1 00:00:00,520 --> 00:00:02,960 Speaker 1: This is Tom Rowan's Reese, and you're listening to Switched 2 00:00:03,000 --> 00:00:06,400 Speaker 1: on the podcast brought to you by Bloomberg NIF. Private 3 00:00:06,440 --> 00:00:09,240 Speaker 1: markets have quietly become one of the most significant sources 4 00:00:09,240 --> 00:00:12,440 Speaker 1: of capital in the energy transition. Over the past decade, 5 00:00:12,520 --> 00:00:16,320 Speaker 1: funds investing in energy have expanded rapidly, and strategies dedicated 6 00:00:16,360 --> 00:00:19,280 Speaker 1: specifically to the transition have grown from a niche allocation 7 00:00:19,600 --> 00:00:23,200 Speaker 1: into a meaningful share of thematic energy investing. What makes 8 00:00:23,200 --> 00:00:26,280 Speaker 1: this capital distinctive is not just its scale, but how 9 00:00:26,320 --> 00:00:29,800 Speaker 1: it is deployed. Real assets such as renewable power, grids 10 00:00:29,800 --> 00:00:33,560 Speaker 1: and storage dominate, reflecting the preference for stable, contracted cash 11 00:00:33,560 --> 00:00:37,080 Speaker 1: flows that infrastructure style investors seek, and while the sector 12 00:00:37,120 --> 00:00:40,640 Speaker 1: continues to mature, questions remain about how quickly committed capital 13 00:00:40,680 --> 00:00:42,400 Speaker 1: can be put to work and where it is most 14 00:00:42,479 --> 00:00:45,680 Speaker 1: likely to land. So how does private capital shape the 15 00:00:45,720 --> 00:00:48,040 Speaker 1: pace and direction of the energy transition and what does 16 00:00:48,080 --> 00:00:50,120 Speaker 1: its growth tell us about where the next wave of 17 00:00:50,120 --> 00:00:53,400 Speaker 1: investment will flow. Today I'm joined by Ryan Lockhead, a 18 00:00:53,440 --> 00:00:56,880 Speaker 1: senior associate from bnef's finance and Investment team, to review 19 00:00:56,920 --> 00:01:00,680 Speaker 1: findings from his note Private Markets Primer megaf to Mega 20 00:01:00,760 --> 00:01:03,840 Speaker 1: Watts BNYF. Clients can find this note, along with other 21 00:01:03,880 --> 00:01:06,640 Speaker 1: finance and investment research by heading to BNF go on 22 00:01:06,640 --> 00:01:09,600 Speaker 1: the Bloomberg terminal or BNF dot com. And if you'd 23 00:01:09,640 --> 00:01:12,480 Speaker 1: like to learn more about how BNF approaches strategy research 24 00:01:12,480 --> 00:01:16,040 Speaker 1: on the energy transition, including developments in commodity markets, trends 25 00:01:16,040 --> 00:01:19,680 Speaker 1: across different sectors, and the cross cutting technology shaping future, 26 00:01:19,760 --> 00:01:22,440 Speaker 1: you can find more information on BNF dot com. And 27 00:01:22,480 --> 00:01:23,800 Speaker 1: if you'd like to speak with a member of our 28 00:01:23,840 --> 00:01:26,640 Speaker 1: team about becoming your client, email us at Sales dot 29 00:01:26,680 --> 00:01:29,720 Speaker 1: BNF at Bloomberg dot net. But for now, let's explore 30 00:01:29,760 --> 00:01:43,120 Speaker 1: what private capital means in practice for the energy transition. Ryan, 31 00:01:43,160 --> 00:01:44,240 Speaker 1: welcome to the podcast. 32 00:01:44,680 --> 00:01:46,440 Speaker 2: Thank you, Tom, very very good to speak to you. 33 00:01:46,560 --> 00:01:47,480 Speaker 2: Thanks for having me back. 34 00:01:48,120 --> 00:01:52,320 Speaker 1: So I'm going to be really transparent here. Most of 35 00:01:52,360 --> 00:01:57,480 Speaker 1: the time when we're doing these podcasts, I have knowledge 36 00:01:57,520 --> 00:02:01,480 Speaker 1: and in some case even opinions about the topic of 37 00:02:01,600 --> 00:02:07,360 Speaker 1: the podcast. But private capital is like really outside of 38 00:02:07,480 --> 00:02:11,520 Speaker 1: my area. So can we just explain for everyone else, 39 00:02:11,680 --> 00:02:14,440 Speaker 1: just in cases anyone else who doesn't know what do 40 00:02:14,480 --> 00:02:18,200 Speaker 1: we even mean by private capital and why is it significant? 41 00:02:18,520 --> 00:02:24,040 Speaker 2: So private capital simply put is assets that investors can 42 00:02:24,240 --> 00:02:28,400 Speaker 2: purchase that are not freely available on some sort of exchange. 43 00:02:28,600 --> 00:02:31,399 Speaker 2: So if you hear the term public markets, but that's 44 00:02:31,440 --> 00:02:36,560 Speaker 2: referring to things like stocks, so shares, any ownership in 45 00:02:36,600 --> 00:02:39,360 Speaker 2: a company that you or I or any sort of 46 00:02:39,360 --> 00:02:43,120 Speaker 2: individual can go and purchase in real time in any 47 00:02:43,280 --> 00:02:45,919 Speaker 2: in any way they want, and they will get access 48 00:02:46,000 --> 00:02:49,960 Speaker 2: to those through the various plumbing up financial of the 49 00:02:49,960 --> 00:02:55,080 Speaker 2: financial services ecosystem, sim with things like bonds, which is 50 00:02:55,120 --> 00:02:59,320 Speaker 2: a similar but debt rather than equity. Private capital is 51 00:03:00,320 --> 00:03:04,640 Speaker 2: same thing where you're buying ownership sticks in companies or assets, 52 00:03:04,720 --> 00:03:07,519 Speaker 2: or you can annoy with the sort of ven growth 53 00:03:07,520 --> 00:03:11,079 Speaker 2: about private capital lend to companies, but with the absence 54 00:03:11,120 --> 00:03:16,040 Speaker 2: of that exchange. But that means is it's it's it's 55 00:03:16,040 --> 00:03:19,600 Speaker 2: a lot more bilateral. So instead of you going onto 56 00:03:19,639 --> 00:03:22,480 Speaker 2: some sort of ap or to a brooker and just 57 00:03:22,520 --> 00:03:25,560 Speaker 2: asking I want to buy X amount of shares in 58 00:03:26,120 --> 00:03:29,000 Speaker 2: Google or Apple or any company you want, or in 59 00:03:29,280 --> 00:03:32,560 Speaker 2: units of a fund, you are more likely to go 60 00:03:33,120 --> 00:03:35,840 Speaker 2: to the company itself that is looking to raise capital 61 00:03:35,920 --> 00:03:39,800 Speaker 2: that hasn't been listed. So it's it's a source. It's 62 00:03:39,800 --> 00:03:41,800 Speaker 2: a source of capital, which is just a lot more 63 00:03:41,800 --> 00:03:45,000 Speaker 2: closed to sort of the general public. 64 00:03:45,040 --> 00:03:47,960 Speaker 1: Because the transaction costs are that much higher in a sense. 65 00:03:48,280 --> 00:03:51,040 Speaker 1: When I say transaction costs, I mean you know everything 66 00:03:51,120 --> 00:03:54,480 Speaker 1: like researching the the thing you want to invest in, 67 00:03:54,520 --> 00:03:55,520 Speaker 1: et cetera, et cetera. 68 00:03:55,960 --> 00:03:59,440 Speaker 2: Yeah. That, plus they're sort of considered by the most 69 00:03:59,520 --> 00:04:03,680 Speaker 2: financial regulators and developed financial markets. There's probably a little 70 00:04:03,720 --> 00:04:06,640 Speaker 2: bit too complex for the average retail investor to go, 71 00:04:06,760 --> 00:04:09,760 Speaker 2: so they usually they're not even available for us to 72 00:04:09,760 --> 00:04:13,080 Speaker 2: go and go and buy through normal channels. And they 73 00:04:13,200 --> 00:04:16,600 Speaker 2: are the reserve of big institutional investors to sovereign wealth's 74 00:04:16,600 --> 00:04:17,520 Speaker 2: pensions and diamonds. 75 00:04:18,000 --> 00:04:21,000 Speaker 1: I just want to clarify here. So private capital, I mean, 76 00:04:21,080 --> 00:04:23,440 Speaker 1: is quite a broad term from what you've described. So 77 00:04:23,520 --> 00:04:27,440 Speaker 1: would it include venture capital, private equity, private credit? Are 78 00:04:27,480 --> 00:04:29,120 Speaker 1: those all forms of private capital? 79 00:04:29,440 --> 00:04:33,440 Speaker 2: Yeah, that's particularly what we're considering here. They all come 80 00:04:33,520 --> 00:04:36,800 Speaker 2: under this broad brush too. In a previous life, I 81 00:04:36,880 --> 00:04:39,839 Speaker 2: worked in investment consulting, and you would have a sort 82 00:04:39,880 --> 00:04:42,520 Speaker 2: of look at big portfolios, have an allocation to fixed income, 83 00:04:42,600 --> 00:04:44,520 Speaker 2: have an allocation to equities, and then you would have 84 00:04:44,520 --> 00:04:47,760 Speaker 2: an allocation to something that's called alternatives. So that's just 85 00:04:47,800 --> 00:04:51,240 Speaker 2: assets that aren't bonds and stocks, and private capital fits 86 00:04:51,279 --> 00:04:54,680 Speaker 2: within those alternatives, and yeah, private capital is actually a 87 00:04:54,680 --> 00:04:57,960 Speaker 2: really broad rush that it's probably quite an important nuance 88 00:04:58,040 --> 00:05:00,520 Speaker 2: to get into, particularly with context of the rest of this. 89 00:05:00,760 --> 00:05:03,520 Speaker 2: All of these assets sit at different parts of the 90 00:05:03,760 --> 00:05:06,840 Speaker 2: risk return spectrum same way as public markets do. So 91 00:05:06,880 --> 00:05:10,160 Speaker 2: you get things like private credit, which is non bank 92 00:05:10,320 --> 00:05:14,320 Speaker 2: lending where you get returns in the same way that 93 00:05:14,360 --> 00:05:16,479 Speaker 2: bank wind from alone that's direct lending, all the way 94 00:05:16,560 --> 00:05:19,040 Speaker 2: to where you've mentioned venture capital, which is very much 95 00:05:19,160 --> 00:05:23,600 Speaker 2: valuation based returns at a very high sort of potential 96 00:05:23,680 --> 00:05:27,640 Speaker 2: risk area. The other areas that like outside of what 97 00:05:27,680 --> 00:05:30,880 Speaker 2: you've mentioned that sort of count under the typical private 98 00:05:31,480 --> 00:05:35,640 Speaker 2: markets framework would be real assets. So I've spoken to 99 00:05:35,720 --> 00:05:38,120 Speaker 2: someone at a large asset manager who manage these kind 100 00:05:38,120 --> 00:05:40,600 Speaker 2: of assets. What they describe that as is something you 101 00:05:40,640 --> 00:05:44,480 Speaker 2: can bind football off of, so actual real infrastructure or 102 00:05:44,560 --> 00:05:49,200 Speaker 2: natural resources. And then you've got realistic which is property 103 00:05:49,560 --> 00:05:53,560 Speaker 2: essentially either commercial or residential, as well as some more 104 00:05:53,800 --> 00:05:55,800 Speaker 2: exotic things. So you can have something called a fund 105 00:05:55,839 --> 00:05:58,960 Speaker 2: of funds, which is what it says on the tin. 106 00:05:59,160 --> 00:06:02,039 Speaker 2: It's a one particularly large fund that instead of investing 107 00:06:02,040 --> 00:06:06,400 Speaker 2: in individual assets, it goes and buys units of specific ones. 108 00:06:06,520 --> 00:06:09,120 Speaker 2: And then even within private equity, which is sort of 109 00:06:09,160 --> 00:06:11,560 Speaker 2: the biggest subasset class of all of this, you can 110 00:06:11,600 --> 00:06:14,359 Speaker 2: break out on even further if you wanted to. We 111 00:06:14,440 --> 00:06:17,159 Speaker 2: talked about venture capital, which is a form of private equity, 112 00:06:17,200 --> 00:06:19,560 Speaker 2: but you also have growth equity, which is you're looking 113 00:06:19,640 --> 00:06:22,200 Speaker 2: at things that are matured a little bit beyond venture 114 00:06:22,200 --> 00:06:24,680 Speaker 2: and then you get into the biggest class, which is 115 00:06:25,000 --> 00:06:27,720 Speaker 2: buyout funds, which is how I really I would I 116 00:06:27,720 --> 00:06:29,800 Speaker 2: would say it is probably the genesis of private equity 117 00:06:29,880 --> 00:06:32,800 Speaker 2: and private markets where mature companies but they're still not 118 00:06:32,839 --> 00:06:35,240 Speaker 2: listed and they sort of go through m and a 119 00:06:35,520 --> 00:06:36,279 Speaker 2: type activity. 120 00:06:36,440 --> 00:06:38,640 Speaker 1: Got it. So we're going to talk about, you know, 121 00:06:38,720 --> 00:06:41,920 Speaker 1: private markets in relation to the energy transition in a moment. 122 00:06:41,960 --> 00:06:45,320 Speaker 1: But what is the scale of private capital globally? 123 00:06:45,720 --> 00:06:48,000 Speaker 2: It depends on who you ask, but the sort of 124 00:06:48,320 --> 00:06:51,000 Speaker 2: rough number that we go with is somewhere in the 125 00:06:51,040 --> 00:06:54,560 Speaker 2: region of twenty to twenty five trillion dollars of assets 126 00:06:54,600 --> 00:06:57,520 Speaker 2: under management in the last sort of a couple of years. 127 00:06:58,680 --> 00:07:03,560 Speaker 2: That is pretty concisiderable amount of growth, particularly since two thousand, 128 00:07:03,760 --> 00:07:07,640 Speaker 2: where we're talking about that that figure being under one 129 00:07:07,640 --> 00:07:10,640 Speaker 2: trillion or maybe just hitting one trillion, So it's it's 130 00:07:10,680 --> 00:07:13,160 Speaker 2: grown pretty considerably. 131 00:07:13,480 --> 00:07:14,880 Speaker 1: Why is it growing to considerably? 132 00:07:15,160 --> 00:07:17,280 Speaker 2: It's growing. It's grown considerably an absolute terms, but it's 133 00:07:17,320 --> 00:07:20,920 Speaker 2: also grown relative to more conventional asset classes like stocks 134 00:07:20,960 --> 00:07:24,880 Speaker 2: and bonds. So if you looked at a hypothetical global 135 00:07:24,920 --> 00:07:27,480 Speaker 2: market portfolio where you could sort of look at all 136 00:07:27,520 --> 00:07:30,600 Speaker 2: of the investable asset classes in the world and give 137 00:07:30,720 --> 00:07:33,560 Speaker 2: allocations to each each of them, private markets used to 138 00:07:33,640 --> 00:07:36,920 Speaker 2: be probably around five ish percent at the start of 139 00:07:37,000 --> 00:07:40,320 Speaker 2: the centry, and nois we're talking fifteen to twenty percent 140 00:07:40,400 --> 00:07:43,840 Speaker 2: depending on the source, and the reasons are mariad. Most 141 00:07:43,880 --> 00:07:48,880 Speaker 2: of the growths we've seen really transpired since the Global 142 00:07:48,880 --> 00:07:52,800 Speaker 2: financial Crisis in two thousand and eight. So what's happened 143 00:07:53,000 --> 00:07:57,240 Speaker 2: there is it's largely an interest rate story. There are 144 00:07:57,280 --> 00:07:59,360 Speaker 2: other factors which I can get into, but the interest 145 00:07:59,440 --> 00:08:03,240 Speaker 2: rate story meant that central banks were basically looking to 146 00:08:03,280 --> 00:08:06,200 Speaker 2: help with stimulus for economies that are railing off the 147 00:08:06,240 --> 00:08:09,160 Speaker 2: back of the GFC. And what that meant is lowering 148 00:08:09,200 --> 00:08:12,360 Speaker 2: interest rates, making the cost of capital for these assets 149 00:08:12,680 --> 00:08:15,880 Speaker 2: particularly cheap. So we talk about buyout funds, but the 150 00:08:15,880 --> 00:08:18,680 Speaker 2: way they invest in capital is through something called the 151 00:08:18,760 --> 00:08:22,200 Speaker 2: leveraged buyout, which is as you would expect, something that 152 00:08:22,280 --> 00:08:24,440 Speaker 2: uses a lot of debt, and debt was particularly cheap. 153 00:08:24,520 --> 00:08:28,040 Speaker 2: The other side of this interest rate story is a 154 00:08:28,080 --> 00:08:31,760 Speaker 2: lot of big institutional investors invested heavily in fixed InCom 155 00:08:31,840 --> 00:08:34,720 Speaker 2: particularly pension funds to find benefit pension funds in particular, 156 00:08:35,000 --> 00:08:38,480 Speaker 2: and that was because they give the investors yields. Now 157 00:08:38,480 --> 00:08:42,400 Speaker 2: with low lower interest rates, those yields fell, so there 158 00:08:42,400 --> 00:08:46,480 Speaker 2: was a big opportunity cost of investing in low yielding assets. 159 00:08:46,520 --> 00:08:50,040 Speaker 2: Whenever you're an investor who use sort of objective is 160 00:08:50,080 --> 00:08:52,960 Speaker 2: really to generate some sort of cash flows, so they 161 00:08:53,040 --> 00:08:55,400 Speaker 2: have to start looking for alternative sources to that, and 162 00:08:55,559 --> 00:08:59,840 Speaker 2: private markets and particularly private credit, and I think we'll 163 00:09:00,160 --> 00:09:02,719 Speaker 2: on quite a bit later, real assets were able to 164 00:09:03,200 --> 00:09:08,080 Speaker 2: fill that gap. So that's really what's ex leaning a 165 00:09:08,120 --> 00:09:11,520 Speaker 2: lot of the growth. Some other factors for this include 166 00:09:11,520 --> 00:09:15,400 Speaker 2: the fact that as they grew, they became just more 167 00:09:15,440 --> 00:09:18,560 Speaker 2: well known or more well marketed, and investors if there's 168 00:09:18,600 --> 00:09:20,640 Speaker 2: one thing that they would ever consider a free lunch. 169 00:09:20,720 --> 00:09:22,680 Speaker 2: If you're sort of familiar with this kind of this 170 00:09:22,760 --> 00:09:26,280 Speaker 2: kind of topic, it's diversification. Portfolio diversification where you buy 171 00:09:26,320 --> 00:09:29,280 Speaker 2: an asset whose return where the returns are not correlated 172 00:09:29,320 --> 00:09:31,840 Speaker 2: with very well with your particular portfolio of the one 173 00:09:31,880 --> 00:09:34,400 Speaker 2: you've already got, so you want to sort of start spreading. 174 00:09:34,679 --> 00:09:36,199 Speaker 2: Spreading the risk by. 175 00:09:36,400 --> 00:09:39,760 Speaker 1: Right and moving outside of public markets kind of affords 176 00:09:39,760 --> 00:09:40,520 Speaker 1: you that a little bit. 177 00:09:40,760 --> 00:09:44,520 Speaker 2: Yeah, exactly right, they're not very correlated. How well that 178 00:09:44,520 --> 00:09:47,040 Speaker 2: strategy is going is not really for me to say, 179 00:09:47,160 --> 00:09:50,080 Speaker 2: but it is. It's definitely one of the motivating factors. 180 00:09:50,480 --> 00:09:55,960 Speaker 1: So let's bring it to energy and the energy transition, because, 181 00:09:56,040 --> 00:09:59,520 Speaker 1: I mean, twenty two trillion assets under management, Chloby, I'm 182 00:09:59,520 --> 00:10:01,840 Speaker 1: pretty sure all of that is in the energy transition. 183 00:10:02,080 --> 00:10:05,640 Speaker 1: But I suppose that something that you've been talking about 184 00:10:05,880 --> 00:10:09,360 Speaker 1: is that private markets are well suited to the energy transition. 185 00:10:09,640 --> 00:10:11,240 Speaker 1: Tell me a little bit more about that. 186 00:10:11,720 --> 00:10:16,160 Speaker 2: Yeah, So we've been working and thinking about this particular 187 00:10:16,200 --> 00:10:18,200 Speaker 2: topic with respect to the transition, because we've been are 188 00:10:18,400 --> 00:10:20,720 Speaker 2: for a bit of time. And I'm going to just 189 00:10:20,800 --> 00:10:23,720 Speaker 2: caveat this maybe upfront that one of the issues with 190 00:10:23,960 --> 00:10:28,000 Speaker 2: researching private markets is that the data availability and the 191 00:10:28,080 --> 00:10:31,400 Speaker 2: data quality isn't brilliant. But with that in mind, we 192 00:10:31,400 --> 00:10:34,679 Speaker 2: were being attached to Bloomberg have access to an awful 193 00:10:34,720 --> 00:10:37,920 Speaker 2: lot of private market fund information and we can see 194 00:10:37,960 --> 00:10:41,800 Speaker 2: what's going on in terms of private strategy. So the 195 00:10:41,840 --> 00:10:44,000 Speaker 2: way we've approached this is to look at all of 196 00:10:44,040 --> 00:10:47,400 Speaker 2: the fund information, so how much each show has been raising, 197 00:10:47,480 --> 00:10:49,920 Speaker 2: how much it's deploying, and what's got left in terms 198 00:10:49,960 --> 00:10:53,640 Speaker 2: of dry powder or available capital, and bucketing each fund 199 00:10:53,640 --> 00:10:58,120 Speaker 2: into a different energy strategy. So the way we're looking 200 00:10:58,160 --> 00:11:00,559 Speaker 2: at it is either a fund has no energy exposure 201 00:11:00,559 --> 00:11:03,280 Speaker 2: at all and we don't really consider it. It's got 202 00:11:03,400 --> 00:11:07,560 Speaker 2: exposure to energy as well as other sectors, so it's 203 00:11:07,600 --> 00:11:11,320 Speaker 2: a diversified fund, or it's a thematic energy fund, so 204 00:11:11,360 --> 00:11:14,720 Speaker 2: it's only targeting energy assets. And within that thematic group, 205 00:11:15,000 --> 00:11:19,080 Speaker 2: we break it down again into assets that are only 206 00:11:19,320 --> 00:11:22,240 Speaker 2: contributing to the energy transition, so they're going after renewable 207 00:11:22,320 --> 00:11:24,600 Speaker 2: energy or anything else that's going to help with our 208 00:11:24,800 --> 00:11:28,120 Speaker 2: transition away from a fossil fuel based energy system, or 209 00:11:28,160 --> 00:11:31,120 Speaker 2: it's the other side of that, a dedicated fossil fuel fund. 210 00:11:31,280 --> 00:11:34,840 Speaker 2: And then in between you have a broad energy funds 211 00:11:34,840 --> 00:11:37,400 Speaker 2: where they don't really specify exactly what it is they're 212 00:11:37,400 --> 00:11:40,880 Speaker 2: investing in in the energy space. It's just energy writ large, 213 00:11:41,200 --> 00:11:45,000 Speaker 2: So your right to assume that of that twenty two trillion, 214 00:11:45,320 --> 00:11:49,080 Speaker 2: not all of it is in the energy transition and 215 00:11:49,120 --> 00:11:52,760 Speaker 2: within the thematic funds, but in particularly the thematic energy 216 00:11:52,760 --> 00:11:56,920 Speaker 2: transition funds where worth estimating anyway. Of that twenty two trillion, 217 00:11:56,960 --> 00:11:59,400 Speaker 2: we're looking at about two hundred and thirty billion b 218 00:12:00,679 --> 00:12:03,680 Speaker 2: in transition funds, just transition funds, and. 219 00:12:03,600 --> 00:12:05,920 Speaker 1: You mentioned that, like, you know, there's different you kind 220 00:12:05,960 --> 00:12:09,960 Speaker 1: of also categorized fossil focused and then broader energy funds, 221 00:12:10,120 --> 00:12:12,920 Speaker 1: Like how does that two hundred and thirty billion of 222 00:12:13,080 --> 00:12:16,840 Speaker 1: energy transition funds compared to what is being put into 223 00:12:17,200 --> 00:12:19,160 Speaker 1: you know, other forms of energy funds. 224 00:12:19,360 --> 00:12:22,480 Speaker 2: We've seen a complete paradigm shift on this question and 225 00:12:22,840 --> 00:12:24,880 Speaker 2: that the answer to this today is a lot different 226 00:12:24,880 --> 00:12:26,320 Speaker 2: than it would have been ten years ago. And the 227 00:12:26,360 --> 00:12:29,079 Speaker 2: answer today is that about three quarters of the commitments 228 00:12:29,120 --> 00:12:31,240 Speaker 2: being made to these the MADIC funds are nine dedicated 229 00:12:31,360 --> 00:12:34,679 Speaker 2: energy transition or clean energy funds. That number was about 230 00:12:35,160 --> 00:12:40,720 Speaker 2: fifteen percent in twenty fifteen, so you can see, yeah, 231 00:12:40,720 --> 00:12:43,439 Speaker 2: the appetite has shifted pretty. 232 00:12:43,240 --> 00:12:45,640 Speaker 1: That it's a huge shift. And I think that when 233 00:12:45,679 --> 00:12:50,960 Speaker 1: we also think about our energy supply ratios work ratio wise, 234 00:12:51,480 --> 00:12:55,200 Speaker 1: it sounds like private capital is actually where I can't 235 00:12:55,200 --> 00:12:57,800 Speaker 1: remember the exact target ratio, but you know, if it's 236 00:12:57,800 --> 00:13:01,040 Speaker 1: three quarters and that's three to one, I'm pretty sure 237 00:13:01,040 --> 00:13:03,080 Speaker 1: that is ahead of the rest of the market. 238 00:13:03,240 --> 00:13:06,280 Speaker 2: So yeah, one hundred percent, particularly. 239 00:13:06,160 --> 00:13:08,760 Speaker 1: Considerably like this would be like in terms of the 240 00:13:08,920 --> 00:13:12,920 Speaker 1: energy transition, it's the most green form of capital out 241 00:13:12,920 --> 00:13:16,080 Speaker 1: of the big kind of chunks of capital that are 242 00:13:16,080 --> 00:13:19,200 Speaker 1: out there, if we were using these very broad categorizations 243 00:13:19,400 --> 00:13:20,959 Speaker 1: between like public and private. 244 00:13:21,240 --> 00:13:24,079 Speaker 2: Yeah, as far as we can tell, that's true. I mean, 245 00:13:24,160 --> 00:13:26,560 Speaker 2: with all the data caveats, as far as we can 246 00:13:26,600 --> 00:13:29,040 Speaker 2: tell that that is true. Now it's not quite three 247 00:13:29,080 --> 00:13:31,679 Speaker 2: to one because we remember that are a lot of 248 00:13:31,720 --> 00:13:35,079 Speaker 2: the funds that contain any energy exposure, of these diversified 249 00:13:35,120 --> 00:13:37,720 Speaker 2: funds as well, which will all the mix a mix 250 00:13:37,760 --> 00:13:41,160 Speaker 2: of assets including both clean energy renewable power assets and 251 00:13:41,840 --> 00:13:43,199 Speaker 2: fossil fuels as well. 252 00:13:43,200 --> 00:13:46,000 Speaker 1: And were they counted in the three quarters of clean 253 00:13:46,080 --> 00:13:48,520 Speaker 1: energy funds or like, I guess what I'm saying that 254 00:13:48,559 --> 00:13:50,959 Speaker 1: your point main that the ratio will be even higher 255 00:13:50,960 --> 00:13:51,880 Speaker 1: than three to one. 256 00:13:51,760 --> 00:13:55,880 Speaker 2: Or would be it will be slightly lower. It's over one, 257 00:13:56,240 --> 00:13:59,360 Speaker 2: meaning that there's more or more clean energy than fossil fuels, 258 00:13:59,360 --> 00:14:02,160 Speaker 2: and there's no other there's no other asset class. But 259 00:14:02,280 --> 00:14:04,960 Speaker 2: that's true, so it is still considerably ahead of both 260 00:14:04,960 --> 00:14:06,040 Speaker 2: stocks and bonds. 261 00:14:06,320 --> 00:14:09,120 Speaker 1: If there's an important form of capital for the energy transition, 262 00:14:09,280 --> 00:14:12,360 Speaker 1: I mean I think that that's my takeaway. It's big, 263 00:14:12,720 --> 00:14:17,760 Speaker 1: and it's significantly green, you know, to the to what 264 00:14:17,840 --> 00:14:19,880 Speaker 1: extent we can kind of debate all day, but it 265 00:14:19,920 --> 00:14:23,240 Speaker 1: has an established track record in that area. Now, in 266 00:14:23,320 --> 00:14:26,280 Speaker 1: your NOE, you've called it energy transition funds sit on 267 00:14:26,440 --> 00:14:29,160 Speaker 1: ninety two billion in dry powder. So I think you 268 00:14:29,200 --> 00:14:31,760 Speaker 1: said two hundred and thirty billion of funds for the 269 00:14:31,840 --> 00:14:35,720 Speaker 1: energy transition. What's this ninety two billion in dry powder? 270 00:14:35,840 --> 00:14:37,240 Speaker 1: What does that mean? Yeah? 271 00:14:37,280 --> 00:14:43,000 Speaker 2: So dry powder is a private market specific jogony esoteric term, 272 00:14:43,200 --> 00:14:47,040 Speaker 2: and what it means simply is capital that hasn't been 273 00:14:47,480 --> 00:14:51,360 Speaker 2: called yet, So it's sitting there winning to be deployed 274 00:14:51,360 --> 00:14:54,120 Speaker 2: into productive assets. So what I mean by cold is 275 00:14:54,200 --> 00:14:58,120 Speaker 2: investors will go to an asset manager and will commit 276 00:14:58,440 --> 00:15:00,280 Speaker 2: to them an amount of money that they're going to 277 00:15:00,280 --> 00:15:02,360 Speaker 2: be willing to invest. But the asset manager doesn't actually 278 00:15:02,560 --> 00:15:05,520 Speaker 2: necessarily need all of that money as and when they 279 00:15:05,520 --> 00:15:08,160 Speaker 2: get the commitments because they haven't maybe scooped out what 280 00:15:08,160 --> 00:15:10,440 Speaker 2: they're going to invest in exactly yet or how much 281 00:15:10,440 --> 00:15:13,040 Speaker 2: they're going to put down in any particular asset. So 282 00:15:13,520 --> 00:15:15,640 Speaker 2: dry powder is the amount of money that has been 283 00:15:15,640 --> 00:15:20,240 Speaker 2: committed but not yet been deployed into those actual productive 284 00:15:20,720 --> 00:15:25,120 Speaker 2: assets like wind turbines, solar panels, battery storage systems, and 285 00:15:25,200 --> 00:15:28,240 Speaker 2: things like that. So ninety two billion means that's how 286 00:15:28,320 --> 00:15:31,520 Speaker 2: much capital is sitting there winding for assets to soak 287 00:15:31,600 --> 00:15:33,760 Speaker 2: up the money, specifically in the transition fronts. 288 00:15:34,120 --> 00:15:37,880 Speaker 1: That's so interesting. So, I mean, so often when something, 289 00:15:38,160 --> 00:15:40,680 Speaker 1: any transition in life, is not happening fast enough because 290 00:15:40,680 --> 00:15:43,680 Speaker 1: all you lack of finance, lack of capital. What I'm 291 00:15:43,720 --> 00:15:46,320 Speaker 1: hearing is there is no lack of capital in this 292 00:15:46,400 --> 00:15:50,640 Speaker 1: particular regard, but somehow the capital has not found a 293 00:15:50,720 --> 00:15:53,440 Speaker 1: place to go. I mean, what is the cause of 294 00:15:53,480 --> 00:15:56,840 Speaker 1: the bottleneck? Is it a lack of projects? Is it 295 00:15:56,960 --> 00:16:00,400 Speaker 1: just that this takes time and the market is catching 296 00:16:00,480 --> 00:16:03,960 Speaker 1: up with the appetite of investors. Yeah, there seems to 297 00:16:03,960 --> 00:16:05,800 Speaker 1: be a mismatch here. What's going on? 298 00:16:06,280 --> 00:16:10,560 Speaker 2: Yeah, it's it's likely a bit of booth of those factors. 299 00:16:10,600 --> 00:16:13,080 Speaker 2: So I mean, Tom, I'm sure, you're familiar with the 300 00:16:13,080 --> 00:16:15,680 Speaker 2: old adage of the capital is there, but it just 301 00:16:15,720 --> 00:16:18,080 Speaker 2: needs the assets to move into and that was sort 302 00:16:18,080 --> 00:16:19,400 Speaker 2: of as an easy crutch. 303 00:16:19,680 --> 00:16:22,160 Speaker 1: That's not an adage I remember from my childhood. 304 00:16:23,840 --> 00:16:27,400 Speaker 2: No, I've been a specific adage I think I've heard. 305 00:16:27,600 --> 00:16:29,320 Speaker 2: I've heard a few people say. But the other the 306 00:16:29,360 --> 00:16:32,560 Speaker 2: other side of this is the second point, the latter 307 00:16:32,600 --> 00:16:36,560 Speaker 2: point investor appetite. So the pensions and Solomon Alephones, the 308 00:16:36,560 --> 00:16:40,600 Speaker 2: big institutions, their appetite for this kind of asset class 309 00:16:40,880 --> 00:16:46,040 Speaker 2: is large and growing apparently, and the auset managers are 310 00:16:46,280 --> 00:16:49,560 Speaker 2: constrained the same way any other organization, is that they 311 00:16:49,560 --> 00:16:53,040 Speaker 2: need people to go and actually source out the assets, 312 00:16:53,120 --> 00:16:55,800 Speaker 2: and they, from what we can tell, haven't been able 313 00:16:55,800 --> 00:17:00,120 Speaker 2: to deploy as quickly as asset managers are making commitments 314 00:17:00,120 --> 00:17:02,360 Speaker 2: and making commitments, i should say, And that puts them 315 00:17:02,400 --> 00:17:04,760 Speaker 2: under a little bit of pressure because the masters, if 316 00:17:04,760 --> 00:17:06,760 Speaker 2: they just wanted their money to be sitting in cash, 317 00:17:06,800 --> 00:17:08,800 Speaker 2: they would just have it in a bank account and 318 00:17:09,040 --> 00:17:11,000 Speaker 2: paid nowhere near the fees that they would be patting 319 00:17:11,359 --> 00:17:13,760 Speaker 2: these asset managers, so they're not under pressure to go 320 00:17:13,840 --> 00:17:18,199 Speaker 2: and find those return generating assets that will keep their 321 00:17:18,240 --> 00:17:20,160 Speaker 2: investors happy and keep them invested as well. 322 00:17:20,520 --> 00:17:23,440 Speaker 1: Is this a case of, rather than being a sort 323 00:17:23,440 --> 00:17:27,679 Speaker 1: of a fundamental chronic mismatch between capital projects, that this 324 00:17:27,800 --> 00:17:31,399 Speaker 1: is what you would always expect to happen in a 325 00:17:31,720 --> 00:17:34,040 Speaker 1: space that is growing. And I know that you know 326 00:17:34,320 --> 00:17:38,480 Speaker 1: the energy transition has its ups and downs, but overall, 327 00:17:38,520 --> 00:17:40,440 Speaker 1: this is a space that year on year is it's 328 00:17:40,480 --> 00:17:43,400 Speaker 1: a growth area, and so it means that there's always 329 00:17:43,640 --> 00:17:45,960 Speaker 1: going to be For that to be true, there always 330 00:17:46,040 --> 00:17:48,720 Speaker 1: has to be the projects are catching up with the 331 00:17:48,800 --> 00:17:51,480 Speaker 1: capital appetite, and so there'll always be this gap. But 332 00:17:51,520 --> 00:17:54,720 Speaker 1: it doesn't necessarily mean it's a problem. I mean, obviously 333 00:17:54,760 --> 00:17:57,040 Speaker 1: it's a problem for the people who've invested their money 334 00:17:57,040 --> 00:17:58,919 Speaker 1: and they wanted to be invested as soon as possible. 335 00:17:58,960 --> 00:18:02,639 Speaker 1: Together it's downed, but it's not necessarily a sign that 336 00:18:02,680 --> 00:18:06,000 Speaker 1: there's a fundamental problem with the system. Am I Am 337 00:18:06,040 --> 00:18:08,080 Speaker 1: I being fair there when I say. 338 00:18:08,119 --> 00:18:09,800 Speaker 2: I think I think it's a really it's a really 339 00:18:09,840 --> 00:18:11,920 Speaker 2: good point, and you are being fair. And I mentioned 340 00:18:12,000 --> 00:18:14,600 Speaker 2: the asset managers are maybe a little bit under pressure, 341 00:18:14,640 --> 00:18:17,080 Speaker 2: but I think it's a good problem to have because. 342 00:18:16,800 --> 00:18:19,760 Speaker 1: They're catching up. They're going to always be in catching 343 00:18:19,840 --> 00:18:21,240 Speaker 1: up as they try and scam up. 344 00:18:21,200 --> 00:18:24,560 Speaker 2: Right, Yeah, yeah, they're not. They're not struggling to raise money. 345 00:18:24,560 --> 00:18:27,080 Speaker 2: And you mentioned this happening in growth areas, and yeah, 346 00:18:27,080 --> 00:18:29,119 Speaker 2: that's that's right, and it's it's a growth area on 347 00:18:29,880 --> 00:18:32,639 Speaker 2: two different fronts. I mean, we've already talked about at 348 00:18:32,680 --> 00:18:36,199 Speaker 2: the top of the show that US private markets are 349 00:18:36,240 --> 00:18:39,520 Speaker 2: growing independently of the energy transition, but the energy transition 350 00:18:39,600 --> 00:18:41,840 Speaker 2: is growing independently of private markets as well, So there's 351 00:18:41,840 --> 00:18:44,879 Speaker 2: two growth areas. And I mean our our et t 352 00:18:45,480 --> 00:18:48,520 Speaker 2: work or flagship has just been released with it's gone 353 00:18:48,600 --> 00:18:51,520 Speaker 2: up again to two point three trillion. And I mean 354 00:18:51,560 --> 00:18:54,320 Speaker 2: most of this assets is in renewables, and renewables globally 355 00:18:54,359 --> 00:18:55,639 Speaker 2: had a bit of a don here, but most of 356 00:18:55,680 --> 00:18:58,200 Speaker 2: the assets and private markets as well are in North 357 00:18:58,240 --> 00:19:01,680 Speaker 2: America and Europe. So even on that front, the downturn 358 00:19:01,720 --> 00:19:05,439 Speaker 2: and renewable investments was a China story, which is not 359 00:19:05,560 --> 00:19:08,280 Speaker 2: where we're seeing as most of the assets here. So 360 00:19:08,640 --> 00:19:13,840 Speaker 2: the renewable uptick in the US and in Europe is 361 00:19:14,119 --> 00:19:17,240 Speaker 2: sort of also helping helping with this growth story in 362 00:19:17,280 --> 00:19:19,880 Speaker 2: private market and transition funds. So it definitely is it's 363 00:19:19,880 --> 00:19:23,399 Speaker 2: a growth story on multiple fronts is one of the 364 00:19:23,400 --> 00:19:24,719 Speaker 2: real takeaways from this research. 365 00:19:25,440 --> 00:19:28,000 Speaker 1: So I mean, just to kind of round this out 366 00:19:28,040 --> 00:19:30,320 Speaker 1: before we kind of maybe get into more specifics about 367 00:19:30,320 --> 00:19:33,240 Speaker 1: what different companies are up to. There's kind of different 368 00:19:33,240 --> 00:19:37,080 Speaker 1: private market strategies and which ones are you seeing are 369 00:19:37,160 --> 00:19:39,240 Speaker 1: like most exposed to the energy transition? 370 00:19:39,680 --> 00:19:43,040 Speaker 2: Great question. Yeah, we talked about this earlier about the 371 00:19:43,080 --> 00:19:46,000 Speaker 2: different the different spectrum of if you look under the 372 00:19:46,040 --> 00:19:48,800 Speaker 2: hood of private markets, you find a whole mess of 373 00:19:48,800 --> 00:19:52,600 Speaker 2: of other things. So what we are seeing within the 374 00:19:52,600 --> 00:19:55,080 Speaker 2: fund data that we have is that real assets that 375 00:19:55,520 --> 00:19:57,520 Speaker 2: term I used earlier on real assets, the thing the 376 00:19:57,520 --> 00:20:00,480 Speaker 2: things you can point a football off of. That's where 377 00:20:00,480 --> 00:20:02,919 Speaker 2: most of the energy exposure that we're seeing here. And 378 00:20:02,960 --> 00:20:06,400 Speaker 2: when I say that energy exposure, we know that that 379 00:20:06,560 --> 00:20:11,040 Speaker 2: in itself can encapchulate a lot of different technologies and 380 00:20:11,240 --> 00:20:13,919 Speaker 2: different parts of the value chain. But there's an awful 381 00:20:13,920 --> 00:20:17,240 Speaker 2: lot of electron generating technology that sits inside these real 382 00:20:17,280 --> 00:20:21,480 Speaker 2: asset funds. So real assets are sort of infrastructure or 383 00:20:21,680 --> 00:20:26,240 Speaker 2: natural resources, and a lot of really what I look 384 00:20:26,280 --> 00:20:30,760 Speaker 2: at here is in that infrastructure space. So traditionally, infrastructure 385 00:20:30,800 --> 00:20:36,680 Speaker 2: funds would have been investing in airports, roads, tolls, bridges, 386 00:20:37,119 --> 00:20:41,160 Speaker 2: things that provide some sort of public good or service. 387 00:20:41,280 --> 00:20:45,840 Speaker 2: They are asset heavy that require big initial outlay, and 388 00:20:46,040 --> 00:20:49,920 Speaker 2: crucially here their sort of risk return profile is really 389 00:20:50,000 --> 00:20:56,000 Speaker 2: characterized by stable, ideally contracted cash flows. So what does 390 00:20:56,040 --> 00:20:58,800 Speaker 2: that sound like to you? And what fits that bill? Well, 391 00:20:59,200 --> 00:21:02,520 Speaker 2: reable electro city generating assets that, once they're permitted in 392 00:21:02,760 --> 00:21:06,359 Speaker 2: how they part purchase agreement or contract for difference from 393 00:21:06,440 --> 00:21:09,840 Speaker 2: government almost fit the build naturally. So before you even 394 00:21:09,840 --> 00:21:14,960 Speaker 2: start thinking about asset managers starting up dedicated energy transition 395 00:21:15,040 --> 00:21:17,679 Speaker 2: or clean energy funds for more of the purpose of 396 00:21:17,680 --> 00:21:21,720 Speaker 2: sustainability or climate factors, they kind of fit that core 397 00:21:21,800 --> 00:21:26,080 Speaker 2: infrastructure mand yet anyway, So we were saying ninety percent 398 00:21:26,119 --> 00:21:28,640 Speaker 2: of real asset funds have some sort of energy exposure. 399 00:21:28,680 --> 00:21:31,399 Speaker 2: So when I say company core infrastructure, that's those diversified 400 00:21:31,400 --> 00:21:35,280 Speaker 2: funds I really mean. So they've got classic infrastructure assets, tools, airports, 401 00:21:35,240 --> 00:21:38,560 Speaker 2: et cetera. But they've also got energy. And actually, as 402 00:21:38,560 --> 00:21:40,760 Speaker 2: far as we can tell, the energy split even within 403 00:21:40,800 --> 00:21:44,000 Speaker 2: those core infrastructure is more tilted towards clean than is 404 00:21:44,280 --> 00:21:46,240 Speaker 2: fossil fuel. But then you can get sort of different 405 00:21:46,240 --> 00:21:48,400 Speaker 2: shades of this as well. So we talk about core 406 00:21:48,480 --> 00:21:52,560 Speaker 2: core plus where some of the assets aren't just providing 407 00:21:52,600 --> 00:21:55,320 Speaker 2: cash flow, but they might have some room for valuation 408 00:21:55,560 --> 00:21:58,880 Speaker 2: appreciation as well, and of value plus as well, which 409 00:21:58,920 --> 00:22:02,320 Speaker 2: is a similar similar thing where you get these these 410 00:22:02,359 --> 00:22:05,920 Speaker 2: transition funds that really sort of fit that bill. Anyway, 411 00:22:06,240 --> 00:22:09,040 Speaker 2: every asset class that we looked at had some sort 412 00:22:09,040 --> 00:22:12,679 Speaker 2: of energy exposure as well, it's just differing amount. So 413 00:22:12,960 --> 00:22:16,040 Speaker 2: one of the areas of beingf already looks and prior 414 00:22:16,119 --> 00:22:18,159 Speaker 2: to this this new anywhere and we've had we have 415 00:22:18,160 --> 00:22:20,040 Speaker 2: a pretty strong area and this is a venture capital 416 00:22:20,080 --> 00:22:22,879 Speaker 2: where we look at deals with the younger technologies that 417 00:22:22,920 --> 00:22:25,840 Speaker 2: are looking for seed capital that they're really going to 418 00:22:25,880 --> 00:22:29,760 Speaker 2: try and break the TRL into something that can scale. 419 00:22:29,880 --> 00:22:32,040 Speaker 2: It's also got quite a lot as well, and we're 420 00:22:32,080 --> 00:22:35,320 Speaker 2: increasingly seeing things like growth equity funds popping up as well. 421 00:22:35,440 --> 00:22:38,600 Speaker 2: But still, if you're talking about orders of magnitude and 422 00:22:38,640 --> 00:22:41,840 Speaker 2: we're the most significant amount of energy capital within private 423 00:22:41,880 --> 00:22:44,160 Speaker 2: markets is it's really it's real assets, and it's really 424 00:22:44,200 --> 00:22:44,520 Speaker 2: within it. 425 00:22:45,920 --> 00:22:48,960 Speaker 1: That makes sense. And just like you say, the stuff 426 00:22:48,960 --> 00:22:51,320 Speaker 1: you can bounce the football, and I think that reflects 427 00:22:51,359 --> 00:22:54,639 Speaker 1: capital deployment generally. So who are the main players in 428 00:22:54,640 --> 00:22:57,840 Speaker 1: this space. I mean, when I think of private capital, 429 00:22:58,000 --> 00:23:01,359 Speaker 1: I think it's almost to me sounds like a lot 430 00:23:01,359 --> 00:23:07,239 Speaker 1: of very sort of small scale investors. But with you know, 431 00:23:07,960 --> 00:23:11,240 Speaker 1: high net worth individuals channeling their funds into particular areas. 432 00:23:11,440 --> 00:23:13,760 Speaker 1: I think that's just maybe because of the word private, 433 00:23:13,880 --> 00:23:16,240 Speaker 1: come just that idea. But yeah, like who are the 434 00:23:16,359 --> 00:23:18,640 Speaker 1: names putting the money into this space? 435 00:23:19,320 --> 00:23:22,760 Speaker 2: Yeah, that proof of that you just described may have 436 00:23:22,840 --> 00:23:25,639 Speaker 2: been trueing maybe back in the nineteen eighties and heyday 437 00:23:25,680 --> 00:23:28,000 Speaker 2: of Wall Street. It's changed quite a bit nights of 438 00:23:28,000 --> 00:23:31,160 Speaker 2: a very concentrated market in the hands of a small 439 00:23:31,280 --> 00:23:34,800 Speaker 2: number of pretty gigantic firms. So if we're talking private markets, 440 00:23:34,840 --> 00:23:39,520 Speaker 2: generally the far and away biggest players or Blackstone, who 441 00:23:40,000 --> 00:23:42,560 Speaker 2: have over a trillion dollars in assets under management and 442 00:23:42,680 --> 00:23:46,119 Speaker 2: pretty much nothing but private markets the smattering of securities. 443 00:23:46,600 --> 00:23:50,720 Speaker 2: Other companies like Apollo and KK are sort of approaching 444 00:23:50,760 --> 00:23:55,119 Speaker 2: that mark as well, and actually recently biggest asset manager 445 00:23:55,160 --> 00:23:57,600 Speaker 2: in the world across all asset classes, black Rock have 446 00:23:58,040 --> 00:24:00,879 Speaker 2: really stepped up to become a major player in private 447 00:24:00,880 --> 00:24:03,840 Speaker 2: markets as well. And it's twenty twenty four if we're 448 00:24:03,880 --> 00:24:08,480 Speaker 2: really if we're looking at transition assets specifically transition funds specifically, 449 00:24:08,600 --> 00:24:12,440 Speaker 2: it's a tale of two managers. Essentially, they were really 450 00:24:12,520 --> 00:24:16,960 Speaker 2: really concentrated. So the biggest transition asset manager that we 451 00:24:17,359 --> 00:24:20,480 Speaker 2: can see in this field anyway is Brookfield with two 452 00:24:20,560 --> 00:24:24,000 Speaker 2: funds alone. They've got the two biggest dedicated energy transition 453 00:24:24,040 --> 00:24:27,680 Speaker 2: funds alone that close their fund raising. The last one 454 00:24:27,760 --> 00:24:30,200 Speaker 2: clears its funds are raising in late twenty twenty five. 455 00:24:30,359 --> 00:24:34,440 Speaker 2: And then the second biggest player is Copenhagen Infrastructure Partners, 456 00:24:34,440 --> 00:24:36,800 Speaker 2: who are really far as we can tell, are more 457 00:24:36,880 --> 00:24:39,360 Speaker 2: or less dedicated to clean energy and the energy transition. 458 00:24:39,560 --> 00:24:43,680 Speaker 2: Between them, they account for about forty percent of all 459 00:24:43,720 --> 00:24:47,119 Speaker 2: of the fundraising for dedicated energy transition. Now, the next 460 00:24:47,359 --> 00:24:50,200 Speaker 2: two largest on that sort of scale or that table 461 00:24:50,280 --> 00:24:52,760 Speaker 2: would be Blackstone and then black Rock. 462 00:24:53,119 --> 00:24:55,040 Speaker 1: And is that just because as much as im the 463 00:24:55,119 --> 00:24:57,560 Speaker 1: just the sheer scale of those funds means that they're 464 00:24:57,560 --> 00:24:58,640 Speaker 1: going to be significant. 465 00:24:58,880 --> 00:25:03,120 Speaker 2: Yeah, as eventually if you include those those two managers 466 00:25:03,119 --> 00:25:05,680 Speaker 2: who are who are large, but they're diversified. 467 00:25:06,320 --> 00:25:09,040 Speaker 1: A broad question I have, I mean, because you know, 468 00:25:09,080 --> 00:25:11,800 Speaker 1: in a way, like the way you've characterized the private 469 00:25:11,840 --> 00:25:14,840 Speaker 1: capital kind of main players, it's like the opposite of 470 00:25:14,880 --> 00:25:17,960 Speaker 1: what my kind of expectation was, you know when I 471 00:25:18,000 --> 00:25:22,040 Speaker 1: expressed it. But why is it so concentrated? I mean 472 00:25:22,080 --> 00:25:25,240 Speaker 1: both in terms generally and then also in the energy 473 00:25:25,240 --> 00:25:28,159 Speaker 1: transition with you know, two firms accounting for forty percent 474 00:25:28,440 --> 00:25:32,800 Speaker 1: of the dedicated fundraising, Like, is there something inherently about 475 00:25:32,840 --> 00:25:37,359 Speaker 1: this space that kind of favors concentrating all of the 476 00:25:38,480 --> 00:25:42,520 Speaker 1: capital into the capital being channeled through a small number 477 00:25:42,680 --> 00:25:43,800 Speaker 1: of organizations. 478 00:25:44,080 --> 00:25:46,760 Speaker 2: It's a good question that I've not have thought too 479 00:25:46,960 --> 00:25:49,720 Speaker 2: much in depth about it. I think the answers are. 480 00:25:49,800 --> 00:25:53,720 Speaker 2: It takes a pretty high degree of specialism. We mentioned 481 00:25:53,760 --> 00:25:57,440 Speaker 2: earlier on in the show that regulators actually prevent retailed 482 00:25:57,520 --> 00:26:00,280 Speaker 2: mass investers from actually getting exposure to this stuff. Don't 483 00:26:00,280 --> 00:26:03,080 Speaker 2: have despite the efforts of Black Crop recently, you don't 484 00:26:03,080 --> 00:26:06,439 Speaker 2: have many index funds or ETFs or mutual funds that 485 00:26:06,480 --> 00:26:10,399 Speaker 2: are offering the average punter exposure to this. So you 486 00:26:10,640 --> 00:26:12,960 Speaker 2: have to be sort of sophisticated. 487 00:26:13,119 --> 00:26:15,720 Speaker 1: So it's like they're having to do their own work 488 00:26:16,040 --> 00:26:17,720 Speaker 1: that an exchange would be doing. 489 00:26:18,080 --> 00:26:20,520 Speaker 2: Yeah, exactly. They have to source. They have to source 490 00:26:20,600 --> 00:26:23,920 Speaker 2: the do all the due diligence themselves. Source, source the 491 00:26:23,960 --> 00:26:27,959 Speaker 2: assets themselves and because how these funds perform actually it's 492 00:26:28,119 --> 00:26:30,120 Speaker 2: it depends on the manager a little bit as well. 493 00:26:30,200 --> 00:26:33,320 Speaker 2: You build reputations as well, both with your investors and 494 00:26:33,400 --> 00:26:35,800 Speaker 2: with the companies and the assets that are looking to 495 00:26:35,880 --> 00:26:38,919 Speaker 2: raise capital as well. They're looking for partners who they 496 00:26:39,080 --> 00:26:42,119 Speaker 2: know are good in this space. And then there's the 497 00:26:42,160 --> 00:26:46,080 Speaker 2: aspect for transition funds in particular, because what we're saying 498 00:26:46,560 --> 00:26:50,359 Speaker 2: and what we're seeing is real assets, big infrastructure heavy 499 00:26:50,400 --> 00:26:52,880 Speaker 2: assets are the dominant force here. That's sort of there's 500 00:26:52,880 --> 00:26:56,600 Speaker 2: an element there. There's a finite amount of these available. 501 00:26:56,880 --> 00:27:01,240 Speaker 2: So whenever you have the combination of that scarcity with 502 00:27:01,800 --> 00:27:07,040 Speaker 2: the aspect where reputations matter, it ends up the assets 503 00:27:07,040 --> 00:27:09,159 Speaker 2: and the investments all and in the control of a 504 00:27:09,400 --> 00:27:10,800 Speaker 2: small number of hands. 505 00:27:11,040 --> 00:27:14,240 Speaker 1: So we've established, you know, who's doing the investing here. 506 00:27:14,400 --> 00:27:16,600 Speaker 1: I suppose the next question I have is like, where 507 00:27:16,640 --> 00:27:19,600 Speaker 1: is this capital typically deployed, and in particular, if we're 508 00:27:19,640 --> 00:27:24,359 Speaker 1: just contrasting it to where capital is being deployed generally 509 00:27:24,440 --> 00:27:27,600 Speaker 1: in the energy transition, where is it especially being deployed 510 00:27:27,760 --> 00:27:30,159 Speaker 1: in relation to private capital, you know, like, you know, 511 00:27:30,440 --> 00:27:32,440 Speaker 1: is there a sweet spot we can identify? But in 512 00:27:32,520 --> 00:27:35,840 Speaker 1: terms of geography and in terms of you know, the sector. 513 00:27:36,400 --> 00:27:39,399 Speaker 2: Yeah, it's it's it's an interesting question because the answer 514 00:27:39,440 --> 00:27:41,000 Speaker 2: is not exactly the same as it is for the 515 00:27:41,000 --> 00:27:42,040 Speaker 2: broad energy transition. 516 00:27:42,400 --> 00:27:45,200 Speaker 1: That that is the kind of nuance we want to tease. 517 00:27:44,920 --> 00:27:49,000 Speaker 2: Out here exactly. Yeah, there's something different here, and there's 518 00:27:49,000 --> 00:27:51,520 Speaker 2: an elephant in the room, which I'll address in a second. 519 00:27:51,560 --> 00:27:55,040 Speaker 2: But most of where this capital and transition assets is 520 00:27:55,040 --> 00:27:58,680 Speaker 2: being deployed is where the capital markets are the deepest 521 00:27:58,720 --> 00:28:02,760 Speaker 2: and most sophisticated and have some sort of well estublished 522 00:28:02,760 --> 00:28:06,399 Speaker 2: regulatory bodies. So that means North America and the United 523 00:28:06,440 --> 00:28:10,119 Speaker 2: States and Canada in particular, where half of the fundraising 524 00:28:10,480 --> 00:28:13,880 Speaker 2: for this is being done. Europe is the next largest 525 00:28:14,119 --> 00:28:17,160 Speaker 2: on a regional perspective anyway, and it's the region where 526 00:28:17,520 --> 00:28:20,320 Speaker 2: it's sort of the greenest tilting as well as far 527 00:28:20,359 --> 00:28:22,800 Speaker 2: as we can we can see and then talk about 528 00:28:22,840 --> 00:28:26,080 Speaker 2: Asia generally. It's obviously a very big area and lots 529 00:28:26,119 --> 00:28:29,720 Speaker 2: of vast majority of the population the world's population sits, 530 00:28:29,760 --> 00:28:32,800 Speaker 2: but it's not been as big in terms of share 531 00:28:32,880 --> 00:28:36,000 Speaker 2: of investment on private markets for the transition, but it 532 00:28:36,080 --> 00:28:38,800 Speaker 2: is rising and that's where that's the elephant in the room, right, 533 00:28:38,880 --> 00:28:42,520 Speaker 2: because the story of the energy transition at large, for 534 00:28:43,480 --> 00:28:46,360 Speaker 2: since I've worked at BNF is it's a story of China. 535 00:28:46,480 --> 00:28:50,720 Speaker 2: So that's just not what we're seeing in this particular market, 536 00:28:50,760 --> 00:28:54,360 Speaker 2: and it's more likely than not a symptom of the 537 00:28:54,400 --> 00:28:57,480 Speaker 2: development of the financial markets within these jurisdictions. From a 538 00:28:57,560 --> 00:29:01,520 Speaker 2: sexual perspective as well, it's not exactly the same either. 539 00:29:01,720 --> 00:29:03,840 Speaker 2: So we've been able to use some of the enough's 540 00:29:04,040 --> 00:29:06,960 Speaker 2: proprietary data to look into this a little bit, and 541 00:29:07,400 --> 00:29:11,840 Speaker 2: its wind is the dominant share wind par and I 542 00:29:11,880 --> 00:29:14,680 Speaker 2: should really say upfront as well that it's power generating 543 00:29:14,720 --> 00:29:19,920 Speaker 2: assets or facilitating infrastructure, so that would include transmission and distribution, 544 00:29:20,240 --> 00:29:24,000 Speaker 2: electricity grids, some storage and coop located assets as well. 545 00:29:24,000 --> 00:29:26,560 Speaker 2: But wind and solar are the two dominant assets. But 546 00:29:26,640 --> 00:29:29,920 Speaker 2: wind is a bigger shower within private market players as 547 00:29:29,960 --> 00:29:33,680 Speaker 2: far as we can tell that solar, so within clean 548 00:29:33,720 --> 00:29:35,840 Speaker 2: power I think Tom, you can correct me if I'm 549 00:29:35,840 --> 00:29:37,959 Speaker 2: making a mistake here, but I think solar is still 550 00:29:38,080 --> 00:29:41,880 Speaker 2: the biggest. But it's also the profile is changing a 551 00:29:41,880 --> 00:29:45,080 Speaker 2: little bit as well over time, which is kind of 552 00:29:45,080 --> 00:29:47,200 Speaker 2: mapping the broad trends we're seeing in the energy transition 553 00:29:47,280 --> 00:29:50,560 Speaker 2: investment space, which is that it used to be only 554 00:29:50,880 --> 00:29:53,760 Speaker 2: essentially wind and solar that would fit this bill, and 555 00:29:53,840 --> 00:29:56,720 Speaker 2: it's starting the broad broaden out in the last few years. 556 00:29:56,760 --> 00:30:00,480 Speaker 2: So I mentioned energy storage, battery energy storage systems in 557 00:30:00,520 --> 00:30:04,200 Speaker 2: particular are gaining a popularity, so are cool located assets 558 00:30:04,240 --> 00:30:07,240 Speaker 2: as well, and BNF has done some research recently on 559 00:30:07,280 --> 00:30:11,640 Speaker 2: this as well. And then outside of the real assets 560 00:30:11,640 --> 00:30:16,080 Speaker 2: space as well, they're starting to get into other parts 561 00:30:16,200 --> 00:30:19,120 Speaker 2: of not necessarily just energy transition, but sort of the 562 00:30:19,160 --> 00:30:22,360 Speaker 2: broad climate space as well. So there's this term which 563 00:30:22,560 --> 00:30:25,840 Speaker 2: is called the missing middle, which is pretty affectionate because 564 00:30:25,840 --> 00:30:27,720 Speaker 2: the other well known term for this is the value 565 00:30:27,720 --> 00:30:30,440 Speaker 2: of death, where technologies have matured beyond the need for 566 00:30:30,520 --> 00:30:34,240 Speaker 2: venture capital or seed capital, but they haven't reached that 567 00:30:34,360 --> 00:30:37,640 Speaker 2: stage where they are earning stable or contracted cash flows 568 00:30:37,800 --> 00:30:41,920 Speaker 2: that infrastructure core infrastructure funds one, which means they've got 569 00:30:41,920 --> 00:30:46,840 Speaker 2: this sort of funding gap between what the economy needs 570 00:30:46,880 --> 00:30:49,800 Speaker 2: and what the real economy needs compared to what investors 571 00:30:49,800 --> 00:30:53,680 Speaker 2: are are willing to focus in on. And this is 572 00:30:53,720 --> 00:30:57,440 Speaker 2: a good chance to mention that these these investors and 573 00:30:57,440 --> 00:31:01,040 Speaker 2: the investment funds, they're not utilities. They're primary very objective 574 00:31:01,520 --> 00:31:04,920 Speaker 2: is to deliver an attractive, suitable, risk adjusted return to 575 00:31:04,960 --> 00:31:08,400 Speaker 2: their investors. It's not necessarily to provide par or other 576 00:31:09,040 --> 00:31:12,120 Speaker 2: energy services to consumers, so they're actually willing to take 577 00:31:12,160 --> 00:31:13,080 Speaker 2: on a little bit more risk. 578 00:31:13,480 --> 00:31:15,880 Speaker 1: I was going to say, everything you're saying is that 579 00:31:15,960 --> 00:31:19,000 Speaker 1: this is a capital, a kind of a category of 580 00:31:19,120 --> 00:31:22,200 Speaker 1: capital that I mean, I realized, like venture capital is 581 00:31:22,200 --> 00:31:24,400 Speaker 1: a part of private capital, but like the kind of 582 00:31:24,520 --> 00:31:27,880 Speaker 1: the asset focused private capital, and you know, maybe the 583 00:31:27,920 --> 00:31:32,040 Speaker 1: private credit side of things, it's more willing, it has 584 00:31:32,040 --> 00:31:34,440 Speaker 1: a higher risk appetite, let's put it that way, than 585 00:31:34,640 --> 00:31:37,960 Speaker 1: conventional debts. So it's sort of sitting somewhere in between. 586 00:31:38,040 --> 00:31:40,560 Speaker 1: And now you say that that missing middle that is 587 00:31:40,600 --> 00:31:43,600 Speaker 1: where this is playing, and that's maybe why you're seeing 588 00:31:43,640 --> 00:31:48,200 Speaker 1: it being invested in things that are maybe mainstream but 589 00:31:48,360 --> 00:31:51,200 Speaker 1: not as mainstream as just wind and solar. You know, 590 00:31:51,240 --> 00:31:54,800 Speaker 1: it's almost like wind is less mainstream than solar, and 591 00:31:54,880 --> 00:31:58,160 Speaker 1: maybe that's why private capitual is showing up there. Batteries 592 00:31:58,440 --> 00:32:02,040 Speaker 1: are getting mainstream, but they're not mainstream everywhere, and they 593 00:32:02,240 --> 00:32:04,880 Speaker 1: you know, they're getting to being greenstream. That's fair private 594 00:32:04,960 --> 00:32:07,560 Speaker 1: capital because there's not early stage. It's sort of when 595 00:32:07,600 --> 00:32:11,160 Speaker 1: stuff is getting there, what private capital is something that 596 00:32:11,240 --> 00:32:12,040 Speaker 1: can get it there. 597 00:32:12,400 --> 00:32:15,760 Speaker 2: I think I think that's right. I think I think there's, yeah, 598 00:32:15,840 --> 00:32:18,719 Speaker 2: there's a lot of opportunity that these these managers are 599 00:32:18,760 --> 00:32:21,400 Speaker 2: seeing still in that what you exactly what you've just said, 600 00:32:21,400 --> 00:32:25,440 Speaker 2: the technologies that are on sort of almost on their way. Yeah, 601 00:32:25,760 --> 00:32:29,120 Speaker 2: battery storage is a pretty good example because yeah, okay, 602 00:32:29,120 --> 00:32:32,040 Speaker 2: there's there's sort of tolling there as well, but I 603 00:32:32,040 --> 00:32:36,640 Speaker 2: mean largely it's revenue stacking from different applications for batteries 604 00:32:36,760 --> 00:32:40,120 Speaker 2: that are delivering returns to investors. So you know, there's 605 00:32:40,160 --> 00:32:41,160 Speaker 2: still some risk. 606 00:32:41,760 --> 00:32:43,920 Speaker 1: Yeah, and I suppose to that point there's just a 607 00:32:44,000 --> 00:32:46,640 Speaker 1: little bit more work that needs to be done, yeah, 608 00:32:46,760 --> 00:32:49,920 Speaker 1: by whoever's investing in it to actually investigate it and 609 00:32:50,000 --> 00:32:52,560 Speaker 1: understand it. But that you know, but there's potentially a 610 00:32:52,600 --> 00:32:54,120 Speaker 1: higher reward as well. Yeah. 611 00:32:54,320 --> 00:32:56,160 Speaker 2: I think that's a very sucting way to put it. 612 00:32:56,440 --> 00:32:58,640 Speaker 1: I think that's a good thought for us to finish on. 613 00:32:58,880 --> 00:33:01,960 Speaker 1: I mean, I've learned so much in this podcast about 614 00:33:01,960 --> 00:33:05,040 Speaker 1: this flavor of capital that maybe flies under the radar 615 00:33:05,080 --> 00:33:08,280 Speaker 1: a little bit, maybe because it is called private capital, 616 00:33:08,680 --> 00:33:12,600 Speaker 1: but it plays an important role in the energy transition 617 00:33:12,720 --> 00:33:18,280 Speaker 1: ecosystem that maybe doesn't fully get recognized until you really 618 00:33:18,320 --> 00:33:20,959 Speaker 1: spell it out and you realize also that the scale 619 00:33:21,000 --> 00:33:22,640 Speaker 1: at which it's operating. 620 00:33:22,480 --> 00:33:26,680 Speaker 2: I think it's chunky, and I think crucially the trend 621 00:33:26,760 --> 00:33:29,680 Speaker 2: is up as well. It's a growth trend at the moment. 622 00:33:29,840 --> 00:33:31,400 Speaker 1: Which yeah, I mean going back to what we say, 623 00:33:31,520 --> 00:33:34,520 Speaker 1: it's an area that's growing, which is you know, we 624 00:33:34,560 --> 00:33:38,200 Speaker 1: talked about why is there this mismatch between the available 625 00:33:38,240 --> 00:33:42,640 Speaker 1: capital being deployed versus the available opportunities, And that's a 626 00:33:42,680 --> 00:33:45,680 Speaker 1: feature of an area that's growing, and maybe that's a 627 00:33:45,720 --> 00:33:49,959 Speaker 1: positive life sign for the energy transition than if every 628 00:33:50,000 --> 00:33:52,680 Speaker 1: dollar they had was getting sucked up straight away, that 629 00:33:52,720 --> 00:33:54,840 Speaker 1: would tell us that there was a real things raither 630 00:33:54,920 --> 00:33:57,440 Speaker 1: stagnating or there was a shortfall. So to me, there's 631 00:33:57,440 --> 00:34:00,600 Speaker 1: an optimistic story and I kind of learned, like I say, 632 00:34:01,160 --> 00:34:03,240 Speaker 1: about a little part of the ecosystem, well not a 633 00:34:03,240 --> 00:34:04,960 Speaker 1: little pot, you know, quite a significant part of the 634 00:34:05,000 --> 00:34:09,000 Speaker 1: ecosystem the role that it plays in the energy transition. 635 00:34:09,200 --> 00:34:11,920 Speaker 1: So Ryan, thank you for coming and explaining it to 636 00:34:12,000 --> 00:34:14,520 Speaker 1: me and to all of our listeners. This has been 637 00:34:14,560 --> 00:34:16,239 Speaker 1: a real education, So thank you. 638 00:34:16,600 --> 00:34:18,640 Speaker 2: It's been my pleasure to thank you very much for 639 00:34:18,680 --> 00:34:20,880 Speaker 2: having me on, and I look forward forward to speaking 640 00:34:20,920 --> 00:34:32,400 Speaker 2: to you again shortly. Today's episode of Switched On was 641 00:34:32,440 --> 00:34:36,320 Speaker 2: produced by Cam Gray with production assistants from Kamala Shelling. 642 00:34:36,520 --> 00:34:39,719 Speaker 1: Bloomberg NIF is a service provided by Bloomberg Finance LP 643 00:34:39,880 --> 00:34:40,719 Speaker 1: and its affiliates. 644 00:34:40,800 --> 00:34:43,480 Speaker 2: This recording does not constitute, nor should it be construed, 645 00:34:43,520 --> 00:34:47,440 Speaker 2: as investment advice, investment recommendations, or a recommendation as to 646 00:34:47,480 --> 00:34:50,319 Speaker 2: an investment or other strategy. Bloomberg ANIF should not be 647 00:34:50,400 --> 00:34:54,160 Speaker 2: considered as information sufficient upon which to base an investment decision. 648 00:34:54,239 --> 00:34:57,239 Speaker 2: Neither Bloomberg Finance Lp nor any of its affiliates makes 649 00:34:57,239 --> 00:35:01,000 Speaker 2: any representation or warranty as to the accuracy or completeness 650 00:35:01,000 --> 00:35:04,000 Speaker 2: of the information contained in this recording, and any liability 651 00:35:04,040 --> 00:35:06,719 Speaker 2: as a result of this recording is expressly disclaimed