Federation Asset Management is preparing to raise an AUD 1bn (USD 674m) renewable energy-focused fund, according to a source familiar with the matter.
The Sydney-based fund manager will tap local and Asian investors for the Sustainable Australia Real Assets Fund, which will invest in wind, solar, battery storage, pumped hydro and energy-from-waste projects.
Pre-marketing for the new fund will either kick off in November or next February, said the source, adding that the exact launch date has not been determined.
While focusing on Australia, the fund has a mandate for the entire Asia-Pacific region, and will initially invest AUD 50m-100m in equity in projects or companies in Australia, Japan, Taiwan and South Korea, where Federation sees the most opportunity, said the source.
Federation was established a year ago by Greg Bundy, former head of Macquarie Capital’s Principal Investing division. Stephen Panizza, also ex-Macquarie, heads the renewables fund. Besides renewable energy, the manager also has real estate and social infrastructure strategies.
In July the manager raised a smaller feeder fund to make investments across real estate, infrastructure and renewables. One of the first was an 18% share of Australian developer Windlab for just over AUD 10m at AUD 0.8 per share.
Under the terms of the share sale deed between the parties, Federation must top up part of the share sale price if Windlab receives a takeover offer for the company as a whole, according to an ASX filing.
The Windlab investment will not be spun into the fund but it may invest equity in Windlab projects, which include the Kennedy Energy Hub and the Lakeland solar and wind farms in North Queensland.
The size of the feeder fund was not disclosed, but the source said it raised roughly AUD 100m.
In August, Windlab hired Moelis & Co to conduct a strategic review that examined options including an equity injection or sale, as reported.
The Sustainable Australia fund can invest in operating companies as well as in projects, which would give it an advantage over many local infrastructure funds which only invest at the project level, added the source.
Federation will likely spend two to three years raising the capital it needs and will not rush to find investments, particularly in solar, where many project developers face difficulty connecting to the grid. “Solar farms are depressing prices during the day. The duck curve [which dips during the day as solar farm output rises before the evening peak period] will not get any better until we have more storage,” said the source.
Similarly, the fund manager will tread carefully in EfW as the market is still in its infancy in Australia with just two utility-scale projects having reached financial close. Over time, Federation would like to have roughly a third of the fund invested in EfW projects.