Endowments, Family Offices Increasingly Eyeing Cleantech

Foundations, endowments and investment consultants say the electrification of transportation is where the most cleantech innovation and investment is happening, followed by big data, clean water, agriculture and green revolving funds.

Capricorn Investment Group, an asset manager that invests across all asset classes and also invests about $5 billion dollars from half a dozen individuals and foundations – including the Skoll Foundation – is looking to renewable energy. “Renewable energy is our biggest theme and has been for the last several years,” said Dipender Saluja, managing director at Capricorn, at a recent Greentech Media conference. “On the renewable energy side, we started investing in Tesla [Motors] and that was one of our biggest investments. We are big fans of electrification of transportation.”

Donna Rosequist, director of private equity at Segal Rogerscasey, an investment consultant, said foundations and endowments are also focused on the electrification of transportation, as well as venture capital investments in water efficiency and agriculture. Institutional investors have also shown interest in conventional energy, such as companies that create natural gas power plants and another that develops equipment for managed pressure drilling, she says.

Within clean water, fundraising from foundations and endowments is coming for funds investing in improving irrigation and water leaks due to aging infrastructure.

In agriculture, funds are focusing on ecological and organic-oriented farming, Rosequist said, including investments in a biotech company developing waste into fertilizer or companies producing non-toxic fire resistant plastic.

University endowments are getting much of their exposure to cleantech through green revolving funds, said Alexandra Readey, an investment consultant at Cambridge Associates, adding an endowment can finance efficiency improvements on campus to reduce energy usage and other expenses, while investing the money saved in future projects. “It’s a growing way of using the endowment to do cleantech and save the university money,” Readey said. “Many of the projects have good payback periods. It’s also one way universities are responding to fossil fuel divestment pressure if they already have private equity plans in place that they don’t want to change.”

Harvard University currently has a $12 million green revolving loan fund, which has financed 192 projects and has a median return on investment of nearly 30%. The projects pay back the loan from their savings within five years, according to the University’s website.

Beyond that, universities remain wary. “Most Universities have not been very interested in pure-play cleantech private funds,” Readey said. “Some of the diversified managers went into difficult spaces like solar panel and wind turbine manufacturing and really got their hands burned.” Readey said there is not as much capital competing for a limited amount of investments, and so more opportunities exist today. Still, big funds are hesitant to re-enter the space.

At Greentech Media’s foundation and family office panel, Capricorn’s Saluja said he continues to invest in hardware companies, batteries, lighting, software, and big data, mostly through venture capital.

“I don’t think the hardware or heavy investing story is over,” Saluja said. “We do worry about the absence of capital. That is one piece we think a lot more about today than five or six years ago. There is a great idea, it deserves to be brought to market it has a clear thesis. How much can we do with our checkbook, how much more money does this need, and where will it come from?”

The convergence of a variety of technologies are leading to new opportunities, Saluja said, citing an investment Capricorn has in SpaceX – a microsatellite company. Price reduction in solar energy, falling five times in 10 years, is also unleashing a new wave of investments, he said.

Foundations and endowments, considered the smaller of the institutional investors, may choose to invest in cleantech through a private equity fund or a fund-of-funds to get more diversification. Rosequist said the more sophisticated investors – like large corporate pensions – who want to build up a cleantech or alternative portfolio normally go to a single fund or invest directly in a company.

North Sky Capital, a fund-of-funds manager spun out of Piper Jaffray and active in the cleantech space, raised two funds in 2005 to 2006 and 2007 to 2008 focusing on renewable energy, water, transportation, agricultures, recycling, and waste-to-energy. North Sky raised a third fund in 2009 to 2010 focusing on renewable energy power systems and transmission lines.

University endowments can also gain exposure by accessing the public markets. “I’ve been surprised that when investors want to go pursue cleantech, the first thing they think of is private equity or venture capital,” Readey of Cambridge Associates said. “There are good private managers but don’t rule out the public markets. The public markets offer a liquid, less expensive way to access cleantech. While passive cleantech indices present some challenges because of their volatility and construction, investing in an active cleantech manager can be a good use of active management dollars.”

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