Institutional Investors Increasingly Looking at Green Private Equity and Venture Capital, According to New Survey

LONDON, July 20, 2010 /PRNewswire/ -- Green private equity is on the agenda of virtually all institutional investors, with more than 90 per cent wanting exposure to the sector, according to a new survey. Over 90% of institutional investors claim they want to have exposure to 'green' investments.

The level of interest and commitment varies markedly across institutional investors, with most taking a cautious but positive step into the green sector. However, there is strong expectation in the private equity industry that the performance of green investments will improve over the next few years and that increased institutional allocations will follow. The challenge for green private equity and venture capital managers is to accelerate the current levels of interest and future expectations into actual commitments into their funds sooner rather than later.

The latest survey undertaken by New Energy World Network ( http://www.newenergyworldnetwork.com/), a publishing and events company focused on green investments, in association with AltAssets ( http://www.altassets.com/), a private equity research company, provides a snapshot of the views of 110 leading institutional investors who invest in private equity and venture capital funds around the world (and who are referred to as Limited Partners or LPs). It is clear that these LPs are giving much consideration to their green investment strategies but are holding back until they have more positive performance information on which to base their investment decisions and have overcome a range of other concerns and obstacles.

    Key findings of the survey include the following:

    1) The green private equity sector has established itself on
    the agenda of institutional investors with over 90% wanting some exposure
    to renewable energy, clean technology and sustainability-related
    investments

    - Only 6% of respondents said that they did not want any exposure to the
    green sector with another 25% satisfied that they get enough exposure to
    the sector via their investments in generalist private equity and venture
    capital funds

    - Over two-thirds of respondents (69%) have already made green
    investments or are considering doing so within the next three years


    2) The main motive for investing in green funds is overwhelmingly to
    generate high financial returns, with virtually all institutional
    investors referring to this as their overriding objective

    - However, environmental responsibility and social responsibility were
    claimed as motives by 64% and 59% of respondents respectively, as long
    as the return requirement was met

    - Pressure from shareholders, beneficiaries or trustees affected around
    one-third of investors (36%) who said that this was a factor in their
    allocation decisions

    - Pressure from governments and customers to pursue a green agenda
    influenced around one-quarter of respondents, making such pressure
    significant in terms of effect, though not yet as important as other
    factors


    3) Institutional investors are positive about the longer-term return
    prospects of green funds, with 72% believing such funds will
    generate returns at least as high as generalist private equity funds over
    the next ten years

    - Over the next ten years 47% of respondents believe that green private
    equity funds will deliver similar returns to other funds, while another
    22% believe they will outperform the general private equity market and
    3% expect 'high outperformance' compared to the market

    - Institutional investors expect performance to improve markedly, over
    time. Historically, only 2% of institutional investors believe that green
    private equity investments have outperformed the rest of the private
    equity market, while 80% believe that green investments have historically
    underperformed

    - An astonishing 40% of respondents expect green private equity and
    venture capital funds to deliver a net IRR of over 20% - significantly
    higher than many LPs expect for the private equity market as a whole


    4) The majority of investors currently allocate less than 5% of
    their planned investments to green funds but most expect to increase
    their allocations substantially over the next few years

    - Nearly two-thirds of institutional investors (63%) expect to commit 5%
    of their overall private equity allocation to green funds in 2010 whilst
    8% plan to commit over 20% of their total allocation for the year to the
    green sector

    - Over the next three years, 27% of institutional investors are 'likely'
    or 'very likely' to increase their green private equity allocation

    - The green allocation is set to increase substantially over the next
    five years with two-thirds of institutional investors (65%) expecting to
    increase their allocations over that period


    5) Growth equity and expansion capital funds are regarded by
    three-quarters of investors as the most promising type of private equity
    funds for prospective returns

    - The relative immaturity of the green sector has focused the attention
    of institutional investors on funds that invest in companies that have
    'proven' their technology to some degree and have the potential to grow
    to an attractive size and valuation within a limited timescale

    - The next most popular fund category is infrastructure funds with 38% of
    investors regarding this category as attractive due to the relatively
    lower risk characteristics combined with prospective returns that are
    enhanced by governmental and regulatory support

    - One-third of investors regard buyout funds as attractive, reflecting
    the relative immaturity of the sector compared to the rest of the private
    equity market

    6) The main areas of interest to institutional investors are
    energy efficiency, energy storage and smart grid

    - Between 33% and 45% of respondents regard these areas as offering the
    most attractive risk-adjusted returns over the next five years due to the
    pressing need to develop improvements in existing, industrialized markets
    and the relatively low technology risk compared to other sub-sectors

    - Other sub-sectors of interest were sustainable materials, with 19% of
    respondents believing investments in this area will produce the best
    returns, followed by waste-to-energy investments (12%) and sustainable
    transport investments (11%)

    - All other sub-sectors were selected by less than 10% of respondents in
    terms of their capacity to produce the best risk-adjusted returns, with
    tidal and wave energy chosen by the smallest number of respondents

About the Survey

This survey was undertaken by New Energy World Network ( http://www.newenergyworldnetwork.com/), and AltAssets ( http://www.altassets.com/) in June 2010 in direct interviews or via questionnaires on the AltAssets website. All information was provided, and will remain, in strictest confidence. The report uses only aggregated information. The objective of this survey was to gain an in-depth understanding of the level of interest amongst Limited Partners for investing in green private equity funds. 110 institutional investors from around the world participated, including pension funds, insurance companies, asset management firms, endowments, foundations, funds of funds and family offices.

The following definitions were used for this survey:

'Green' investments refer to investments made in companies that operate primarily in the renewable energy, clean technology, environmental technology or sustainability related markets.

'Green' private equity funds refer to all funds that commit a majority of their capital to 'green' investments.

About New Energy World Network (http://www.NewEnergyWorldNetwork.com)

New Energy World Network (NewNet) is a publishing and events company focused on green investments. It aims to promote and facilitate investment in innovation by providing the latest news, views and analysis to the global clean energy investor community. We also organise exclusive networking events between the leaders, experts and shapers of the industry.

About AltAssets (http://www.AltAssets.net)

AltAssets is the most widely read private equity and venture capital news service in the industry, with more than 400,000 visits a month and three million page impressions. Our weekly newsletter is read by 7,500 private equity and venture capital investors and 5,000 institutional investors. The website provides the latest news, opinion and research that serve the needs of professionals working in all parts of the industry, from the institutional investor to the venture-backed entrepreneur.

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SOURCE New Energy World Network Ltd