UAE’s $30 Billion Alterra Fund Readies New Round of Allocations

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(Bloomberg) — A $30 billion fund launched by the United Arab Emirates with the declared goal of funneling billions of dollars into climate finance is readying its next round of investments.

Alterra, which struck deals worth $6.5 billion with BlackRock Inc., TPG Inc. and Brookfield Asset Management Ltd. late last year, is now “actively planning the next phase of allocations,” Chief Executive Officer Majid Al Suwaidi said in an interview. He declined to identify the money managers involved in the talks or specify when an announcement might come.

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The Abu Dhabi-based investment vehicle operates as a fund of funds, allocating cash to money mangers whose investments support the green-energy transition. Introduced last year at the COP28 climate summit in Dubai, Alterra is also designed to make it more appealing for private finance to add its own capital, through the use of so-called de-risking structures. The UAE says the model has the potential to unleash $250 billion of climate finance by 2030, much of which will be channeled into developing markets. 

The decision to hand the role of COP host to the UAE was met last year with considerable skepticism by environmentalists. However, the summit managed to attract many of the titans of private finance, with BlackRock CEO Larry Fink leading a group of Wall Street heavyweights who spanned the hedge fund industry, private equity and many of the world’s biggest banks.

Hedge fund billionaire Ray Dalio has called Alterra a “wonderful template” for others to copy.  

Alterra has already agreed to retain a smaller portion of some profits generated by the venture, as a sweetener to attract more private finance. The setup is intended to channel institutional-investor cash into markets where perceived risk would normally lead them to demand higher returns, often beyond levels that borrowers in those markets can afford.

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Ensuring an adequate flow of capital to developing markets, where moving away from fossil fuels is often complicated by issues of economic inequality, is key to limiting global warming to 1.5C. For that reason, how to get climate finance to the Global South was once again a central theme at last year’s Conference of the Parties in Dubai. It will remain high on the agenda for this year’s COP29 in Azerbaijan. 

Al Suwaidi, a former climate negotiator for the UAE who also served as director general of COP28, said there’s “a clear need and an opportunity for climate investment” in emerging economies. However, “well-known and complex challenges have inhibited the flow of finance.” These include “actual and perceived risks” related to political instability, currency fluctuations and weak financial systems, he said.

Despite such obstacles, there’s an active debate on “how to make the international financial architecture fit-for-purpose to ensure a managed and just climate transition for all,” Al Suwaidi said. Alterra is part of this discussion and aims to be “the number one climate investment fund globally,” he said.

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The investment vehicle is structured in two parts. The first — Alterra Acceleration — has $25 billion to deploy and functions as an anchor investor or co-investor in climate strategies. The second — Alterra Transformation — represents the remaining $5 billion and aims to incentivize investment flows into the Global South.

To stimulate greater funding to emerging economies and reduce risk for institutional investors, the UAE has agreed to retain a smaller portion of the profits generated from the Alterra Transformation strategy. In some cases, outside investors stand to receive as much as 5 percentage points of additional returns as a result of the UAE’s agreement to cap its returns, a person familiar with the terms of the deal said in December.

While Alterra is essentially a fund of funds, there are plans over time to make direct investments and co-investments, Al Suwaidi said. The fund’s creation has been instrumental in attracting a growing climate finance ecosystem in Abu Dhabi, which includes investment funds, foundations and think tanks, he said.

“We aim to create a hub for climate finance in the UAE that mirrors Silicon Valley’s spirit, where innovation and investment in climate solutions can thrive,” said Al Suwaidi. “Through strategic partnerships, we aim to help bridge the climate finance gap and demonstrate that profitable, climate-positive investments are possible in both advanced and emerging markets.”

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