BlackRock, TPG Deal With #UAE Finds New Way to Juice ESG Returns - Bloomberg

BlackRock, TPG Deal With UAE Finds New Way to Juice ESG Returns - Bloomberg

The United Arab Emirates has agreed to retain a smaller portion of the profits generated by a $30 billion venture involving BlackRock Inc., TPG Inc. and Brookfield Asset Management Ltd., in an effort to lure more private money into climate finance deals.

The arrangement is part of a de-risking clause attached to a $5 billion strategy from Alterra, an investment vehicle launched during the COP28 summit in Dubai. In practice, the UAE’s decision to impose a ceiling on its own profits means outside investors stand to receive as much as 5 percentage points of additional returns, according to a person familiar with the terms of the deal who asked not to be named discussing nonpublic information.

Jim Coulter, founding partner and executive chairman of TPG, said the UAE’s financing structure is “pretty revolutionary.” He declined to provide figures for the terms around TPG’s funds, but said in an interview that the arrangement creates enough of a “return enhancement” to attract investors “who might not have come in otherwise.”

The UAE’s cap limits its returns to about 5% for some funds, according to a person familiar with the details of the arrangement. A spokesperson for Alterra said return thresholds and fund structures will vary from case to case.

One of the challenges facing climate finance is the lack of investments in emerging markets and developing economies, which is in part driven by the risk-return profile, the spokesperson said. The goal of the $5 billion vehicle, dubbed Alterra Transformation, is to mobilize investor capital into climate investments in the Global South, the spokesperson said.

The Alterra structure stands out as a “wonderful template” for scaling up climate funding, according to hedge fund billionaire Ray Dalio. He was among the financial heavyweights attending COP28 who underscored the need for climate projects to generate commercially appealing returns if private investors are to get involved.