Brazil’s National Development Bank (BNDES) has picked local asset management fund Vinci Partners to manage its R$500m ($162m) local-currency sustainable energy fund, which aims to kick-start a local green bond market.

With some R$20bn in managed assets, experience in monitoring infrastructure projects and a portfolio of around 60 institutional investors, Vinci Partners was one of several “high technical quality” proposals the bank received, BNDES said in a statement, without citing which other companies bid.

BNDES will now work with Vinci Partners to structure the 15-year fund, which is expected to be officially launched in the second half of 2017.

Up to 50% of the investment will come from BNDES’s own equity investment arm BNDESPar, and the rest is expected to be subscribed by local investors.

The fund was launched at the end of 2016 in partnership with Climate Bonds Initiative in order to boost capital markets instruments to finance renewables in Brazil, allowing the BNDES to step back from its prominent role.

A BNDES official told Recharge at the time that she expected double-digit return rates for investors.

The 15-year fund will carry local-currency-denominated bonds issued by sponsors of renewable energy projects, mostly wind power at the start, but also from small hydro and later from PV.

Since late 2014, Brazil’s government has been trying to incentivise wind power investors to issue tax-exempt local-currency bonds, known as infrastructure debentures, to account for 10% to 15% of total investments in projects. But the market has not taken off, despite a promise by BNDES to ease financing terms for borrowers that issue such bonds.

Of more than R$30bn that BNDES has lent to the wind power sector, only some R$700m of bonds have been issued, of which 45% was subscribed by the BNDES itself. At the same time another R$1.8bn of such bonds registered at the local securities commissions have yet to be sold.

Lack of knowledge about the issuers and the renewable energy market, and the absence of a secondary market for the bonds are behind the slow take-off of the local green bond market.

The BNDES now hopes that the new fund will help to boost the market.

Meanwhile, BNDES reduced loans to Brazilian companies in 2016, with overall disbursements falling 34% from the previous year.

For the wind sector, loan approvals fell to below R$4bn in 2016 from R$7.5bn in 2015, while disbursements fell to around R$3bn from R$6bn by the same comparison.

BNDES has lent R$32bn to the wind power sector, accounting for 60% of the projects’ total investment and much of the country’s 11GW of installed capacity.

With another 7GW of to be built by 2019 at an average cost of R$4m per MW installed, the wind industry will require around R$28bn in investment in coming years.

Wind

BNDES picks Brazilian firm Vinci to manage $162m green bond fund