Two of US’ largest pension funds, California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS), have deployed more than $870 million (Rs3,421.7 crore) for private equity investment in clean technology in the US and across the globe.
CalPERS, with its $246.7 billion under management, is the largest US pension fund followed by CalSTRS, with $168.8 billion. India is considered a key market for clean technology, and will likely see some investments by these pension-driven funds in the next one to fours years.
There are several ways that this money could potentially find a road into India. According to its web site, CalPERS has invested $185 million into mostly venture capital funds; CalSTERS, according to a spokesperson, has invested $285 million in alternative investments including funds. One of CalPERS investees, DFJ Element, has already put money in India (along with other investors) through its 2006 investment in energy storage device manufacturer Deeya Energy, Inc., which is headquartered in California, but has a facility in Gurgaon. CalSTRS currently has no clean tech investments in India.
The commitment of capital by the two pension funds has also resulted in the creation of private equity funds that will put the money to use. With a $400 million investment, CalPERS is the anchor investor in the clean energy and technology fund of PCG Asset Management, LLC. PCG is raising a $800 million global fund of which 5-10% or $40-80 million will target markets such as India, Brazil and China over the next three-four years, according to Mark Nydam, the company’s managing director.
Investment bank and financial advisory firm ARVCO Capital Research LLC is also in the early stages of putting together a new local team to lead a private equity fund focused on clean technology in India. Dusty Wunderlich, vice-president of investment banking at ARVCO, said as these pension funds have put money aside, his firm has decided to create a vehicle to put the money to use.
Apart from driving the market through their investments, CalPERS and CalSTRS have influenced other powerful pensions funds in the US since 2004 towards what the former calls “environmental investment initiatives”. This includes pension funds of the states of New York, Oregon and Pennsylvania.
“They (CalPERS and CalSTRS) tend to be a leader in the institutional investor arena,” said Wunderlich. And George McPherson, senior managing director of the DC-based private equity firm Global Environment Fund (GEF), said he expects other pension funds to create more programmes geared towards clean technology over the next year “based on conversations with pension funds and their gatekeepers”.
McPherson’s firm has been investing in India’s “green” businesses since 1992, and he says that another way for additional funds to be deployed in this sector, and potentially in India is “through co-investment opportunities.” For example, for a deal of $75 million his firm would invest $20-50 million and look to other sources to fill the gap. “We are not capital restrained in any way.”