Asset Class Opportunities
Private Equity
We are constructive on sustainability-themed opportunities in the middle market, which has matured. With the heightened backdrop of inflation and financial strain, we believe investors will favor companies that provide more efficient, accessible and affordable solutions. We see an increasing number of businesses that are profitable and fast growing that offer sustainable products and services in sectors such as waste and materials, sustainable food and agriculture, ecosystem services and water, and clean energy.
Private Credit
We believe sustainable private credit offers an attractive risk-return profile due to a significant supply/demand imbalance for debt capital in the energy transition sector. Mature companies increasingly seek non-dilutive financing for surging energy demands driven by trends like reshoring, transportation, and AI/data centers. Historically, sustainable private debt capital has been sparse, with only $61 billion raised since 2014 compared to $781 billion for sustainable private equity.6 This limited availability and scarcity of specialized expertise create compelling risk-adjusted opportunities. Companies are seeking flexible debt solutions, and bespoke strategies in niche sustainable spaces are commanding higher premiums.
Infrastructure
The infrastructure asset class requires significant capital for essential service projects driven by megatrends like AI, energy transition, and circular economy efficiency. As governments and corporates withdraw, private investors can find opportunities. We view middle-market value-add infrastructure as particularly attractive. While mega-projects face competitive pricing, the value-add middle market may offer better-priced deals, negotiation flexibility, and strong exit optionality.
Green Bonds
For fixed income investors, we believe an allocation to green bonds can help provide significant portfolio diversification without sacrificing liquidity or returns. Investors can benefit from an allocation to green bonds from a traditional risk management perspective as well as by increasing sustainability exposure. While we believe the green bond market will continue to grow and diversify in the years ahead, we think some differences with the conventional fixed income market will remain, for example in terms of sector composition. As a result, we believe that adding a standalone green bond allocation will continue to provide portfolio-diversification benefits for investors.
