New Private Markets: Private equity firms divided over fossil fuels

New Private Markets contacted the 10 private equity firms featured in the Private Equity Stakeholder Project’s report: Private Equity Propels the Climate Crisis. The report found that these private equity firms, since 2010, have made energy investments  dominated by fossil fuel holdings.

New Private Markets contacted all 10 firms to ask how they plan to invest in the energy sector from any recently raised pools of capital earmarked for the fossil fuel industry. Firms were invited to discuss the evolution of their fossil fuel investment strategies.

According to New Private Markets, the responses were mixed – one firm did not respond, three declined to comment, four supplied written statements and two put forward spokespeople for interview.

New Private Markets, October 26, 2021: Private equity firms divided over fossil fuels

Using its own proprietary databases, New Private Markets said it counted at least 15 funds – totalling more than $40 billion – that these 10 managers are either raising or deploying, with mandates allowing for oil and gas investments.

Carlyle declined to comment directly on the firm’s ongoing and future fossil fuel-related strategy.

A spokesperson for Brookfield Asset Management told New Private Markets that Brookfield “no longer manages any dedicated energy strategies.”

Oaktree Capital Management, which Brookfield acquired in 2019, also declined to comment for the story. The firm manages the $1.4 billion Oaktree Power Opportunities Fund V, which has a strategy that allows for investments in fossil fuel power generation assets.

And while a spokesperson for Blackstone told New Private Markets that “virtually none” of the capital the firm deployed over the last three years was invested in upstream oil and gas assets, the Blackstone spokesperson: 

declined to rule out future upstream investments, and the firm closed Blackstone Energy Partners III last year on $4.2 billion with a strategy targeting assets across the energy sector including upstream oil and gas, renewables and clean energy technologies. Blackstone’s open-end infrastructure vehicle, which has opened to new fundraising commitments, targets midstream assets as part of its investment strategy.

New Private Markets also uncovered information that supported PESP’s report findings:

Apollo and KKR are currently managing strategies including the $4 billion Apollo Natural Resources Partners III, which targets investments in upstream oil and gas along with minerals and agriculture assets, and the $1 billion KKR Energy Income & Growth Fund II that backs energy infrastructure. They are also raising broader infrastructure funds – the $3.5 billion Apollo Infrastructure Opportunities Fund II and the $14.4 billion KKR Global Infrastructure Investors IV – which have strategies targeting assets in the midstream space, including pipelines, gathering and processing systems, and storage facilities. 

TPG’s flagship fund series, which includes the firm’s latest vehicle, the $11.5 billion TPG Partners VIII, features a mandate allowing for oil and gas-related investments. 

CVC Capital Partners said the firm’s €21.3 billion CVC Capital Partners VIII allows for natural gas investments if those assets comply with science-based emissions targets and efficiency standards, or are in the process of transitioning to the low-carbon economy.

Ares Management’s co-head of infrastructure and power, declined to fully rule out new oil and gas investments in the future. Ares also continues to provide financing to oil and gas assets through bond investments from the firm’s liquid credit strategy. It has around $30 million left to deploy from the $1.1 billion Ares Energy Opportunities Fund, which is being used to support existing investments in the energy infrastructure space.

John Hodges, head of infrastructure and financial services at ESG consultancy BSR told New Private Markets that some firms are “honest about being opportunistic,” whereas some “invest one way with one hand, while doing something else with the other.”

“Some of the larger firms are still guilty of investing two funds simultaneously, with one having a fossil fuel component and the other not. Companies that made emissions reductions commitments may have a rude awakening in five or 10 years when their data does not match up with that commitment.”