London CIV deal shows secondaries buyers’ dead zone

The acquisition of the BlackRock single-fund position could presage opportunity for pensions with a lower cost of capital than typical secondaries buyers.

A London LGPS CIV secondaries transaction may herald an increase in pensions acquiring certain infrastructure assets that don’t suit typical secondaries buyers.

London CIV, one of eight firms that manage UK Local Government Pension Scheme assets, spent £107 million ($148 million; €126 million) to acquire a single-fund position in BlackRock Renewable Income UK Fund, according to a press release. The seller’s identity was not disclosed.

The firm, with £11.2 billion in assets directly under management, was pleased to deploy capital into the mature portfolio of cash-generating assets that will see immediate returns, head of private markets Vanessa Shia said in the release.

That position now resides in LCIV Renewable Infrastructure Fund, a £435 million vehicle which invests in greenfield and brownfield renewable assets. This is the first secondaries transaction the fund has undertaken.

“The low-risk, cash-yielding and long-term profile of the fund [is] well suited for pension funds and other institutions with longer-term liabilities,” Daniel Roddick, founder Ely Place, said in the release. “The transaction did not represent a typical fund acquisition for most secondary buyers.”

Ely Place represented the anonymous seller in the transaction.

Typical secondaries buyers were initially interested in the deal due to the brand-name manager and renewable asset class, a source close to the deal shared, but they couldn’t accommodate the evergreen structure. The lower return profile would have meant paying a steep discount for the position to justify the deal, Secondaries Investor understands.

An initially broad field of potential buyers quickly narrowed when the size and sophistication of the deal – in conjunction with a necessarily lower cost of capital – were taken into account, SI understands.

Now that buyers for assets with this profile have been identified, it could herald an increase in a part of the market not suited for secondaries’ typical suspects, the source said.

BlackRock Renewable Income UK is invested in a portfolio of 48 wind and solar projects across the country. BlackRock’s renewable power platform has invested directly in more than 300 wind and solar projects globally, according to the release.

BlackRock, in addition to Quinbrook, Stonepeak and Foresight, manages LCIV Renewable Infrastructure Fund, according to the pension’s website. It is unclear what responsibilities the firm has in this context.

Shepherd and Wedderburn acted as the seller’s legal counsel.

London CIV did not respond to a request for comment by press time.