LONDON: Private markets are emerging as a major force in energy-transition investing, while the much larger public markets are more receptive to fossil-fuel holdings, according to research from BloombergNEF (BNEF).
In fact, all forms of alternative asset management tracked by BNEF – spanning private equity, to private debt, real estate and infrastructure – are more exposed to low-carbon energy assets than to fossil fuels.
Of the US$487bil of alternative assets analysed, about 70% is in infrastructure funds that finance everything from wind farms to charging networks, BNEF said in a report published last Friday.
The analysis is based on an assessment of the total investable universe of assets exposed to what BNEF calls the energy-supply value chain.
This includes both fossil-fuel and clean sources of energy, and covers development, extraction, transportation as well as generation and manufacturing of related technologies.
BNEF puts the value of assets exposed to energy supply at US$17.6 trillion, as of the end of June.
Publicly traded stocks accounted for 77% of that, with 20% in fixed-income instruments and the remaining 3% in alternative assets.
A recent analysis by MSCI Inc found that private capital funds have consistently made more money on their renewables investments than on holdings of oil and gas.
Funds that exited renewables holdings in 2023 made 1.6 times their initial investment, compared with 1.2 times for oil and gas, marking an eighth consecutive year of outperformance, according to MSCI, which looked at private equity, private debt and real estate.
And private equity firms including KKR & Co have said private markets are better suited to developing strategies for the long-term wholesale corporate transformations necessitated by the energy transition.
The stock market’s fixation on quarterly earnings and short-term performance makes it a sub-optimal funding venue for companies critical to the energy transition, KKR’s Emmanuel Lagarrigue, a partner and co-head of climate, said during an interview in July.
However, there’s evidence that private markets are also making more room for fossil fuel assets, which appear to be “increasingly finding financing away from public markets,” the authors of the BNEF report wrote.
The combined market value of publicly traded companies exposed to the energy supply value chain is US$13.6 trillion, BNEF estimates.
Of that, about three quarters, or more than US$10 trillion, is invested in fossil-fuel companies and most of the rest is labelled low carbon. — Bloomberg
