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Be ahead of the next global investment mega-trend

The shift to sustainability in private markets deserves its own dedicated information source.

“It doesn’t do any good to pay a teacher a pension in 2050 if the earth is scorched and their cost of living has gone through the roof because of climate change.”

Chris Ailman, chief investment officer of the California State Teachers Retirement System, explained in refreshingly clear terms at a conference last week why sustainability is integral to the pension’s investment activity.

There is a spectrum of sustainability in private markets. At one end is sound management of environmental, social and governance issues; at the other is purpose-driven impact investment. What is clear to us is that capital is gravitating towards funds and investments all along that spectrum… and at scale.

Consider impact investment. The arrival of multi-strategy private markets players into this area has changed the game.

Apollo, for example, intends to apply impact principles to later-stage businesses, moving impact beyond venture and growth assets towards buyouts, carve-outs and platform build-ups. “We are not taking a purist approach,” says impact co-head Marc Becker. Brookfield Asset Management believes it could be managing up to $100 billion in impact capital “in the medium term.” Bain Capital, TPG, Partners Group and others have all mobilised capital at scale.

Meanwhile, LeapFrog Investments, a firm native to the impact space, has just entered a milestone partnership with Singapore’s Temasek. Rede Partners, a forward-thinking fund placement firm, already has a dedicated team working on impact strategies.

At the ESG end of the spectrum, leading investors and private fund managers are routinely considering risks and opportunities relating to the most pressing issues of the day. There is an “immutability to ESG adoption that suggests the ‘sustainability’ string can’t be pushed back,” write Meketa Investment Group’s Christy Gahr and John Haggerty.

Asset owners are heeding the urgent need to achieve net zero carbon emissions. BT Pension Scheme CEO Morten Nilsson, writing for New Private Markets, explains how the £57 billion ($79 billion; €66 billion) pension intends to reach net zero by 2035 and urges all other schemes to follow suit. Diversity and inclusion – at the GP and portfolio company level – has become a hot-button topic for private markets investors; we hope it stays on the agenda. Engagement with portfolio company employees – an “industry-wide blind spot,” according to Partners Group’s Steffen Meister – is moving toward the centre stage.

Tying both ends of the sustainability spectrum together is the idea that impact investing – in some form – will become the norm for all private capital. I can almost see some sceptical eyes rolling, but this is already happening: EQT has written its statement of purpose into its company articles of association. Infrastructure GP Meridiam aligns all its funds to the UN Sustainable Development Goals, measuring and reporting progress. Cecilia Chao, a managing director at Bain Capital, tells us how certain practices that have been instituted by the firm’s impact unit – whether it be diverse recruiting or measuring emissions – are being shared across the firm’s other business units.

There is still plenty of cynicism around about sustainability, ESG and impact. Market participants often describe an ESG as a “journey” and to be sure, some organisations have yet to even buy a train ticket.

However, the momentum we see across the spectrum gives us conviction that this is an area deserving of its own information and intelligence source, with its own dedicated journalists and researchers.

We have the institutional experience – private markets have been our “home” turf since PEI was founded in 2000 – but we needed a name.

We considered something explicit – ‘Sustainable Private Markets’, was a front-runner – but it fell short; it didn’t convey the inexorable march of an investment mega-trend. Yes, this is about sustainability. Yes, it is about impact and ESG. But it is not solely the domain of those with sustainability in their job title; it is becoming a fundamental pillar of private capital investment. It is the next wave of development for private markets.

We hope you enjoy New Private Markets.