The year ‘climate’ became a private markets strategy

One week in late July this year signalled the official arrival of the climate fund in private markets. Fund manager giants Brookfield Asset Management and TPG announced raising a combined $12.4 billion so far for duelling climate-focused investment strategies. At first close, Brookfield reported raising $7 billion for its Global Transition Fund, while TPG’s Rise Climate Fund had brought in $5.4 billion so far.

“Climate” may not count as an asset class, but it has certainly become a recognisable strategy in private markets. At the beginning of the year, the chief investment officer of TPG’s Rise Fund Mike Stone wrote for us about the need to develop a “wide aperture climate investment vehicle” that could cut across the silos of climate related sub-sectors. Climate funds have no set definition; they invest in companies developing products and services or in hard assets that will help address the global climate crisis. They cut across a range of assets from venture capital to operating infrastructure.

TPG and Brookfield may have been the biggest in the market, but in the year that COP 26 drew much of the world’s attention to the topic, they were far from the only managers developing climate offerings. Private equity firm General Atlantic launched its BeyondNetZero group, targeting $4 billion to invest in fast-growing companies scaling climate change solutions. Goldman Sachs held an $800 million first close on its Horizon Environment and Climate Solutions Fund.

Paris-headquartered Tikehau Capital announced in October that the firm is aiming to raise around €3.5 billion by 2025 for its climate impact funds. FullCycle, based in Los Angeles, had raised $75 million for a fund promising scale solutions aimed at reducing heavy pollutant greenhouse gases.

Generation Investment Management, a firm with sustainability in its DNA, partnered with Harvard Management Company and other foundations to create its own separate climate-focused impact investment firm called Just Climate, and hired an impact veteran to lead it.

Meanwhile Apollo Global Management president Scott Kleinman said he “would expect to see a dedicated fund” from the firm in the energy transition space “in due course”.

On the investor side, UK development finance institution CDC Group committed £3.1 billion ($4.2 billion; €3.6 billion) to climate finance in developing countries in Africa and Asia from 2022 to 2027.

The energy transition, renewable power, water sustainability and regenerative farming are all investments that could fall within the mandate of a climate fund, according to Brent Burnett, Hamilton Lane’s managing director for real assets. “The reality is that climate funds could touch any one of those sectors,” he , told New Private Markets, adding that “at each stage, there’s a role that private capital can play.”

“Climate funds that have been more successful in attracting capital offer a little bit more specificity in terms of what they’re going to do,” Burnett said. “[Firms] that have had success have been able to satisfy a risk-return profile that fits within those major categories in terms of the way institutions invest.”

Farouki Majeed, chief investment officer of the $17.5 billion School Employees Retirement System of Ohio, told New Private Markets in August that his pension’s reason for backing TPG’s climate strategy was is to “invest and generate effective returns on investments which seek to mitigate climate change risk… we’re not chasing after every fund just because someone says they are investing an ESG fund.”