Diversified Alternatives – introducing renewable infrastructure

A landscape shot of a windfarm
For financial professionals only

We’ve introduced infrastructure within the Diversified Alternatives allocation across many of our core solutions. We see the asset class having a valuable role to play in providing diversification versus equity and bonds, while generating an attractive anticipated yield of around 4-5% p.a. with a degree of inflation linkage. My colleague Meera recently wrote an excellent introduction to infrastructure.

Renewable infrastructure is a growing segment within this. Renewable energy - including nuclear, wind, solar and hydro grew from 9.4% of the UK energy mix to 21.5% over 20 years to 2020(1). This is set to continue growing strongly, driven by the need to reduce carbon emissions to achieve our national net zero by 2050 target and improve energy security.

The graphic below summarises some of the key areas within renewable infrastructure.

Renewable Infastructure

We hold Foresight’s and Gravis’ UK Infrastructure Income funds in many of our PIM investment solutions. Renewables are currently the biggest part of their portfolios, mostly wind and solar power, through the funds holding investment trusts such as Greencoat, The Renewable Infrastructure Group and John Laing Environmental Assets Group.

These funds also invest in infrastructure more broadly, e.g. GP surgeries, data centres, telecom towers, fibre optic cable companies and logistics warehouses. These exposures bring lots of positives from an ESG perspective through facilitating healthcare and connecting people. However, core infrastructure funds often include exposure to ports, toll roads and airports which aren’t particularly environmentally friendly. Additionally, some companies operating renewable energy infrastructure may also have residual exposure to coal power, which is damaging to the environment.

For our PIM Strategic Ethical Active solution, we’re introducing infrastructure through a more focused fund - Gravis’ Clean Energy Income. This does have a reasonable overlap with some of the holdings in our other infrastructure funds, offering many similar characteristics:

  • An attractive yield of around 4-5%, which is partly inflation-linked.
  • Significant portion of the cashflows backed by governments.
  • Over 80% of the portfolio is availability based or contracted renewable energy assets. This means that the fund gains a regular income from the assets being available, regardless of whether they are being used.
  • The fund is well-diversified with exposure to over 1,000 underlying projects.
  • Provides a good source of diversification versus equity and bonds.

The Gravis Clean Energy Income fund is purely focused on renewables, with exposure to wind and solar, hydro, energy efficiency, energy storage and a small amount of geothermal & biomass. This means the fund is a bit more correlated to clean energy, and slightly more volatile compared to core infrastructure funds.

The fund screens out companies who have any coal exposure and also avoids companies with nuclear power operations, at a 5% revenue limit. Natural gas exposure in the fund only amounts to c.5% of the fund’s total energy capacity, and has been falling over time as the underlying companies invest more into renewables and let their residual gas operations run down.

Renewable infrastructure is a fast-growing space. The universe was around $30bn in size 4 years ago across approximately 20 companies, now it’s $120bn across over 40 companies. More companies are coming to market through IPOs and spin-outs from other firms. This is a positive trend and suggests there will be greater future opportunities to diversify portfolios.

We feel infrastructure is a strong component within our Diversified Alternatives asset class, to strive for an attractive return and help diversification versus equities and bonds. However, this is a specialist asset class and we’re mindful of the need to keep our portfolios highly liquid and cost efficient. As such, infrastructure is only one element of our Diversified Alternatives asset class, held alongside equities and bonds with client portfolios. 


  • “UK Energy in Brief”, 2021, UK Government

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.

Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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