Al Gore’s Generation Investment Management and Canadian pension fund Caisse de Dépôt et Placement du Québec (CDPQ) have announced a $3bn partnership in a bid to create a more sustainable form of private equity.
Announced yesterday, the pair will invest in “sustainable, resilient business” with an 8-15 year duration – in contrast to the typical private equity fund investment duration of 3-4 years.
David Blood, who set up UK-based sustainability specialist Generation with Gore in 2004, said the new approach is “frankly fundamental to trying to change the way capital markets think about deploying capital and investing in building businesses”.
In a new move for Generation, the deal does not involve investing directly in one of its funds. Rather, it will merge human and capital resources with the C$270bn pension fund to create an investment team. CDPQ Executive Vice-President and Head of Private Equity, Stephane Etroy, told RI the governance of the partnership “is very much similar to a merger recall”.
Blood said the longer-term structure fits more effectively into CDPQ’s asset allocation portfolios: “This is the way CDPQ needs and wants to deploy capital.”
CDPQ plans to increase its overall asset allocation towards less liquid assets such as private equity, real estate, and infrastructure. Last October it also made headlines with a series of major commitments to climate-aligned investment.
“The market is fundamentally too short,” said Blood. “The private equity marketplace is structured for leveraged buyouts, as opposed to long-term value creation for businesses, entrepreneurs and all stakeholders. This is a new way to try to help build long-term sustainable businesses that deliver a low-carbon, clean, fair, healthy society.”Generation Partner and private equity veteran John Bernstein described the new approach as “a different form” of investment than what’s been seen in the market so far. “It’s not really private equity – it’s not high leverage, not short-term, not about financial engineering,” he told RI. The longer view, he added, allows for “true alignment between investors who want long-term investments and companies who want to take a longer-term view of building businesses”.
“It’s not really private equity – it’s not high leverage, not short-term, not about financial engineering,” – Generation’s Bernstein
The partnership has already made its first investment – in FNZ, a fintech firm aimed at “transforming the way financial institutions serve their wealth management customers” and creating technology to better manage pension savings. The pair bought two-thirds of the New Zealand firm, founded in 2003, from private equity firms General Atlantic and HIG Capita – in a deal valuing FNZ at £1.65bn.
Bernstein said the new structure was attractive to FNZ because it was “longer term, less leveraged, and less reliant on financial engineering”.
Going forward, companies with “outstanding management teams and solid long-term growth prospects” will be targeted, with a view to making investments that are “net positive for the environment, benefit society and in many cases will use technology as a key factor for driving change”.
The $3bn commitment comes is new capital from CDPQ, created by inflows from young beneficiaries, it told RI.
Etroy told RI that CDPQ is looking at similar partnerships alongside its conventional private equity model.