Climate opportunities one of the market’s ‘real bright spots’: TPG’s Jim Coulter

Only months after closing an inaugural climate fund, TPG is planning for its successor to tap into an expanded opportunity set.

“Amidst the complicated market backdrop that we’re all experiencing, one of the real bright spots across our dashboard is what’s happening in the climate-related space,” executive chairman Jim Coulter said in a third-quarter earnings call.

Coulter, who oversees TPG Rise Climate Fund, said “whatever opportunities one thought were available going into this year have been substantially increased by three things.”

One of those things is the Biden Administration’s Inflation Reduction Act, which created billions of stimulus for renewable energy. “If you look at that bill, it’s announced as a $369 billion set of incentives,” he said. “If you look more carefully at the research, those incentives are uncapped and people think it might be as high as $800 billion or $1 trillion.”

For TPG, this “dramatically changes” the expected cashflows from “things we’ve already invested in,” he said. It also “dramatically opens up” the number of companies and projects that the firm can potentially deploy capital to in the future.

Another source of stimulus comes from REPowerEU, the European Commission’s program for addressing energy disruption caused by Russia’s invasion of Ukraine. It offers a further $300 billion in incentives, Coulter said, while the energy crisis in Europe has “shifted the green premium to a green discount, meaning the green is now much cheaper.”

The third thing, he said, is “the weather was just lousy during the year,” something that is “on everyone’s mind in a deep way.”

While climate investing is up, Coulter said, “I don’t think there are many times in my career that I’ve seen as much of an imbalance between the amount of specialized capital needed and the amount of specialized capital that’s been formed.” The size of resources available to oil and gas deals, for example, “doesn’t yet exist in the climate area.”

More fundraising

TPG in April closed TPG Rise Climate Fund at $7.3 billion, ahead of an original target of $5 billion. Because of the perceived greater flow of opportunities, the firm is targeting more fundraising in both 2023 and 2024. Next year’s campaign may be adjacent products to the current fund, while 2024’s campaign is likely to involve the launch of a new flagship.

LP demand for opportunities in harmony with their ESG policies, such as climate and sustainability products, has been a key trend in recent private equity fundraising. In fact, at a time when capital inflows are declining due to an overcrowded market and an LP dry spell, these strategies are proving fairly durable.

Along with TPG’s vehicle, illustrations include the debut energy transition fund of Brookfield Asset Management, wrapped up in June at $15 billion, twice its original target.

Overall, TPG brought in $8.2 billion in the third quarter. Among the highlights was more capital raised for a ninth buyout offering and a second healthcare offering, which at the end of September had secured $10.6 billion against a combined target of $18.5 billion.

As part of roughly $1 billion obtained for its market solutions platform, the firm also held initial closes for a pair of fresh secondaries offerings. They are the Asia-focused TPG NewQuest V and the North America and Europe-focused TPG GP Solutions.

In addition, TPG unveiled plans to launch its next growth equity flagship. As TPG Growth V, closed last year at $3.6 billion, is nearing full investment, the successor is expected to roll out by mid-next year.