Brookfield’s initial closing this week of its Global Transition Fund was not the most conventional of announcements. That much was acknowledged by Brookfield, which stressed the $7 billion raised was an initial closing and that “a traditional first and second close” will occur later this year.
Other atypical elements include the $7 billion raised at initial close being just $500 million short of the original target outlined by Brookfield earlier this year, with the firm noting this week it has now set a hard-cap of $12.5 billion. Additionally, Brookfield’s $2 billion commitment to the fund means it is currently the largest investor in it, alongside Ontario Teachers’ Pension Plan, Temasek, PSP Investments and IMCO.
Yet the most striking aspect of the Global Transition Fund is its status as the infrastructure juggernaut’s “inaugural impact fund”, as Brookfield joins the growing number of private market managers making their way into this space.
So, what goes into an impact fund of this size? According to Brookfield, “the fund will build on Brookfield’s leadership in renewable power and deep operating capabilities to scale clean energy and invest capital to catalyse the transformation of carbon-intensive businesses to achieve Paris-alignment”. Brookfield declined to comment further on what split there will be between renewable power and other investments, although Connor Teskey, chief executive of the well-established Brookfield Renewables unit, co-leads the fund alongside Mark Carney, its head of transition investing.
Bruce Flatt, chief executive of Brookfield Asset Management, said last year that the Transition fund “could include some assets that might otherwise fit into our renewable energy programme”, while Ziad Hindo, chief investment officer at OTPP, said the vehicle would “complement our own global infrastructure” investments.
To paraphrase one saying: if it looks like infrastructure and quacks like infrastructure, is it simply infrastructure?
It’s a question being considered by LPs, such as the State of New Jersey Division of Investment, which recently committed $200 million to TPG’s Rise Climate Fund, raised by the manager’s impact unit, which reached a $5 billion first close this week. As reported by affiliate title New Private Markets, Shoaib Khan, acting director and chief investment officer of the New Jersey unit, said it committed to TPG as other “existing climate funds are mostly in the infrastructure or venture capital space”.
Khan’s point underscores the need for a clear delineation between the ‘sustainable’ and ‘impact’ labels – in infrastructure and beyond – even if there is an unavoidable amount of overlap. In that sense, important conversations need to be had about intent, returns, measurement and additionality generated by impact funds.
The reality, as many of our license to operate roundtables demonstrate, is that there are plenty of sustainable infrastructure funds already making a positive impact without necessarily calling themselves an ‘impact fund’. So what’s the difference?
While there is more work to do, sectors such as clean energy, sustainable transport and water and waste treatment have become core planks of the infrastructure investment landscape. It is incumbent on impact funds to demonstrate they are more than just infrastructure funds by any other name.