CalSTRS made the investment directly into Just Climate earlier this year from its Sustainable Investment and Stewardship Strategies portfolio. The investment “aligns with the SISS Private Portfolio”, a spokesperson for CalSTRS told New Private Markets via email. The news was first reported by Institutional Investor and confirmed by New Private Markets.
SISS was created to “opportunistically increase CalSTRS exposure to low-carbon solutions that are additive to the Total Fund and demonstrate positive contributions to a more sustainable global economy”, the spokesperson continued.
As well as being an investor in the firm, CalSTRS is an LP in Just Climate’s $1.5 billion industrial decarbonisation fund. While it may seem unusual for a pension fund to invest directly into a relatively nascent firm (it closed its first fund this year), Just Climate has managed to build credibility rapidly. Fund I closed 50 percent above its $1 billion target, drawing capital from institutional heavyweights such as PSP Investments, AP2, AP4, Harvard Management Company, the IMAS Foundation, Microsoft’s Climate Innovation Fund, the Ireland Strategic Investment Fund and Goldman Sachs’ Imprint Group. And the firm has recruited talent from Morgan Stanley, Helios Investment Partners, Goldman Sachs Asset Management and Bridges Fund Management since its launch.
It is not clear if other Just Climate limited partners have bought into the firm; Just Climate declined to comment.
There have been few reports of asset owners investing directly in impact fund managers. A notable exception is Temasek, which in 2021 acquired a minority stake in Leapfrog. CDPQ and Australia’s CEFC acquired a minority stake in Gunn Agri Partners, a farmland manager pivoting to sustainable agriculture strategies. And Carbon Equity, the fund of funds platform allowing mass affluent investors to access climate impact funds, raised €6 million earlier this year in a Series A funding round led by Singaporean family office Blackfin Investments.
More common are strategic acquisitions of impact firms by asset managers looking to grow their footprints. Goldman Sachs’ asset management division, for example, acquired impact firm Imprint Capital in 2015. Schroders acquired a majority stake in emerging markets-focused BlueOrchard in 2019. That same year, the Liechtenstein’s sovereign bank LGT acquired Indian impact firm Aspada. In 2021, UK asset manager M&G Investments, meanwhile, acquired emerging markets-focused impact firm ResponsAbility.
GP stakes investing has seen an upswing in activity in recent years (read more on that from our Private Equity International colleagues here). Fund managers use the capital injection to grow operations, contribute larger GP commitments to new funds, or achieve liquidity in the case of shareholder departures or restructuring. The investor gets a share of the lucrative private fund management model, including fees and carried interest.
A number of specialist funds have emerged to invest in GP stakes, with Blue Owl, Blackstone and Goldman Sachs among the most prominent. Armen, a relatively new GP stakes fund manager, acquired a stake in clean infrastructure manager RGreen Invest this year, while Capricorn Investment Group has a strategy dedicated to investing in emerging sustainability-focused managers.