James and Kathryn Murdoch’s non-profit foundation is part of a consortium of investors that has committed $250m to a climate finance fund being raised by BlackRock that will target emerging markets.
The 10-member group participating in the fundraising includes institutional investors, governments and a philanthropic vehicle run by Jeremy Grantham, the veteran stockpicker.
BlackRock has committed to investing the capital in green energy infrastructure, including renewable power generation and ultra-low emission electrical grids.
The fundraising was prompted by expectations of a doubling in energy demand in developing countries by 2050. To help facilitate the global transition towards a net-zero carbon economy by the middle of the century, countries in Asia, Central and Latin America and Africa are forecast to require significant investment in renewable power projects.
The fund has a target of closing at $500m by next summer and plans to invest in projects over a three to four-year period with the expectation of “low double-digit returns” for investors over the subsequent seven years, said David Giordano, global head of BlackRock Renewable Power.
The fundraising highlights how big asset managers are looking to tap into the transition towards cleaner energy through investments in physical assets at a time when many public-market securities trade at valuations that are stretched by most measures.
“In a world where traded asset prices are so inflated what we find compelling is the opportunity to invest in projects that are low-risk relative to their predicted cash flows,” said Ramsay Ravenel, chief investment officer of the Grantham Foundation. “We see healthy growth in clean energy investing opportunities in emerging markets.”
The fundraising includes $112.5m in “catalytic capital”, something that shows the risks associated with long-term investment projects in emerging markets. The catalytic tranche will absorb losses associated with investments undertaken by the fund and this cushion is designed to encourage other investors to participate.
Contributors to the catalytic capital tranche include the French Development Agency, Germany’s KfW Development Bank, the Japan Bank for International Co-operation, the Grantham Environmental Trust and the Quadrivium Foundation.
Kathryn Murdoch, co-founder of Quadrivium, said the catalytic element would “leverage much bigger players” to invest in “climate tech solutions” with the “global scale and ambition necessary to have a real impact”.
Ravenel said some investors in emerging markets have doubts about clean energy projects, while others have broader reservations about EM exposure. “Our hope is to encourage institutional investors to not sit on the sidelines,” and in regard to providing some of the risk capital, he added: “We are taking a bet that our insurance premium will not be called.”
Projects in Vietnam and Malaysia are potential early targets for deployment, said Edwin Conway, global head of BlackRock Alternative Investors.
The list of institutional investors that have made commitments to the fund includes Dai-ichi Life Insurance, a leading European pension fund, Standard Chartered Bank and Mitsubishi UFJ Financial Group, according to BlackRock.
Capping the fund at $500m reflects a targeted focus on carbon-free infrastructure projects, Giordano said. “We want the fund to be nimble and selective in the deployment of capital.” He added “these are long-term infrastructure projects that are important building blocks in portfolios and offer investors a diversified source of returns”.
The real assets team at BlackRock manages about $12bn in private funds of invested and committed capital for renewable power platforms.
The new fund follows a push last month by the Rockefeller and Ikea foundations to each commit $500m of risk capital with the aim of encouraging additional funds from international development agencies.
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