and Goldman Sachs bankers and founded by Neil Auerbach a former partner at Goldmans, and founder and manager of the bank’s US Alternative Energy Business. Hudson, which has been backed by Credit Suisse, is currently fund raising for a clean tech/renewables fund that could break the $1bn mark. But Rohde says the bank support was not important: “You should do your own due diligence, you can’t rely on anyone else.”

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