BlackRock Inc. is tapping the private credit market to launch a new fund that will offer one of the fastest growing bl investment strategies in the US.
The Climate Transition-Oriented Private Debt Fund will become part of an investing platform at BlackRock that the asset manager says is worth more than $100 billion. It will be managed by a team of private debt investors together with sustainability and transition investing specialists from across the firm, according to an emailed statement on Thursday.
“The strategy focuses on the transition to a low-carbon economy as one of several mega forces driving investment opportunities,” James Keenan, chief investment officer and global head of private debt for BlackRock, said in the email.
Climate transition has emerged as one of the most popular ESG fund strategies in the US, having risen 304% in the 18 months through June, according to a recent Morningstar Inc. report. Such figures add some nuance to speculation around the extent to which political backlash against ESG is hobbling the investment strategy in the US.
Despite the political headwinds, more ESG funds are being launched than liquidated. Globally, 90 ESG funds were closed so far this year, but 253 were opened. Even in the US, 25 more ESG funds were created than were shuttered, according to data provided by Morningstar Direct.
BlackRock Chief Executive Officer Larry Fink has long warned of the need to drag private markets into the climate debate, amid concerns that high-emitting assets being divested by public firms were merely being transferred to the less transparent private market. While attending the COP26 climate summit in Glasgow, Fink dubbed this phenomenon “the largest capital-market arbitrage in our lifetimes.”
Since then, there have been clear signs of a shift, with private debt investors increasingly looking to ESG as a new growth opportunity. Earlier this year, managers at Pemberton Capital Advisors, AlbaCore Capital Group and Intermediate Capital Group were among those touting the benefits of applying climate strategies to private credit.
Fund managers have been quick to embrace private credit strategies and profit from a continued reticence from banks to commit capital to risky borrowers. And with interest rates rising at a rapid clip in the past year, private credit funds have raked in bonanza profits.
BlackRock, which is the world’s largest asset manager, said its new climate transition fund responds to client demand for transition-oriented solutions.
According to a BlackRock survey of investors, 98% have set a transition investment objective for their portfolios and 75% of institutional investors indicated that they have net zero objectives.
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The new fund will invest in mid-sized firms with carbon emissions reduction goals or companies providing climate solutions, according to Sonia Rocher, portfolio manager and sustainability investing lead for BlackRock’s Global Private Debt platform.
“It supports them in their carbon reporting and achievement of their roadmap to reduce emissions,” she said. The intention is to offer investors “all the benefits of a traditional private debt portfolio with the additional selectivity to consider the transition.”
The new BlackRock fund will use a proprietary Climate Transition Rating Framework launched by the asset manager across its Global Private Debt platform, “to focus borrower selection on companies at a variety of stages of transitioning to net zero emissions,” the firm said.
Europe remains the biggest market for new climate funds, accounting for 84% of global assets. China’s market share is 8%, while the US stands at 6%, according to Morningstar data.
(Adds context in which private credit is taking off in eighth paragraph.)
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