German pension funds are giving increased attention to ESG criteria when opting to invest in alternative assets, according to MEAG MUNICH ERGO Asset Management.

During the MEAG Alternative Assets Week event last week, Wendelin von Gravenreuth, senior manager global forest investment, told delegates that such increased appetite shows that ESG plays a “very important role” for these investors.

Pensionskassen in particular have a “great interest” in allocating assets to alternatives, von Gravenreuth said, adding that alternatives can contribute with stable cash flow over a long period of time.

According to Dominik Damaschke, head of infrastructure equity at MEAG, investors understand that alternative asset classes are more than a short-term replacement for bonds, offering stability and diversification over the long term, although rising interest rates have had an impact.

He said investors will, however, likely continue to allocate to alternatives, and to infrastructure in particular, despite the current period of crisis and volatility, with high inflation.

In infrastructure equity the mega trends of climate change, digitisation and decarbonisation of the economy offer opportunities for investors next year because they need “technical know-how and long-term perspective”, while risks for asset managers might come from the transition to a green economy and the current market environment, Damaschke explained.

MEAG noted that investors have not yet taken final decisions to invest this year, with a large share of allocations that will come next year, Damaschke said.

For infrastructure debt MEAG has invested €2.4bn so far this year, with a target allocation of over €13bn, as the firm sees opportunities particularly in the transport and energy transition sectors in the next few years, said Thomas Bayerl, MEAG’s head of illiquid assets debt and renewable energy, during the event.

According to Bayerl’s presentation, MEAG invests in infrastructure debt in roads (24%), transport (19%), energy (20%), in renewable energy (19%), social infrastructure (12%) and in the digital and communication sector (6%).

The asset manager is redefining the sectors because infrastructure as an asset class is changing, and will continue to change, introducing for example the new sector of clean tech.

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