Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
‘Need to search beyond the index’ for clean energy opportunities
The United States’ re-signing of the Paris Climate Agreement under President Biden, combined with a strengthening commitment on carbon emission targets from China, “sets the stage for a globally coordinated move away from fossil fuels.” That’s the expectation according to Ganesh Suntharam, chief investment officer of Redpoint Investment Management.
Putting the ESG trend to the side, Suntharam expects a significant amount of capital to be required in the coming years, spanning multiple economic sectors as the transition to a lower-carbon economy takes hold. In his view, these sectors offer the “potential for above-average risk adjusted returns” in what many expect to be a lower-return environment for global equities.
Highlighting the expanding opportunity set within Global Listed Infrastructure (GLI) assets, he notes that “The need to search beyond the traditional indexes to identify opportunities within global listed infrastructure assets is becoming more apparent.” Redpoint’s assessment highlights that “most infrastructure benchmarks typically contain little exposure to renewable energy companies outside of the traditional utility companies, which themselves are still dominated by fossil fuels.”
This poses a potential issue for the maligned Your Future Your Super legislation, with many experts predicting industry funds will be forced to follow the underlying benchmarks more closely. According to Suntharam’s research, US stock NextEra Energy (NYSE:NEE) is the only company with the majority of its business coming from clean energy that features in the FTSE Core Developed Infrastructure Index flagged by the legislation. This is expected to offer opportunities for both active infrastructure managers and financial advisers alike, who have the flexibility to avoid the losers and focus on the winners.
The timing couldn’t be better for the sector, according to the report, with “developments in the renewable and clean energy sector in recent years seeing the sector transform from a riskier and more experimental investment prospect to one which is more securely established.” This means many companies now offer investors exposure to more ‘mature’ assets with ‘stable yield’ and the added benefit of the coming decade of development opportunities.
As ever, finding those renewable energy and green economy-focused companies requires more research rather than index based approach to stock selection. Wind turbine manufacturer Orsted (Nasdaq Copenhagen: ORSTED) offers an example, being a leading technology provider in the offshore wind-farming sector, but these great companies are not easily located.
According to its website, Redpoint’s Global Listed Infrastructure Strategy is designed to capture the key characteristics of infrastructure in a diversified portfolio. It aims to provide lower volatility than global equities, along with a focus on quality companies and long-term sustainable income growth.
