Category Archives: INDUSTRY INSIGHTS

Climate investing will require a different PE playbook

Climate Investing and the implications it could have on private markets portfolios has become an important part of the discussion between GPs and LPs, as the industry looks to navigate a path towards long-term, sustainable growth. In the coming years, the scope of companies that private equity firms will be allowed to invest in is likely to shrink. This will mean higher entry valuations, and it will also require buyout firms to build new equity stories; those based not purely on global consumerism but on long-term sustainable value that can thrive in what will literally be a new climate. It will, in short, require GPs to re-think the playbook and how to share value from owner to owner when transforming companies.

IPEM has increasingly acknowledged the need to provide a dynamic forum to debate many of the key issues that climate change could have on portfolio assets over the coming decades.

In the last two editions of IPEM, delegates were given the opportunity to focus exclusively on the task at hand, during the Climate Investing Summit at IPEM Paris 2023 and the Portfolio Transformation Summit at IPEM Cannes 2024. An array of sponsors provided the stage setting for industry experts to debate, share ideas and transfer knowledge via tailored presentations, including Indefi, Argos Wityu and Sweep.

Delegates attending IPEM Paris 2024 will have the opportunity to continue to shape the debate on this key topic. The Climate Summit on 11th September, 2024 will analyse the climate versus returns equation, how to deliver on both returns and results, and discuss how GPs will need to adjust business valuations and portfolios to account for climate risks. AXA Climate, Lombard Odier, Marsh and Tikehau will be the summit hosts.

Private Debt: No stopping the Megatrend

Private debt has proven itself in recent years to be a highly resilient, valuable asset class for LPs’ investment portfolios and there are no signs that the party will be coming to an end anytime soon. Overall industry AUM has grown to $1.5 trillion and is forecast to reach $2 trillion by 2027. This is now a mainstream alternative asset class; one that continues to grow and mature as a bona fide megatrend. Indeed, with the opportunity to earn double-digit returns on first-lien debt, industry leaders including Stephen A. Schwarzman believe this is a golden age for the asset class. There are various factors driving this megatrend. Some of these include, at a very high level:

• Diversification
• Yield enhancement
• Illiquidity premium
• Macro tailwinds
• Income generation

Private debt has evolved to become a highly diverse asset class. Since 2007, the market has grown from $280 billion in assets under management to $1.5 trillion in 2022. While direct lending to corporates, real estate, and infrastructure has been well established for some years, specialty finance has also been growing in areas such as aviation finance, litigation finance, NAV lending, IP & royalties, and venture debt. Indeed, KKR estimates that asset-backed finance is a $5 trillion market and growing.