Once positioned to be a star of investors' portfolios, clean technology has been reduced to bit-part status, morphing into an opportunistic investment in a broader energy infrastructure strategy.
The $296.5 billion California Public Employees' Retirement System, $188.8 billion California State Teachers' Retirement System and $178.3 billion New York State Common Retirement Fund are among the U.S. pension funds that have clean- or green-technology portfolios stretching across asset classes including venture capital, private equity, public equity and fixed income.
Investors bet big that rising fuel costs and dwindling natural resources would create a huge investment opportunity in alternative energy. According to data at the time from New Energy Finance, now a subsidiary of Bloomberg L.P., global private equity and venture capital clean-tech assets under management totaled $23 billion in October 2007, up from $15.9 billion in October 2006.
Things have changed.
Last year, global clean-tech funds raised $2.9 billion, compared to $42.4 billion for global energy private equity funds, according to London-based alternative investment research firm Preqin. So far this year, clean-tech funds have raised $400 million vs. $2.9 billion for traditional energy funds.
“Clean technology was a tremendous investment thesis 10 years ago, but the world changed in unexpected ways, leaving clean-tech investors with many unfulfilled promises,” said David Fann, president and CEO of private equity consulting firm TorreyCove Capital Partners LLC, San Diego.
Global clean-tech had a gross internal rate of return of 4.4% on a total of $15.4 billion in investments from 2008 to 2012, down from 11.1% gross IRR from 2004 to 2007 on a total of $9.2 billion in investments, according to the most recent data from Boston-based consulting firm Cambridge Associates LLC.
And then there's shale oil and gas. The “game changers” of hydraulic fracturing, horizontal drilling and widespread use of three-dimensional seismic technology for exploration, and now much lower oil prices, all led to the displacement of clean technology, Mr. Fann said.
“We think clean tech may still be an interesting long-term macro play, but faces many short-term hurdles of which much lower oil prices is one,” Mr. Fann said. “With lower priced and seemingly plentiful gas and oil, there is no near-term urgency for clean energy.”
Despite billions invested in clean-tech startups in the past, there's been a dearth of technological innovation recently, he said.