A trader works as a screen displays the trading information for BlackRock on the floor of the NYSE in New York
ABU DHABI: The United Arab Emirates (UAE) has agreed to retain a smaller portion of the profits generated by a US$30bil venture involving BlackRock Inc, TPG Inc and Brookfield Asset Management Ltd, in an effort to lure more private money into climate finance deals.
The arrangement is part of a de-risking clause attached to a US$5bil strategy from Alterra, an investment vehicle launched during the United Nations Climate Change Conference (COP28) summit in Dubai.
In practice, the UAE’s decision to impose a ceiling on its own profits means outside investors stand to receive as much as five percentage points of additional returns, according to a person familiar with the terms of the deal who asked not to be named discussing nonpublic information.
Jim Coulter, founding partner and executive chairman of TPG, said the UAE’s financing structure is “pretty revolutionary.”
He declined to provide figures for the terms around TPG’s funds, but said in an interview that the arrangement creates enough of a “return enhancement” to attract investors “who might not have come in otherwise.”
The UAE’s cap limits its returns to about 5% for some funds, according to a person familiar with the details of the arrangement. A spokesperson for Alterra said return thresholds and fund structures will vary from case to case.
One of the challenges facing climate finance is the lack of investments in emerging markets and developing economies, which is in part driven by the risk-return profile, the spokesperson said.
The goal of the US$5bil vehicle, dubbed Alterra Transformation, is to mobilise investor capital into climate investments in the Global South, the spokesperson said.
The Alterra structure stands out as a “wonderful template” for scaling up climate funding, according to hedge fund billionaire Ray Dalio.
He was among the financial heavyweights attending COP28 who underscored the need for climate projects to generate commercially appealing returns if private investors are to get involved.
The UAE deal is the latest sign that private markets are developing increasingly complex structures for climate finance.
During the COP28 summit in Dubai, Goldman Sachs Group Inc and Citigroup Inc were among the Wall Street firms to say they were exploring new financing arrangements in an effort to generate bigger green profits.
The Global South, which includes countries such as Brazil, India and Indonesia, is increasingly recognised as the nexus for climate finance, and both policymakers and financiers in Dubai were keen to discuss innovative structures they say will get money flowing.
Ideas on the table include a reform of the multilateral development banks, securitisation of climate deals and scaling up voluntary carbon markets.
Barbados Prime Minister Mia Mottley, who’s long called for bigger commitments from rich countries to face the fallout of climate change, said she welcomed Alterra and its financial goals.
“I really do want to salute the UAE for the establishment of the Alterra fund at US$30bil, with a view to being able to scale that up,” she said during a presentation at COP28.
The UAE said in connection with the launch of the venture that its initial injection has the potential to grow to US$250bil by 2030.
The investment vehicle will focus on private markets such as infrastructure, private equity, private debt and venture capital. — Bloomberg
