Private markets rally to new heights: March 2022
It is becoming more and more common for investors to incorporate ESG factors into their decision making. New regulations being created every day help enforce this trend; for instance, over 3,500 investment managers had signed the UN- supported Principles for Responsible investment by the end of 2021. While a growing number of firms have started acknowledging and even begun tracking ESG, only 15 percent of firms have investment policies that actually take ESG into consideration.
Key Insights:
"Impact" funds, another word for fund vehicles with explicit ESG mandates, have doubled in the last five years, with 73 funds in 2021.
Private equity (PE) deal activity for ESG- investments has also increased considerably "at 16 percent per annum since 2016 compared with 12 percent for PE overall," (McKinsey).
Rethinking real estate valuation:
Understanding climate change- related risk factors is becoming increasingly important for investors. By harnessing green technology that assesses sustainability impacts, investors can be better informed in portfolio management decisions. There are different sources of climate change risk that can affect a property's value:
Physical risks (direct and indirect): homes in high risk areas face depressed value, transportation impacts from flooding
Sustainability transition risks: regulatory requirements to decarbonize buildings
Applying the power of capital to achieve sustainability goals is daunting, but possible; McKinsey's report suggests that reaching net zero carbon emissions by 2050 will require an incremental $3.5 trillion per year in decarbonization capital expenditures, comparable to one-third of current private markets AUM (McKinsey).
LISC Strategic Investments is committed to supporting underserved populations by embedding ESG into investment processes, fund creation, and decision-making. Learn more about ESG in Chapter 6 of McKinsey's 2022 Global Private Markets Review.
Report Authors
Alejandro Beltran de Miguel
Paul Maia
Gary Pinshaw
Matt Portner
David Quigley
John Spivey
Brian Vickery