What We Do

The Aligned Intermediary (AI) is an investment advisory group created to help
long-term investors (LTIs) — sovereign funds, pension funds, endowments, financial institutions, insurance companies, family offices, and foundations — accelerate and increase the flow of private, for-profit capital into climate infrastructure projects and organizations in the areas of clean energy, water infrastructure, and waste-to-value.

To date, six LTIs have committed to deploy over USD 1 billion into transactions identified by Aligned Intermediary.

 

Current Members

Regents of the University of California – university endowment

New Zealand Superannuation Fund – sovereign wealth fund

TIAA Global Asset Management – financial services group

Ontario Public Service Employees Union Trust (OPTrust) – pension fund

Wellcome Trust – charitable trust

Church Commissioners for England – faith-based organization

 


Our Approach

Aligned Intermediary guides LTIs around all levels of capital investment in the climate infrastructure space; early-stage, growth and project finance.

We source, screen, conduct due diligence, and structure transactions that satisfy specific goals related to risk-adjusted financial rates of return for our LTIs. We also assist in deal monitoring and facilitating post-close value-creation for the life of an investment.

Specifically, we:

  1. Source deals
  2. Perform due diligence of projects and companies
  3. Structure deals
  4. Monitor deals (portfolio/asset management)
  5. Supply research and analytics
  6. Provide fiduciary management services

ORIGINATION STRATEGY

Aligned Intermediary sources unique transactions from around the world that its Members would not otherwise see through its network of companies, developers, banks, government programs, and other co-investors. To mitigate risk for Members, Aligned Intermediary will often pursue opportunities that have either co-investment from established non-Member institutional investors or participation from strategic non-institutional investors.

Aligned Intermediary is focused on sourcing direct investment opportunities (debt and equity) in traditional clean energy deployment, high growth-equity opportunities in emerging markets, and new technology companies. We focus on transactions with a minimum investment size of USD 25 million and seek competitive financial returns on a commercial basis (i.e. currently we do not facilitate concessionary capital).

COMPLEMENTING, RATHER THAN COMPETING WITH, EXISTING STAKEHOLDERS

Aligned Intermediary collaborates with a broad range of other actors involved in climate infrastructure, including:

  • Privately-owned companies looking for minority investor capital
  • Project developers
  • Commercial and investment banks
  • Multilateral banks and development institutions such as the World Bank and GEF
  • Government officials and policymakers
  • Investor-owned and municipal utilities in both water and electric power
  • Independent power producers and publicly-traded “Yieldcos”
  • Private equity and infrastructure funds
  • Non-governmental organizations

Importantly, we are not seeking to compete with existing banks or asset managers. To the contrary, we believe there are attractive investment opportunities that are not being ‘banked’ due to difficulties around scale, time horizon, and the mispricing of risks in the marketplace. As such, we tap our vast global network to facilitate investments in, and be a matchmaker for, the very best opportunities meeting our LTI partner requirements.

 


The AI Advantage

Aligned Intermediary seeks to bolster the capacity of LTIs so that they can deploy capital more efficiently into climate infrastructure investments. Rather than provide financing directly, Aligned Intermediary will reduce information asymmetries and transaction costs with the goal of driving greater LTI investment into climate solutions.

AI is unlike all other intermediaries in the climate infrastructure space as we:

  • Serve as a shared platform to LTIs, greatly minimizing the resource requirements they face when contemplating direct investment programs, especially in the complex areas of climate infrastructure projects and companies.
  • Operate as a fully “honest broker,” with staff compensation linked to long-term value creation for investors. Aligned Intermediary is not motivated by fee generation and operates “at cost” as a Public Benefit Corporation to ensure that its incentives and activities are aligned with those of its Members.

By helping our Members to achieve strong financial returns, we seek to bring climate infrastructure into the mainstream of institutional investor portfolios.


Why Now

CLIMATE SOLUTIONS REQUIRE USD 40 TRILLION OF ADDITIONAL INVESTMENT

To avoid the most dangerous impacts of climate change, 174 nations have formally endorsed a goal of limiting the future increase in global average temperature above pre-industrial levels to 2 degrees Celsius (2°C). The International Energy Agency (IEA) estimates that achieving this 2°C target will require an additional USD 40 trillion of investment over the next 35 years – beyond what is projected to occur in a business-as-usual scenario – in order to decarbonize the global energy system.[1] This need for additional investment extends to every sector of the economy, from power generation to transport.

Climate Solutions
Source: IEA, Ceres analysis 2013

[1] The IEA estimates that a business-as-usual scenario sees USD 318 trillion of investment into the energy sector through 2050 (with the result that by the end of this century global average temperature rises by 6°C).


Financial Opportunity

ROLE FOR LONG-TERM INVESTORS IN FUNDING CLIMATE INFRASTRUCTURE

Long-term investors such as pension funds and insurance companies have total assets of nearly USD 93 trillion. Participation of these investors will be essential to marshaling the additional investment necessary to achieve a 2°C climate outcome.

Total assets by type of institutional investor (USD trillion)

Note: “Public pension reserve funds” are often called sovereign wealth funds. Data capture only entities in the OECD, hence include several trillion USD of assets held by sovereign wealth funds outside the OECD.
Source: OECD 2014, Aligned Intermeidary analysis

Currently, however, such investors are committing very little direct capital into climate solutions. In 2014 direct institutional investment into climate infrastructure was less than USD 1 billion; this amounted to 0.37% of total climate finance from private-sector institutions (USD 243 billion), and 0.23% of total climate finance from private-sector and public-sector institutions (USD 391 billion). Similarly, in a 2015 Organization for Economic Cooperation and Development (OECD) survey of 99 major pension funds and public pension reserve funds (with a combined $10.9 trillion in assets), only nine funds had direct allocations to renewable energy infrastructure.

PRIVATE CLIMATE FINANCE BY ACTOR, 2012-2014 IN USD BILLIONS

Source: Climate Policy Initiative 2015, Aliged Intermediary analysis

Continuation of this trend will undermine prospects for securing a climate-safe future. For example, to fund a build-out of new renewable electric power generation[1] in line with a 2°C target, Bloomberg New Energy Finance recently estimated that through 2040 direct institutional investment (via both debt and equity) into such projects should average nearly USD 70 billion per year (with the potential for 2X this amount). This compares with the less than USD 1 billion of such investment in 2014; moreover, note that through 2040 the power sector accounts for only one-fifth of total required additional 2°C investment.

MASSIVE FINANCIAL OPPORTUNITY

Even after accounting for asset allocation constraints such as short-term liquidity needs, we believe there remains an opportunity to mobilize trillions of dollars of new institutional investment into climate infrastructure. At the macro level the economics of climate infrastructure investment are compelling; the IEA estimates that USD 40 trillion of investment will yield fuel-cost savings of USD 115 trillion (for a Return on Investment of nearly 3X). At the level of individual investor portfolios, low-carbon assets can offer appealing characteristics such as long-dated, inflation-linked cashflows with low volatility (or, for investors with higher risk thresholds, the potential for double-digit returns via investments into emerging companies with innovative technologies and/or business models).

IMPORTANCE OF DIRECT INVESTMENT

Recognizing the need to expand institutional investment into climate infrastructure via multiple channels, there is a particularly important role for direct investment into projects and companies (as opposed to into funds managed by third parties). For providers of capital, direct investment has the potential to enhance performance via lower transaction costs and better asset-liability matching. For recipients of capital, direct investment has the potential to lower financing costs and improve the economic competitiveness of low-carbon technologies.

BARRIERS TO INVESTMENT IN CLIMATE INFRASTRUCTURE: LACK OF ACCESS POINTS

Rather than a dearth of promising opportunities, we believe that meager institutional investment in climate infrastructure reflects a shortage of well-aligned channels through which to access these opportunities.[2] The benefits of direct investment notwithstanding, many long-term investors lack the internal resources to execute direct investments into projects or companies in the areas of climate infrastructure. With notable exceptions, there are also too few external managers focused on climate infrastructure with the expertise, track record, and fund structure required to win new mandates from long-term investors. The result is an inadequate flow of new investment into climate solutions. This is particularly true for capital-intensive, long-technology-development-timeline ventures and first-of-a-kind infrastructure projects – the investment opportunities often best-positioned to reduce greenhouse gas emissions at scale. Lack of capital risks creating a negative feedback loop whereby the opportunity set shrinks further, thus creating additional challenges for LTIs seeking to increase allocations to climate solutions.

As evidence for the importance of proper access points in unlocking capital, we note the rise of infrastructure (e.g. toll roads, bridges, power plants, etc.) as an asset class.  Virtually non-existent in institutional portfolios thirty years ago, today LTIs commit hundreds of billions of dollars of new investment to infrastructure projects each year.  This investment began to flow only after large public pension funds had developed in-house deal teams that they then paired via strategic investments with external “platform companies”; such arrangements enabled a cost-efficiency and scale that made infrastructure assets investable for major institutions.  Such a transformation is exactly what is needed with respect to the areas of clean energy, water infrastructure, and waste-to-value (e.g. climate infrastructure).[3]

[1] Such as wind, solar, geothermal, advanced biomass, and marine power.

[2] Areas of climate infrastructure that have succeeded in attracting consistent investment include (1) certain resource innovation ventures that align well with traditional venture capital (e.g. software, new service models, financing innovations, and capital-efficient hardware, among others); and (2) utility-scale wind and solar photovoltaic projects that align well with traditional project finance.  Even in these areas, however, there remains significant opportunity to expand the scope of direct institutional investment.

[3] For more discussion, see Monk et al., “Energizing the US Resource Innovation Ecosystem: The Case for an Aligned Intermediary to Accelerate GHG Emissions Reduction,” June 2015, https://www-cdn.law.stanford.edu/wp-content/uploads/2015/07/SSRN-id2617816.pdf

Our Team

We are currently in the process of building out the full AI staff.

Aligned Intermediary News

Contact