(Bloomberg) — Thanks to some well timed energy-transition bets, a number of private capital funds are managing to defy the latest wave of headline-grabbing markdowns.
Fund managers at firms including Brookfield Asset Management, Eurazeo SE and Tikehau Capital say they’ve been riding out the panic that’s gripped other corners of the private credit and equity markets. And they’ve been doing it by tapping into assets that address growing energy-security needs, and that aren’t about to be made obsolete by artificial intelligence.
Natalie Adomait, chief operating officer for Brookfield’s energy group, says investors need to be aware of the split that’s emerged between the performance of private capital funds devoted to energy-transition assets, and those exposed to the software sector.
“What we’re seeing on the ground, it’s honestly never been better than it is today,” she said. And the “noise” surrounding private capital’s exposure to software companies is “far afield from what we do, which is very hard asset backed and contract backed.”
The bets Adomait’s referring to fit into the so-called heavy-asset, low obsolescence (HALO) theme, which is widely viewed as the best way to resist the disruptions being served up by AI. At the same time, capital-intensive clean energy assets are enjoying a resurgence that’s fueled by the data centers needed to sustain AI’s growth. That’s as the Iran war turbocharges demand for energy security more broadly.
Not that long ago, being capital intensive was seen as an Achilles heel against a backdrop of rising interest rates. Now, it’s morphed into what increasingly looks like a competitive moat against AI. As analysts at Goldman Sachs Group Inc. put it in a recent note, “markets are rewarding HALO.” Blackstone Inc. President Jonathan Gray has referred to it as private capital’s search for “terra firma.”
Sophie Flak, managing partner and head of sustainability and impact at Eurazeo, says private market funds now hold a lot of the energy transition firms too small to attract other kinds of investors. The model has proved stable, and Eurazeo has seen “no panic at all” from investment clients, according to Flak. She also says there are currently no signs of “contagion” or redemption requests.
“It’s good to be invested in the hard stuff,” she said.
Managers at KKR & Co. and Allianz Global Investors have argued that private markets are uniquely suited to financing the energy transition because they can drive capital into new or untested technologies without fearing the disruptions more typically associated with public markets.
