The Decline in Private Equity Clean Technology-Focused Funds – September 2014

by Chloe Wong

  • 23 Sep 2014
  • PE
  • NR

According to Preqin’s September edition of Private Equity Spotlight, there is a clear indication that interest in clean technology funds has declined, with the capital accumulated by such vehicles so far standing at just one third of last year’s $4.9bn committed. North America-focused funds, which usually contribute a large percentage of capital towards clean technology, have gathered only 5% of the overall aggregate capital for clean technology raised this year. This is a sharp decrease from 2013 when North America-focused vehicles contributed 44% of the overall capital raised for clean technology-focused funds. As the end of Q3 2014 approaches, the latest statistics for the industry look to be the lowest recorded for a long time.

As the above chart shows, clean technology funds reached a fundraising peak in 2009, securing $10.4bn from investors, but since then the industry has been on a bumpy ride, with some private equity houses, such as Blackstone Group and Riverstone Holdings, shifting their attentions away from clean technology and towards energy-focused funds. With increased interest in energy alternatives such as fracking, investors may be taking the less risky and less expensive option of investing in energy-focused funds.

Preqin’s Funds in Market data shows that there are a high number of clean technology vehicles being raised by first time fund managers this year, comprising 44% of the 105 funds currently in market. Collectively they are targeting 39% of the total aggregate capital raised by first-time fund managers ($26.7bn), while at the other end of the spectrum, 3% of this total is being sought by fund managers who have already raised 10 or more funds.

The largest clean technology-focused fund currently in market is Terra Firma Infrastructure Fund for Global Renewable Energy, managed by Terra Firma Capital Partners, a Europe-headquartered fund manager which has raised €7.9bn in total capital commitments over the last 10 years. This is their first solely clean technology-dedicated investment vehicle; it typically invests in a range of industries, including property, energy and financial services. The fund has been on the road for 19 months and if it meets its target of $2bn, it will be the second largest clean technology-focused vehicle raised between 2007 to September 2014.

Investor appetite for the clean technology industry may be relatively low compared to other sectors such as technology or healthcare, which have both recently seen increased interest, but as veteran fund managers shift their attention away, it is encouraging to see first-time fund managers step in to take their place. Clean technology is a vital sector that should not yet be ruled off, and should fracking be banned in the US or UK, where there are huge reserves of shale gas, investors may return to the sector to continue working towards a cleaner environment.

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