Saving for a sunny day

Josephine Cumbo for the Financial Times reports of a new solar fund that has opened for pension investors in Britain.

Solar fund opens up to pension investors

Wealthy individuals wanting to tap into growing demand for renewable energy now have access to a new solar fund, the country’s first to target pension investors.

The Solar Energy Fund, recently launched by Goldfield Partners, aims to generate returns of 6-8 per cent per annum from solar panels installed on the roofs of residential homes and social housing. However, while these returns are attractive in the current low-growth environment, advisers caution that the asset class does have its risks.

The Solar Fund, which is targeting £50m, will purchase the solar panels which are installed on properties, at no expense to the owner or leaseholder.

Returns are generated from the payments made by utilities for the electricity generated by the panels under the Feed-in-Tariff, or FiT scheme.

Feed-in tariffs pay consumers, and owners of the panels, for the electricity they generate, both that which they use and that which they sell back to the grid.

Solar funds are not new in the UK, as investors have for some time have been able to gain exposure to the asset class within the wrapper of a tax-efficient Enterprise Investment Scheme.

Aviva Investors also recently paid an estimated £100m for a portfolio of solar rooftop systems.

But the new Goldfield fund is believed to be the only one currently open to pension investors as it is structured as a unit trust, eligible for inclusion in a self invested personal pension or small self-administered scheme.

“The panels are bought by the limited partnership that set up the fund,” explains David Gammond, chief executive of Goldfield Partners.

“We collect the feed-in-tariff payments and this income is funnelled through the limited partnership and then through the unit trust and then up to the investors.”

With a minimum investment of £10,000, the fund is not targeting mainstream retail investors but high-net worth investors who are looking for diversification and steady returns.

The targeted returns will not come immediately but will be staggered. “We will hold a little of the investment back for people who want to leave, to create some liquidity,” adds Gammond.

The fund is aiming to deliver its first return of 5 per cent in 2013, with returns projected to rise to 6-8 per cent per annum from 2014 onwards.

Advisers say that in a low-growth, low-yield enviroment the investment could prove popular with retirement investors.

”There is a big demand for this type of investment because of the projected steady returns,” says Mark Holden, partner with Holden & Partners, a firm of independent financial advisers.

“If money in the bank is only paying 2-3 per cent, and equities are flat, then returns of about 6 per cent are quite nice on a consistent basis. However, you are sacrificing liquidity. The investments are only suitable for high nets who want to take a long-term view.”

Advisers also caution say that investing in the solar sector is not without broader risks.

At the end of last year the government announced a sudden drop in the feed-in tariff subsidy, a controversial move that was challenged by green groups.

However, ministers insist that the subsidies are still generous enough to encourage homeowners and companies to keep installing panels, saying the falling cost of the panels offset the reduced tariffs.

The fund is one of the few to also be launched as the regulator cracks down on the sale of high risk Unregulated Collective Investment Schemes (UCIS) to “unsophisticated”, retail investors.

The Goldfield fund has been set up as a UCIS with Goldfield’s Gammond saying he does not believe the regulatory crackdown on the product category will affect its popularity.

“We felt it was the most appropriate category for it…IFAs will, as always, have to evaluate the suitability of clients,” he said.

Investors in UCIS have weaker consumer protections than those invested in regulated schemes, with no fall back on the Financial Services Compensation Scheme if the fund administrator goes bust.

Investment operators also have greater liberty to pursue new or unorthodox investment strategies, says the Financial Services Authority, with investors generally placing their capital at “greater risk” than would be the case for more mainstream investments.

With these unique challenges for the solar sector, advisors say potential investors should take a good look under the bonnet before investing.

“They need to ask the fund manager how often the units will trade and how the assets will be valued,” ” says Laith Khalaf, adviser with Hargreaves Lansdown, the independent financial advisers.

“Investments like this should only form a small part of a portfolio as part of a diversified strategy.”