German fund giant Union plans first institutional renewables fund

€180bn manager sees demand from institutions

Union Investment, the asset manager for German cooperative banks with €180.8bn under management, is on the verge of launching its first closed-end fund for institutional investors wanting to invest in renewables.

Speaking to RI in an interview, Alexander Schindler, executive board member for Union’s institutional business, said the fund would allocate at least 70% of its assets to onshore wind power and the rest to other renewables, chief among them solar power.

According to Schindler, the fund’s creation highlights the growing demand among German institutions for the technology. He said: “It’s difficult for German insurers and pension funds to find the returns they need – say 5% or 6%. Yields on government bonds have been at historic lows for years, and corporate bonds are not returning as much as they were at the start of the financial crisis. This is why we are seeing movement into renewables.”

Schindler stressed that while renewables can provide the returns investors are looking for, they have to be willing to remain invested for 10 to 15 years. “There is no functioning secondary market for renewables,” he said, adding:“Investors also have to be aware that renewables are still dependent on subsidies. Fortunately these are still being paid in Germany.”

Schindler also said he saw continued strong demand for Frankfurt-based Union’s sustainable funds. Since the start of 2011, those funds have taken in €1.5bn, bringing the total volume to €5bn.

“For the whole year, we should see volume growth of 15% in the sustainable assets managed by Union Investment. By 2015, I expect our volume to increase by 50%, though of course this is dependent on outside factors.”

Schindler said last year’s nuclear accident in Fukushima, Japan, as well as Germany’s embrace of renewable energies – the so-called Energiewende – had been good for demand.

Look out for RI’s full interview with Schindler, to be published soon, in which he gives his views on the UN-backed Principles of Responsible Investment and Solvency II as a barrier to renewables investment.