This content is from: Portfolio

Conventional Energy Investors Target Renewable Assets

Thirty-six percent of large institutional investors prefer renewable assets to traditional energy such as oil, according to Preqin.

  • Alicia McElhaney

More than half of conventional energy investors are now putting money to work in renewable resources.

Fifty-two percent are targeting renewable assets for their portfolios, according to a Preqin report Thursday. The financial data provider said that large institutional investors with more than $10 billion of assets are more likely to prefer renewable resources in their holdings.

Traditional energy investors are allocating capital to renewable energy to diversify their portfolios and keep up with increasing demand in emerging economies, according to the report. It’s another sign that interest in sustainable sources of energy is gaining momentum, a global shift that may not be derailed by President Donald Trump’s decision to pull out of the Paris Agreement battling climate change.

“Even though oil prices are low and traditional energy sources are cheaper, the ship has sailed on renewables,” said Tyler Rosenlicht, vice president and portfolio manager at real asset investment firm Cohen & Steers.

Emerging economies with large-scale energy projects aimed at improving living standards will create investment opportunities in both renewable and conventional energy, according to Preqin.

“Although the decision made by the U.S. to withdraw from the Paris Agreement poses a challenge for the renewables industry in the U.S., the continued commitments of other countries to this agreement is likely to result in opportunities for fund managers and investors targeting these regions,” Preqin said.

Renewable-focused funds have raised $5 billion this year, surpassing fundraising for pools targeting conventional energy, according to a report earlier this month from the data provider.

The stable returns that a diversified energy portfolio provides is likely enticing investors to consider assets tied to oil and gas, as well as those in solar or wind.

Energy funds that invest in both renewable and conventional energy perform roughly on par with conventional energy investments and with less dispersion, or difference between the best and worst performing investments, according to the report released Thursday by Preqin.

Thirty-six percent of renewable energy investors with more than $10 billion under management prefer renewable energy, the report shows. That includes 17 percent with more than $50 billion of assets.

A smaller percentage leans toward traditional energy. Twenty-eight percent of institutional investors that manage more than $10 billion prefer conventional energy investments, including 11 percent with more than $50 billion of assets, according to Preqin.

Investments in energy, including renewable resources, will have to expand to keep up with rising demand from a growing population, Rosenlicht said. Otherwise, “how are you going to grow that supply?”