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Institutional investors turning to green private equity and venture capital

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.

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 in association with AltAssets, a private equity research company, provides a snapshot of the views of 110 institutional investors who invest in private equity and venture capital funds around the world.

Only six per cent of respondents said that they did not want any exposure to the green sector with another 25 per cent 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 per cent) have already made green investments or are considering doing so within the next three years.

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 per cent and 59 per cent of respondents respectively, as long as the return requirement was met.

Pressure from shareholders, beneficiaries or trustees affected around one-third of investors (36 per cent) 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.

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

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