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Fund Solutions

ESG Funds Dominate Private Capital Fundraising

Private equity and infrastructure assets collectively raised 66% of all ESG funds (US$55 billion) – US$18.4 billion and US$17.9 billion respectively – between January and April, according to alternative assets data provider Preqin’s latest ‘ESG in Alternatives’ report. Last year, 59% of private infrastructure deals were in renewable energy, rising from 52% in 2022, the report added. While ESG is still perceived by some alternatives fund managers as a fundraising tool to align with investors’ ESG policies, many also see it as a means of mitigating risks to returns and reputation, Preqin said. Half of surveyed infrastructure investors reported that they now have an ESG policy in place. Preqin also found that private ESG funds’ performance is not significantly different to non-ESG private funds overall, noting that the average internal rate of return (IRR) of ESG funds was 13.5% compared to 15% IRR for non-ESG funds. “The strong growth in ESG fundraising across private markets suggests more managers want new funds to be aligned with ESG fund requirements,” said Alex Murray, Head of Real Assets and Research Insights at Preqin. “The reasons vary from being more able to raise capital to aiding risk management and deal selection strategies. Regardless, the still relatively nascent sector within alternatives will continue to grow, owing to Europe’s more developed regulatory environment.”

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