Climate transition funds defy private equity fundraising slump
While private equity has had a challenging year as fundraising slumped to a six-year low, funds banking on the energy transition appear to beat the odds
A case in point is Canadian private equity manager Brookfield, which has raised $10bn for its latest energy transition fund which only launched about a year ago. The firm hopes to raise around $25bn across two energy themed funds.
The new fund will invest among others in a UK-based windfarm and a solar project in India, Brookfield said. It is co-headed by former Bank of England governor Mark Carney and Connor Teskey, who leads Brookfield’s Renewable Power and Transition assets.
While the manager did not disclose names of individual investors, it told Net Zero Investor that it had received commitments from a mix of global institutions, including pension funds, insurers, endowments and family offices.
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One significant contributor is Alterra, the UAE’s $30bn green investment fund launched during COP28, Alterra said in December that it had committed $2bn to Brookfield’s second transition fund.
Unlike carbon neutral funds, energy transition funds include investments in fossil fuel projects with the aim to contribute towards their transition towards a low-carbon world.
Brookfield’s successful fundraiser is another indication of the growing consolidation in private markets, where the world’s largest managers are aiming to establish themselves in the rapidly growing energy transition market.
Earlier this month, BlackRock announced the acquisition of infrastructure manager GIP in a $12.5bn deal, creating one of the world’s biggest infrastructure managers. The deal was largely motivated by opportunities arising from the energy transition, BlackRock CEO Larry Fink said.
This comes amid a sharp uptake of investments in the energy transition in 2023, with some $1.77tn invested in the energy transition, according to Bloomberg data.
Energy transition assets are thereby defying an overall slowdown in private equity markets. Last year, the aggregate value of private equity fundraising deals fell by 11.5%, according to S&P data as managers with a gloomier outlook overshadowed by higher rates and inflation.
Going forward, a key challenge for firms like Brookfield will be putting the capital to work. By the end of 2023, the industry sat on a record $2.59trn in dry powder, a near 8% increase compared to 2022, according to Preqin.
Brookfield has also recently faced pushback from asset owners when its attempts to buy Australian energy firm Origin Energy had been thwarted by the pension fund Australian Super, a significant shareholder in Origin which argued that Brookfield had undervalued the company.