Sparx Group Co., a Japanese asset manager, will start an infrastructure fund after winning a contract from the Tokyo Metropolitan Government to invest in the nation's renewable energy industry.

The fund will start with initial capital of 1.5 billion yen ($19 million) from the government as early as October and will expand to about 20 billion yen, Chief Executive Officer Shuhei Abe said. The fund will mainly invest in projects including mega-solar and wind-power plants in Japan, and may also invest as much as 15 percent of assets in shares of smart-grid technology companies, he said.

Sparx runs a fund that invests in Japanese companies in the smart-grid and renewable-energy technology industries amid Japan’s efforts to cut dependence on atomic energy that provided about 30 percent of the nation’s power before the Fukushima nuclear meltdown in March 2011. The Tokyo government sought companies able to manage a public-private infrastructure fund dedicated to investing in the country’s power-supply business, the nation’s first such fund, according to Abe.

“This is going to be a big push for the expansion of our fund business,” Abe said in an interview in Tokyo. “The renewable energy industry is lacking capital it needs to contribute to securing sustainable energy in Japan and we want to be the initial risk taker in providing the financing.”

The mandate comes as Abe tries to bring his company back to profitability by widening its offerings beyond equity-related products, including hotel and real estate funds. Sparx posted a net loss of 4.54 billion yen for last fiscal year, compared with a 3.7 billion yen loss a year earlier, even after it cut salaries and relocated to less expensive offices in Tokyo.

Raising Funds

The infrastructure fund will target an annual return of 6 percent to 8 percent, while it will last about 15 years, Abe said. Sparx plans to raise capital for the fund from domestic and overseas pensions, individual investors as well as sovereign wealth funds around the world, Abe said.

Sparx’s smart-grid fund, with more than 20 billion yen in assets, has declined 4.2 percent since July 2010 through the end of May, outperforming the 14 percent drop by the benchmark Topix index in the same period, according to the company.

The Tokyo city fund will focus on the Tokyo metropolitan area for investments, while it will seek opportunities across Japan as well in alternative energy providers such as those in the solar- power industry and wind-power generators, Abe said.

The Tokyo Metropolitan Government became the largest shareholder in Tokyo Electric Power Co. at the end of March following partial stake sales by two life insurance companies, according to the utility’s website.

Replacing Nuclear

Japan’s government in April recommended solar power providers earn 42 yen a kilowatt-hour for the electricity they produce, three times the 13.65 yen charged to industrial and commercial users, according to the Ministry of Economy, Trade and Industry. The preferential rate, known as a feed-in tariff, for solar power, was recommended for 20 years.

To replace one nuclear plant in Japan, about 2 trillion yen of capital is needed, according to Abe. All of Japan’s 50 reactors were taken offline for safety checks after the meltdowns at Tepco’s Fukushima Dai-Ichi reactors last year, with only two near the western city of Osaka given permission to resume operations since.

“Japan’s energy policy has changed drastically post Fukushima,” Abe said. “Alternative energy has been argued to be costly, but with the introduction of the feed-in-tariff in July, the industry will grow eventually and the fact that a company like Sparx can be a part of it along with the government is quite significant for us.”

Copyright 2012 Bloomberg

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