Clean technology managers are redoubling their efforts to attract capital, but investors will have to pick through a landscape of failed offerings to find the managers with winning strategies.
Six years ago, institutional investors began making large commitments to the sector. They bet that rising fuel costs and dwindling natural resources would create a huge investment opportunity in alternative energy.
The California Public Employees' Retirement System has made $1.1 billion in private equity commitments to the sector, including $480 million through its CalPERS Clean Energy and Technology Fund, $500 million in clean energy and technology funds and $200 million in its environmental technology program; the California State Teachers' Retirement System has about $667.5 million invested in clean tech; and the New York State Common Retirement Fund has more than $500 million committed to the sector.
So far, not all investments have worked out as planned, industry insiders said. Investors are still waiting for their clean-tech portfolios to produce expected returns. The reason is that many clean-tech investments are still sitting in managers' portfolios waiting for an exit.
Some venture capital managers will not be able to continue supporting these companies, sending executives at these firms off in search of other sources of capital, said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers U.S. who is based in the firm's San Jose, Calif., office.
“I think there is a lot of interest in clean technology but not enough of profitable liquidity events to maintain a high level of investment or to attract new money,” Mr. Lefteroff said.
But not all clean-tech investments are expected to fare the same.
“I think clean-tech performance will be a function of the areas that they invested. For instance, solar cells/panels investments will be challenged in large part by the huge volume of low-cost Chinese imports,” said David Fann, president and CEO of TorreyCove Capital Partners LLC, a La Jolla, Calif., private equity consulting firm.
“Large-scale energy production — wind, solar farms — might do well because certain state public utility commissions have mandated purchase from or production of energy from clean-tech sources,” he added.