Private markets are becoming a key player in energy transition investments, while public markets continue to show a preference for fossil-fuel assets, according to a report by Bloomberg citing recent research from BloombergNEF (BNEF).
BNEF’s analysis shows that alternative asset classes such as private equity, private debt, real estate, and infrastructure funds are now more heavily invested in low-carbon energy assets compared to traditional fossil fuels. Of the $487bn in alternative assets assessed, roughly 70% is tied up in infrastructure funds that support initiatives ranging from wind farms to electric vehicle charging networks, the report published on Friday reveals.
The study evaluated the entire investable universe of assets linked to what BNEF refers to as the “energy-supply value chain,” encompassing both fossil-fuel and clean energy sources. This includes every stage of the supply chain—from resource extraction and development to energy generation and manufacturing of related technologies.
BNEF estimates the total value of assets exposed to energy supply at $17.6tn as of June 2023. Publicly traded stocks make up the bulk of this, representing 77% of the total value, followed by fixed-income instruments at 20%, and the remaining 3% coming from alternative assets.
Private capital funds are also reaping better returns from renewable energy investments compared to fossil fuels, according to a separate analysis by MSCI Inc. Funds that exited renewables holdings in 2023 saw a 1.6x return on their initial investment, while investments in oil and gas yielded a 1.2x return—marking the eighth consecutive year of outperformance for renewable energy assets.
However, BNEF’s report also indicates that private markets are still making space for fossil fuel investments, suggesting that these assets are finding financing opportunities outside of public markets.
