Although both the NRF and the CEFC have a mandate to provide capital to renewable and low-emission technology companies, they will not compete for deals
The National Reconstruction Fund Corporation (NRF) was established in September 2023 to prioritise seven areas of investment, including the area of renewables and low-emission technologies.
The fund can invest in the manufacturing of products related to renewable energy generation, transmission, distribution, or storage; reducing greenhouse gas emissions; energy efficiency; recycling and waste reduction, or resource recovery.
Despite this priority area, the $15 billion fund will not compete with the Clean Energy Finance Corporation (CEFC) for deals, Mary Manning, Chief Investment Officer of the NRF, said during an interview for Episode 118 of the [i3] Podcast, ‘Conversations with Institutional Investors’.
Certainly, renewables and low emissions technologies are one of our priority sectors. There's a lot of areas for overlap there, but the main difference is that the CEFC can invest in generation, [while] for the NRF it is not about generation, it's about the manufacturing
“The CEFC has been very helpful to the NRF. They’ve been around for many years and have learned a lot of important lessons. They have been very helpful as the NRF gets set up, and certainly [have been] sharing those lessons with us,” Manning said.
The key difference between the two special investment vehicles is where the CEFC can invest in renewable energy generation, the NRF has a clear mandate to focus only on manufacturing opportunities in Australia.
“Certainly, renewables and low emissions technologies are one of our priority sectors. There’s a lot of areas for overlap there, but the main difference is that the CEFC can invest in generation, [while] for the NRF it is not about generation, it’s about the manufacturing,” she said.
“A good example would be, if someone’s building a wind farm, we’re not financing the wind farm. But if there’s a company that wants to make a part that goes into one of the wind turbines and they’re manufacturing that in Australia, then that’s certainly something that the NRF would look to do,” she said.
A Pipeline of 900 Deals
The NRF has allocated money to 10 investments so far, which include companies active in artificial intelligence and cybersecurity. But the fund is still expanding its investment team, as it currently has a pipeline of no less than 900 potential transactions.
“The team is still growing, because we have a lot of deals in the pipeline, and we have a lot of deals that need to be executed by the end of this financial year,” Manning said.
“A great problem to have is that we have had over 900 proposals and hats off to another colleague of mine, Frank Tonkin, whose job it is to handle a lot of the inquiries as they come in.
“And then, the investment team has an origination strategy; it’s not just the deals that come to us, it’s also what kind of deals do we want to do? So the combination of the inbound and outbound [deals] is over 900 proposals. You need a big team to be able to filter through those, and then to be able to execute on a timely basis,” she says.
Manning emphasised that the fund will not seek to compete with commercial entities for deals, as its role is to provide capital to manufacturers that find it hard to access capital and pave the way for other investors to come in on the deal. It is based on the Keynesian concept of ‘crowding in’; the idea that an increase in government spending can lead to an increase in private investment.
If there's private sector capital that is going to do that deal, then they should do it, but say there is a deal where they’re kind of struggling to get it off the ground, and if the NRF commits like a cornerstone [investor], [and] then everybody else will come in
“We are mandated to ‘crowd in’ private sector capital,” she said.
“So what that means is that, say there’s a $100 million debt deal, and one of the big four banks is going to do it, then we can’t just swoop in and say: ‘No, come with us instead’.
“If there’s private sector capital that is going to do that deal, then they should do it, but say there is a deal where they’re kind of struggling to get it off the ground, and if the NRF commits like a cornerstone [investor], [and] then everybody else will come in.”
Manning also expects to partner with private capital providers and she is fully aware that this will need to happen on commercial timeframes, which adds further pressure to expanding the investment team.
“One of my commitments is that if we are going to be crowding in private capital, we need to be working on a time frame that is in line with private capital deals. We can’t be taking twice or three times longer to get deals done, otherwise it’s going to be difficult to partner with them,” she said.
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