Case study: How MAPFRE is investing in renewable energy in Spain
José Luis Jiménez, Group Chief Investment Officer at MAPFRE, explains the insurer's new partnership with Iberdrola and why social investing is a priority for the future
Sara Benwellposted on Thursday, September 23, 2021
MAPFRE has set up a new partnership with Iberdrola (a leading energy company), which will allow the global insurance firm to make joint investments in renewable energies in Spain.
The utility and insurance companies have set up a pioneering co-investment vehicle to achieve their goals, using 230 MW of green projects, both wind and photovoltaic, from the energy utility's portfolio. The agreement foresees adding more operating assets, as well as new renewable energy development projects, eventually reaching 1,000 MW.
MAPFRE is the majority shareholder in the vehicle with an 80 per cent stake, while Iberdrola holds the remaining 20 per cent and is responsible for developing, building and maintaining the wind farms. The 100 MW of operational assets are in Castilla y León split between two wind farms in Soria and Burgos. The 130 MW photovoltaic projects are in the development phase in Castilla-La Mancha, in the province of Guadalajara, and are scheduled for commissioning in the third quarter of 2022.
As a result of the alliance, MAPFRE has been able to add to its sustainable investments. To date, the insurance group has been making all these investments in alternative assets through real estate, infrastructure and private capital funds. At the end of last year, the Group finalised the closure of its first infrastructure fund with Abante for the sum of €300 million to invest in Macquarie Infrastructure and Real Assets (MIRA) funds,
At Insurance Investor, we caught up with Jose Luis Jimenez, chief investment officer at MAPRE, to find out more about the deal and how it fits into the overall investment strategy.
Sara Benwell: Tell me about the partnership with Iberdrola and what it means for your investment strategy?
José Luis Jiménez: On the real estate side. we have done infrastructure with Macquarie Group, something that we are developing on a global basis. But we wanted to do something specifically in Spain and in terms of renewable energy.
We have had a fantastic relationship with Iberdrola for many years, so we were discussing what we can do next. We see renewable energy is a need and we have to play our part. We thought it was an interesting alternative asset class getting five percent return on average for the next 10, 20, 25 years. So we said why not to do it together?
We are the largest institutional investor in the country and Iberdrola is one of the leaders in the world in renewable energy. It is is the second largest European company and the third largest company in the world. So we thought it was the perfect partner to do this with.
"We wanted to do something specifically in Spain and in terms of renewable energy."
We have set up a vehicle where we will co-invest together. Iberdrola is the industrial partner so they know everything about the business. It is extremely easy to work with them because they are the experts. We look at the financial side., how does this fit with our balance sheet investment and we will look at how it fits with our investment products as well.
In terms of the MAPFRE balance sheet and our exposure to alternatives, I would say it is something between a third or a half or what our peers have in the European insurance sector. That means we have a lot of margin for manoeuvre to try to defend our income in this low interest rate environment, which we suppose is going to be here for a long period. So, as we always say to investors, we hope for the best, but we prepare ourselves for the worst.
Sara: When you were setting this up, was it the first kind of deal like this that you have done? What were some of the considerations that you took into account when deciding to co-invest rather than doing a different partnership model?
José Luis: When we decided to move into the alternative space, taking into account private equity, real estate, infrastructure, renewable energy, private debt, we had two options. One option was to build a huge team here and start running, probably with some delay compared to our peers. Another option was just to buy products that come in from third parties, which is fine. Many people do it.
But we are extremely conservative and prudent, so we prefer to follow a path to co-investment. I'm happy to to to invest with those companies that are investing with us in the same point, assuming the same risk and the same profits. That's what we did with private equity with Avanti in Spain and with infrastructure with Macquarie Group,. That's what we did on real estate - we have different partnership with Swiss Life, JLL,.. so we have a wonderful relationship with them. And in this case we chose to work with with Iberdrola.
"We are extremely conservative and prudent, so we prefer to follow a path to co-investment"
In all the cases, we are looking for first-class partners where we co-invest and while we have followed that path because... we want companies and partners that are extremely committed. Sometimes when you buy, a fund you pay a commission... and the manager gets a profit every year, but the results is absolutely asymmetric. That's not the path as a conservative insurer that we wanted to follow. So Iberdrola, Macquarie, JLL, Swiss Life etc.... all of them are committed. They invest with us. And they know the business because they are the industrial partner for this kind of projects.
Sara: How long did how long does it take to set up something like this and what are some of the key steps along that that journey to creating a successful co-investment partnership.
José Luis: On average, it usually takes more than a year. It is really, really tough and a lot of people are involved in this. In the real estate asset class. We have a team that's probably close to 40 people but still we prefer to work with partners.
For this project, we were we weren't experts on renewable energy. I mean, we talk about these wind farms or we talk about these solar issues, but we don't have the credibility to say this is good or this is bad.. When we do an operation like this we also work with different partners on many fronts including legal, regulatory, financial and so on.
"As we are happy to co-operate with other people smarter than us, then we will get the right results for the company"
This is something that works extremely well on the asset management side. You need to be extremely humble and to recognise what are your strength and what are you weaknesses.
The sooner you know your weakness, the better for you, that's my experience. So, I'm happy to say I am not the smartest person in the company or in this asset class, but as long as we are happy to co-operate with other people smarter than us, then we will get the right results for the company and also for the savers that commit to their their investment with us.
Sara: How important is green renewables in the context of the insurance investment strategy as a whole? Is that something that you're focusing on quite strongly or is it slow and steady?
José Luis:: Everything about ESG is mainstream now and on the front pages of all the media. But you will be surprised to know that at MAPFRE we went to our annual general meeting to propose that it is not only important to make profits, but also to think about the way we help the society on the 10th of June of 1965. We introduced social responsibility within the business more than 50 years ago.
Everybody talks about the Larry Fink letter to investors two years ago.. so imagine that the largest Spanish insurer thought about this in the 60s. This is part of our DNA. It is really important for us not because the rest of the the world is expecting us to do it, but because we think it's the right thing to do.
"We introduced social responsibility within the business more than 50 years ago."
10 years ago when we went to visit analysts and equity investors, and explained that we measured how many people with disabilities are part of the of the team or the working force of MAPFRE, to tell you the truth, nobody was really interested in knowing this. They wanted to know the dividends and the profits, but when we discussed how we were trying to level the playing field with women and men, we were alone in the marketplace. They thought this was not important.
Now, things are changing, and we are extremely happy that things are changing in our favour. MAPFRE is extremely social and we pay a lot of attention. We are committed to reduce in emissions by 2030, and before if we can.
Sara: What other innovative investments are you targeting at the moment? Are there any asset classes that you're particularly focused on?
José Luis: We tend to believe that all the focus right now is on the environmental side. which is fine, it is a reasonable agreement and so on, but we also pay a lot of attention to the social side.
With COVID-19, the social side is going to suffer even more than the environmental side. We have improved environmentally because there is less travel, less planes, less cars and so on., but I don't know many initiatives related to the social side.
Two years ago we launched a mutual fund that invests in companies that promote people with disabilities because we thought that those companies have a strong corporate DNA and they are looking at long term, not just short term results. And the fund is performing extremely well. Last year, for us, all of our products, mutual funds, personal funds with special emphasis on the E but also in the S have had incredible performances results.
"With COVID-19, the social side is going to suffer even more than the environmental side."
So, this is the way we try to do things. We try to do 'doing right, but doing well'. And we will try to put more focus or more emphasis on the social side and how we can help here..
Our largest stakeholder is the MAPFRE Foundation, and the main goal of MAPFRE Foundation is to improve the life of people who live in poverty or people with disabilities. Everybody talks right now about stakeholders capitalism and we like to follow that path. That for us business as usual.