London-based fund manager Schroders has confirmed the £358m acquisition of a 75 per cent stake in Greencoat Capital, one of Europe’s largest renewable infrastructure managers.
The move marks the latest example of dealmaking in the asset management industry and will help Schroders take advantage of two of the sector’s biggest trends: greater demand for renewable energy assets and the expansion of the private capital sector.
Greencoat was set up in 2009 by its four founder-owners Laurence Fumagalli, Bertrand Gautier, Stephen Lilley and Richard Nourse. It has grown quickly since then, with assets under management rising at about 50 per cent a year for the past four years to stand at £6.7bn. It has investments in areas such as wind, solar and bioenergy at 200 sites in the UK, Europe and the US.
“This is a deal which is at the cross section of everything that is important to us strategically: private markets, the transition to net zero and clients wanting more sustainable assets,” Schroders’ chief executive Peter Harrison said on a call with reporters. “The big prize is expanding the business further in the UK, Europe and the US.”
The purchase price could rise by another £120m if financial targets are met. Schroders has an option to buy the remaining 25 per cent of the company.
Schroders, which has more than £700bn in assets under management, has been building out its private assets platform and its position in sustainability. In July, alongside early-stage venture capital firm Oxford Sciences Innovation, it bought a minority stake in Natural Capital Research, a research organisation that helps its clients develop ESG, biodiversity and net zero carbon strategies.
The private capital industry reached $7.4tn at the end of 2020, and is expected to hit $13tn by 2025, according to Morgan Stanley, as investors pour money into these strategies in the search for returns in a low-interest-rate environment.
Meanwhile mainstream asset managers globally have been striking deals to expand in alternative investments, attracted by having longer-duration assets and the higher fees these strategies typically command.
“Dealmaking is accelerating as asset managers look to tap into fast-growing areas with high barriers to entry, such as private assets, or expand their distribution into new markets,” said Vincent Bounie, senior managing director at Fenchurch Advisory. “The continued trends of rising costs and downward pressure on fees are eating into profit margins and hastening the need for consolidation.”
In October, T Rowe Price announced the $4.2bn acquisition of credit manager Oak Hill Advisors, and the following month Franklin Templeton said it would buy private equity investment specialist Lexington Partners for $1.75bn. In August, Goldman Sachs Asset Management agreed to buy Dutch insurer NN Group’s investment management unit for about €1.6bn, attracted by its strong position in environmental, social and governance investing.
The US and European markets for renewable energy assets are forecast to grow by more than $1tn to 2030 as part of the global transition to net zero.
Greencoat’s investor mandates typically comprise permanent or 25-year capital, reflecting the longevity of the assets in which it invests.
Georg Wunderlin, global head of private assets at Schroders, said on the call that “the duration of the capital leads to very attractive economics for us a firm . . . the opportunity for this business is to continue to grow rapidly”.