The PAF Private Equity Investment in the Global Clean Economy report provides an insight into Global Private Equity Investment in the global clean economy. The findings of the report are based on primary and secondary research conducted by Pan American Finance (“PAF”) and its research partner Alchemy Research and Analytics.
The report provides an overview of the global private equity investment market focusing on global and regional trends around capital raising, investment activity, exit markets, and available dry powder for further investment. It also explores the role of private equity investment in the global clean economy and analyses the trends in private investment in renewable energy over the years.
Major private equity GPs who have invested in renewable energy, or the broader clean economy have been profiled in the later part of the report. Data on the private equity industry has been sourced from established industry sources such as Preqin, Bain & Company, Bloomberg NEF and others. Information on private equity GPs has been primarily sourced from Pitchbook and the companies’ corporate materials. This has been supplemented by news articles and reports from industry associations, trade journals and national statistical agencies.
The report is an outcome of a collaboration between PAF and its research partner Alchemy Research and Analytics and was completed between March and May 2022.
We would like to thank the following executives for their contribution in preparing the report:
Souradeep Basu Associate Manager Alchemy Research and Analytics
Executive Summary
Green Capex will be the dominant driver of global PE investments
Net Zero targets have emerged as a useful tool to indicate a country, company or asset manager’s commitment to climate action, uniquely focused on carbon emissions or equivalents
Around $6 Tn of annual investment is required in 2020s to meet Net Zero, Clean Water and Infrastructure objectives, up from legacy $3.2 Tn
China, US and Europe represent more than half of required investment for Net Zero by 2050 pathway, consistent with weighting of overall emissions
Meeting the Net Zero pathway objectives involves not only the expansion of power plant capacity but also of transmission lines, batteries, charging infrastructure, and carbon capture/sequestration
Private equity remains the preferred fund model
Slowdown in global economic growth owing to pandemic has failed to deter investors from allocating more funds to private equity, with commitments around $0.7 trillion in 2021. Fundraising in PE rebounded globally, falling just short of a full recovery to pre-COVID 19 levels
Investor preference for private equity is driven by the search for higher yields, which is being delivered by higher-risk growth equity and venture capital segments
Private equity outperformed other private markets asset classes and returned a 27.1% pooled internal rate of return in the first three quarters of 2021, slightly below the 33% in full-year 2020. Venture capital was the fastest growing strategy within PE in terms of AUM, while buyout remained the largest PE sub-asset class
Increasing competition in fundraising market
The fundraising market remains highly competitive and crowded as more funds are returning to market more quickly. This is creating a tough fundraising environment for managers that lack a clear differentiated strategy
With more capital in the market and greater competition for new deals, it is expected increasing number of managers might resort to other options such as Social Impact funds
The competition is even more intense in the secondaries market as the market is growing quickly, and adoption of single-asset funds effectively takes the ceiling off the market. The competition extends beyond GPs: several highly regarded investment bankers serving the space have changed organizations in recent years
Resurgence of PE/VC investments in Clean Technology
PE/VC investment in clean technology is expected to more than triple to $1 trillion annually over the next five years, as economic viability improves, and overall dynamics of a low carbon economy are shaped by favourable policy environment
There is a massive $90 trillion investment opportunity till 2050 across renewable energy, electrification technologies and energy efficiency sub-sectors in order to reach the goals of the Paris Agreement
Given the quantum of capital requirements, private sources including private equity and venture funding are expected to play a major role in capital mobilization
