The energy transition gets its first mega-fund

Brookfield’s $15bn Global Transition Fund is one of the largest closes of the year, showcasing the depth of the decarbonisation opportunity.

The close of Brookfield’s Global Transition Fund is a remarkable – and important – achievement for a number of reasons. But the key takeaway is this: at $15 billion raised, it is the energy transition’s first mega-fund, forcefully demonstrating the appeal of net-zero infrastructure and its status as the asset class’s premier growth engine.

With more than 100 LPs backing it, appetite for the GTF seems to initially have caught even Brookfield by surprise. After all, the final close amount is double what Brookfield was targeting when it first launched the fund in February 2021. Last July, however, the manager had already reached a $7 billion initial close, demonstrating just how much it had underestimated appetite for the vehicle. A $12 billion hard-cap was then set and, as is customary these days, duly surpassed.

As a result, GTF is now one of the largest fund closes of the year – and the largest impact vehicle ever raised – standing behind only KKR’s $17 billion fourth fund, and shoulder to shoulder with I Squared Capital’s $15 billion third effort. Stonepeak’s $14 billion third flagship is the other mega-fund closed this year, meaning the top four infrastructure vehicles of 2022 have collectively raised an eye-popping $61 billion. For context, that is roughly 45 percent of the $136.5 billion raised during 2021.

The key difference, of course, is that GTF stands peerless as the only energy-transition focused fund on that list.

In a way, GTF’s success is entirely expected. The energy transition has been taking on a larger share of fundraising for some time now. In our 2021 full-year fundraising report, renewables-focused vehicles accounted for $26 billion of the $51 billion raised by sector-specific funds. Renewables-focused Copenhagen Infrastructure Partners IV, which raised €7 billion, was the third-largest close of 2021.

Still, at almost double the size of CIP IV, GTF is in another league. That is not just testament to Brookfield’s fundraising prowess, which, overnight, has created a new vertical to rival its flagship infrastructure funds (the last of which raised $20 billion). Nor can it be solely attributed to the star power of Mark Carney, former Bank of England governor and Brookfield’s vice chair and head of transition investing. GTF’s success is, above all, a reflection of the energy transition’s depth as an investment opportunity.

While its current investments in sectors such as solar, batteries and offshore wind might seem fairly run of the mill, it is GTF’s focus on the “transformation of carbon-intensive industries” that hints at its true potential. In that sense, GTF’s most interesting deal is the one that got away: its failed A$8 billion ($5.77 billion; €5.07 billion) takeover attempt for Australia’s AGL Energy, in which it had planned to invest a further A$10 billion to accelerate the closure of its coal-fired power stations.

As we wrote in March, GTF is spearheading a raft of transition strategies that are taking a more value-add approach to decarbonising businesses and even entire industries. A growing trend that feels like it has reached an inflection point.

Finally, GTF’s success also offers some food for thought regarding how LPs are approaching their infrastructure allocations. Most obviously, it underlines how keen investors are to participate in the decarbonisation of the global economy. But it also perhaps speaks to a desire to own infrastructure portfolios that are more fit for the climate emergency we are living through.

Infrastructure is a broad asset class, encompassing many essential assets with varying degrees of climate-friendliness. With thousands of legacy assets in operation, many of which will require significant capex to adapt to climate change, it is not beyond the pale to suggest LPs may increasingly want to focus on building infrastructure portfolios that do not come with those constraints – and have a clear path to net zero.

Will energy-transition-focused mega-funds start outnumbering generalists in our end-of-year fundraising lists? Probably not just yet. But we wouldn’t rule it out in the future – and we’re certainly not expecting GTF’s success to be a one-off.