Piers Denne (pictured), head of sales and marketing at UK alternative investment boutique Future Capital Partners, which specialises in renewable energy as well as in real estate, healthcare, and media and entertainment, sees public initiatives to counter climate change as an important driver of growth and investment returns in renewable energy and related sectors over the coming years.
GFM: What is the history and background of your company, principals and investment products?
PD: Founded in 2000, Future Capital Partners is one of the UK’s leading alternative investment boutiques, specialising in renewable energy, real estate, healthcare, and media and entertainment. The firm has completed transactions and made investments worth more than GBP6bn.
In the past year, Future Capital Partners has launched three renewable energy Enterprise Investment Scheme funds, Elara I, Elara II and Elara III, all of which have now closed after raising a combined GBP12m. The three funds target an annual rate of return of 29.28 per centon a pre-tax basis, adopting a conservative investment strategy focused on lower-risk opportunities in the renewable energy sector.
Elara I and Elara II focus on opportunities in wind, biomass, landfill gas and solar technology companies, while Elara III, which closed at the end of March with GBP6m, invests in the construction of wind installations, anaerobic digestion plants and wholesaling of renewable energy supplies such as solar panels.
In January 2010, Future Capital Partners launched Future Fuels, a limited liability partnership open to sophisticated investors, to build a renewable transport fuel facility at Grimsby in north-east England. The industrial scale plant will produce two principal products, a renewable transport fuel, bioethanol, and a high-protein animal feed, dried distillers grains with solubles.
The firm also manages two real estate development partnerships that are funding the construction of a five-star luxury hotel complex in the Montenegrin coastal resort of Budva.
GFM: What is your distribution strategy and targeted client base?
PD: Future Capital Partners targets high net worth and sophisticated individual investors and small to medium-sized corporates in the UK. We work closely with the intermediary market, including IFAs, accountants and tax planners. We also target institutional investors for senior debt and mezzanine finance for some of our projects.
GFM: What impact has the recent global financial crisis and economic downturn had on your business?
PD: Fundraising conditions are among the toughest in living memory, particularly for a large-scale project like a bioethanol plant. The fact that we have managed to secure the backing of major financial institutions for Future Fuels is independent verification of the project’s inherent credentials and commercial viability. We believe Future Fuels is one of only a few large industrial UK projects to have secured risk-bearing project debt since the financial crisis.
The other result is increased aversion to risk. These days, investors are looking for the same returns with a much greater degree of risk management. Managers who have been able to provide investments in growth areas while providing significant downside protection have thrived since the downturn, and we have structured our investments in that way since we started in 2000.
GFM: What is the investment focus of the products? What types of companies do you invest in, and where?
PD: We see excellent investment opportunities in the renewable energy sector. Through our Elara range and Future Fuels, we aim to support UK small and medium-sized enterprises active in the green sector. To date, we have invested in green energies such as solar, wind and biofuels, all areas whose growth is supported by the UK’s efforts to counter climate change.
British prime minister David Cameron spoke recently about the government favouring investments such as Enterprise Investment Schemes and other vehicles that invest in UK start-up companies and small businesses. This is the cornerstone of our investment philosophy. Our portfolio is heavily focused on investments that support those sectors, and we shall continue to support British business through our investments.
GFM: What is your approach to managing risk?
PD: Feedback from our investors and their advisers is that in the current climate they are looking for innovative investments that provide access to the high returns of growth areas while limiting any potential risk associated with these emerging sectors. Our investments focus on taking advantage of growth, but are structured to provide downside protection against potential losses.
GFM: How have your products performed?
PD: The building of a 200 million litre per annum bioethanol plant funded by Future Fuelsis set to begin in 2013. The partnership expects to generate post-tax returns exceeding 30 per cent per annum over a five- to seven-year period. Not only does the project provide exceptional investment return potential, but investors will benefit from tax relief available from the investment structure.
Investors will be able to offset their initial investment against future income tax liabilities through the ability to claim excess capital allowances against other UK chargeable income. This may amount to protection of up to 100 per cent of their investment after five years, post construction. These benefits make the product ideal for financial advisors looking to offer their clients tax-efficient solutions, principally due to the unlimited and uncapped upside.
GFM: What developments do you expect to see in your investment sector or industry field in the coming year?
We expecting to growth in the Enterprise Investment Scheme sector following the support offered by the government in its latest budget. From April 6, individuals will be able to invest up to GBP1m (previously GBP500,000) in companies with assets of GBP15m (previously GBP7m) and 250 employees (previously 50, widening the range of investible companies eligible for tax-efficient investment.
Also from April 6, the lifetime allowance for pension savings for UK individuals will be reduced from the current GBP1.8m to GBP1.5m. We believe that this will also boost demand for Enterprise Investment Scheme products as investors look for alternative tax-efficient investments.
GFM: How do you see the current environment for existing investments?
PD: EU directives and UK regulations require that by 2020, 13 per cent by volume or 10 per cent by energy equivalency of all Europe’s petrol fuel, estimated at 18.5 billion litres, must come from renewable sources. Currently, just 6 billion litres – about 5 per cent – comes from renewable sources, implying nearly threefold growth over the next eight years. This is driving the potential returns from the Future Fuels investment partnership.
GFM: What differentiates you from other firms in your sector?
PD: Future Capital Partners offers innovative alternative investments in growth sectors for both high net worth investors and corporates. We have specialist expertise in the renewable energy and other sectors supported by strong networks. This allows us access to unique projects with the aim of turning them into viable investments structures, often with tax efficiency in mind.
Future Fuels is a good example of our unique investment approach. This investment is held within an operating company-property company structure and allows investors to benefit from excess capital allowances to mitigate their personal tax liabilities.
GFM: What do investors currently expect from managers, and how do you deal with those expectations?
PD: Our investors are looking for alternative investments to diversify their portfolios away from traditional investments in this time of market turmoil. Furthermore, they want commercial investment opportunities with realistic opportunities for growth, and they wish to invest in a tax-efficient manner.
GFM: How do you view the environment for fundraising over the coming 12 months?
PD: We expect changes in the Finance Bill to drive new investment opportunities and support our existing investment projects. And with Future Fuels having secured institutional finance support, we expect this validation of the project’s credentials to encourage investment.
GFM: How do you expect your business to be affected by current and proposed regulatory changes?
PD: The UK government will shortly be announcing its position on the Fuel Quality Directive, confirming its approach to biofuel policy. This follows the recent introduction of sustainability criteria into both the EU and UK fuel blending mandate and a conclusion to the indirect land use change debate, which will favour bioethanol production over biodiesel alternatives.
This is likely to benefit the Future Fuels project as demand for sustainable renewable transport fuels is expected to rise over the coming years. This will bring clarity for the future of the industry and increase investment into the sector.
GFM: Do you have any plans for further product launches in the near future?
PD: The success of the Elara range and the appetite we’ve seen from investors for renewable energy products means that we are always considering ways to use our innovative approach in this sector.