Growth market environmental technologies — not just for institutional investors

The Inter­na­tio­nal Energy Agency esti­ma­tes that the majo­rity of envi­ron­men­tal tech­no­lo­gies needed to meet global net zero commit­ments by 2030 are alre­ady market-ready. In addi­tion, the size of the market for envi­ron­men­tal tech­no­lo­gies is fore­cast to grow from USD 4.9 tril­lion in 2020 to USD 12.1 tril­lion by 2030. US dollars in 2020 to 12.1 tril­lion US dollars in 2030. US dollars in 2030. 
The Climate Policy Initia­tive has calcu­la­ted that finan­cing for climate and envi­ron­men­tal projects must increase by at least 590% in order to achieve the global climate targets set by 2030. This is a chal­len­ging target, but repres­ents a poten­ti­ally rewar­ding oppor­tu­nity for inves­tors. In our view, there are five key areas where such invest­ments can have the grea­test impact: 
1) Reduc­tion of green­house gases: Batte­ries and storage, energy effi­ci­ency, low/zero carbon tech­no­lo­gies and carbon removal tech­no­lo­gies, and rene­wa­ble energy tech­no­lo­gies and services.
2) Sustainable consump­tion: agri­cul­tu­ral engi­nee­ring, food safety, supply chain opti­miza­tion and food technology.
3) Pollu­tion control: water and air quality, soil conser­va­tion and waste treatment.
4) Circu­lar economy: sharing economy, recy­cling, resource effi­ci­ency and bio-based materials.
5) Key tech­no­lo­gies: sensors and data acqui­si­tion, semi­con­duc­tor value chain, design and cons­truc­tion soft­ware and green chemistry.

While private markets in gene­ral and private equity in parti­cu­lar were largely reser­ved for profes­sio­nal and/or insti­tu­tio­nal inves­tors in the past, the newly revi­sed “ELTIFs 2.0” now also open up inte­res­t­ing invest­ment oppor­tu­ni­ties in these asset clas­ses for private inves­tors. With gene­rally low mini­mum invest­ment amounts, regu­la­ted and trans­pa­rent fund vehic­les, redu­ced advi­sory and docu­men­ta­tion obli­ga­ti­ons and simpli­fied tran­sac­tion proces­sing, these “ELTIFs 2.0” now also enable retail and private banking custo­mers to get star­ted. In view of the finan­cing volu­mes requi­red in the area of envi­ron­men­tal and climate projects, the world is also urgen­tly reli­ant on these inves­tor groups and this deve­lo­p­ment is very welcome — both for private inves­tors and for our planet. 

Invest­ments in private compa­nies are not without risks. This is parti­cu­larly true in the envi­ron­men­tal tech­no­logy sector, where govern­ments and regu­la­tors play a para­mount role in shaping the compe­ti­tive land­scape. — Howe­ver, there is one sub-sector within the private equity land­scape where these factors are not as signi­fi­cant: Co-invest­ments. In this struc­ture, private equity funds (the “gene­ral part­ners” or “GPs”) offer selec­ted inves­tors (“limi­ted part­ners” or “LPs”) the oppor­tu­nity to co-invest directly with them in a parti­cu­lar private equity tran­sac­tion. There are some very attrac­tive advantages. 

Over the past twenty years, co-invest­ment funds have raised more than USD 175 billion and have also inves­ted in corre­spon­ding tran­sac­tions for the most part. As private equity conti­nues to grow as an asset class, we assume that co-invest­ments will also expe­ri­ence further growth. 
Ulti­m­ately, this tends to increase the net return for inves­tors, while at the same time GPs typi­cally offer co-invest­ments without the usual manage­ment (1.5–2.0%) and perfor­mance fees (20%). This is a clear perfor­mance advan­tage for inves­tors in an asset class that gene­rally has signi­fi­cantly higher fees than listed, liquid investments. 

About Simon Frank
Simon Frank has been a Senior Invest­ment Advi­sor at Pictet Asset Manage­ment in Frank­furt since Decem­ber 2019. In this role, he is available to German-spea­king clients as a cont­act person for product-speci­fic ques­ti­ons, but also for asset allo­ca­tion and sustaina­bi­lity topics.Previously, Simon Frank worked for more than 10 years as a port­fo­lio mana­ger and fund selec­tor in the multi-asset / fund of funds area at DWS and Alli­anz Global Inves­tors, among others. His focus was on fund selec­tion of thema­tic equi­ties and alter­na­tive invest­ments. Simon Frank holds a degree in busi­ness admi­nis­tra­tion (Univer­sity of Bayreuth and Univer­sity of Warwick) and is a CFA and CAIA charterholder.