Brookfield’s emerging markets fund is targeting $5bn

Brookfield Asset Management’s debut emerging markets vehicle – the Catalytic Transition Fund – is now in market and targeting $5 billion, Infrastructure Investor has learnt.

A first close is earmarked for later this year, Brookfield confirmed in its May Q1 results, which could see the vehicle raise about half of its targeted capital, Infrastructure Investor understands. Brookfield plans to commit up to 10 percent of the fund’s size, or $500 million.

Brookfield declined to comment on the fundraising.

CTF will look to deploy equity cheques of between $200 million and $500 million across its target regions of South and Southeast Asia, where it plans to invest 40 to 45 percent of its capital; South and Central America, where it will invest another 40 to 45 percent; and Middle East and Eastern Europe, which will receive between 10 and 20 percent of the fund’s capital. Areas of focus include the energy transition, industrial decarbonisation, sustainable living and climate technologies.

Recent fund performance

• Brookfield Infrastructure Debt III (2022 vintage): Net IRR 7.9%; Net TVPI 1.06x
• Brookfield Infrastructure Fund IV (2019 vintage): Net IRR 14%; Net TVPI 1.33x

Sources: Infrastructure Investor’s data as of Dec. 31, 2023, and 30 Sept. 2023, respectively, citing information from Teachers’ Retirement System of the State of Illinois, and New York City Police Pension Fund. Subscribers can view here.

The debut emerging markets vehicle was first announced late last year, during the United Arab Emirates’ COP 28 presidency, when it received a $1 billion anchor commitment from Altérra Transformation. The latter is the $5 billion catalytic capital sleeve, focusing on the Global South, of the $30 billion Altérra climate vehicle. Most of the climate vehicle’s capital – the $25 billion Altérra Acceleration programme – will target “climate investments at scale”. Altérra Acceleration has committed $2 billion to Brookfield’s Global Transition Fund II, which has raised $10 billion so far.

The catalytic capital provided by Altérra Transformation will allow CTF to target blended average returns in the high-teens, enhancing returns for its commercial-oriented LPs. When CTF was announced in December, Canadian pension CDPQ and Singaporean sovereign wealth fund Temasek expressed an interest in contributing commercial capital to the fund.

Transition needs ‘blended capital at scale’

During the Infrastructure Investor Network’s Global Summit, held in Berlin earlier this year, Mark Carney, Brookfield Asset Management chair and head of transition investing, made the case for the importance of blended capital to boost the energy transition in emerging markets.

“Countries have to want to transition. So, we’re not going to force ourselves on somebody who hasn’t made the commitment and isn’t starting to put in place the policies that are consistent with that. But then on top of that, because of the risk premium, because of lack of track record, lots of other issues… we will need forms of blended capital at scale,” he argued.

Carney had high praise for Altérra, especially the $5 billion earmarked for catalytic capital.

“What’s important about that capital is it has a capped return and therefore augments the returns for the LPs,” he explained. “It attracts other forms of supportive capital. For example, capital for project preparation or capital that’s dedicated to specific regions in order to accelerate the transition there. And so, there’s an opportunity to create a capital stack and do exactly what it’s supposed to do, which is to catalyse and pull forward the transition in these markets and start to build really an industry pipeline at scale for them”.

However, he cautioned that catalytic capital alone will not suffice to meet the transition needs of emerging markets. “I do think that in many situations, we will also need to have carbon markets on top of those types of capital structures,” he said.