In brief: The effects of the IRA on global allocations start to come through

GPs have been emphatic about the benefits of the Inflation Reduction Act, but LPs have not 'redrawn the map' on their allocations as a result of the law.

The Inflation Reduction Act, passed this summer, is prompting GPs, LPs and regulators to think about how the US’s substantial package of climate-focused tax cuts affects the global markets for climate-focused investment.

Last week, The New York Times reported on the growing trade tension between the EU and the US – the EU feels the tax cuts give American companies an unfair advantage. “Some analysts fear the disagreement could thrust two of the world’s biggest trading partners into a new economic war,” noted the paper’s DealBook column.

It is a discussion point within private markets; at the Women in Private Markets Summit in London in early December, one global GP noted that the act had “enabled the US to leapfrog Europe and the rest of the world in terms of really advancing and winning in the clean and climate technology space”.

The same GP recalled a panel discussion at separate event the same week involving a group of CEOs from European climate tech champions: “Every single CEO was just taking about how their next planned expansion is going to be in the US,” the GP said.

Indeed managers of climate-focused capital in the US, such as TPG and Climate Adaptive Infrastructure, have hailed the act as being catalytic both for the planet and for their businesses.

While GPs are feeling the pull of the IRA, LPs are not yet quite redrawing the allocation map en masse. According to a survey of 112 LPs conducted by Coller Capital between September and November this year, only 5 percent say they are likely to change the balance of their new private market fund commitments in response to the passing of the act.