New climate infrastructure endowment seeks to raise up to €40bn from pension funds

A new endowment structure has been formed to allow European pension and insurance funds to invest at scale in illiquid renewable energy and clean tech assets – targeting up to €40bn in assets.

The new initiative is called the Climate Endowment and counts family offices Wermuth Asset Management and AQAL as founders.

And is supported in various capacities by leading responsible investment figures Mats Andersson, former CEO of Sweden’s AP4, Stephen Blyth, former CEO of the Harvard Endowment and Philippe Desfossés, former CEO of French pension fund ERAFP.

Its partners include members of Europeans for Divest-Invest, the Institutional Investor Group on Climate Change (IIGCC) and impact investing group Toniic.

The Climate Endowment plans to build on the model of large US endowments, that have retuned 12% p.a. over the past decades – versus a 6% return for EU pension funds and insurance companies.

The investment style of large US endowments tend to be long-term horizons, largely in illiquid assets and alternative asset classes, usually taking equity risk.

But EU pension and insurance funds are subject to strict regulations such as “Solvency II’, a measure that restricts the amounts they can allocate to illiquid investments – such as renewable energy assets.

In March, the Association of British Insurers (ABI) warned that Solvency II rules were hindering sustainable investments and said that billions of pounds could be unlocked if the regulation were changed.The Climate Endowment will likely help institutional investors avoid restrictions caused by Solvency II by pooling their assets. The endowment plans to focus on illiquid investments resulting in strong reductions in global CO2 emissions and seeks to raise €20-40bn in assets from EU pension funds and insurance companies.

In LinkedIn post, Jochen Wermuth, founder of Wermuth AM, said the Climate Endowment would invest unconstrained across all asset classes with a large 50%+ allocation to long-dated, illiquid and alternative investments.

He adds: “One of the basic ideas is that illiquidity is compensated with higher returns, the so-called illiquidity premium. Yale, for instance, has achieved approximately 11.8% return per annum over the last twenty years, as opposed to a 5.4% return per annum by a traditional 60/40 stocks/bonds portfolio, as is often targeted by pension funds.”

It will be formerly launched in Autumn 2019 and be headquartered in Berlin.

Dr. Mariana Bozesan, co-founder and board member AQAL said: “We only have eleven years left to fulfil the Agenda 2030, and we are convinced that transformation is feasible. The Climate Endowment is the most significant stepping stone at this point in time.”