Macquarie: LPs not yet making ‘material allocations’ to natural capital

Macquarie Asset Management head of agriculture and natural assets, Elizabeth O’Leary, has said that she sees “material investment” into natural capital from LPs around the world, but that they are not yet carving out specific allocations to the asset class.

Speaking at the Carbon Market Institute’s Australasian Emissions Reduction Summit in Sydney this week, O’Leary said she had recently returned to Australia from several weeks overseas where she had “never had such deep and meaningful conversations” about natural capital solutions with investors.

But she cautioned that, while institutional investors were making significant investments into the asset class, they were not yet carving out dedicated allocations at scale.

“Is it at the point where we are seeing material allocations made? I don’t think so,” she said.

“But we are seeing material investment being made by some of the largest superannuation, pension and sovereign wealth funds around the world in actually researching and understanding, building strategies around their ability to deploy capital into [the] big-picture decarbonization thematic.

“You can see the capital interest is here. You can see that capital is being held to a standard by its underlying membership, not just for financial outcomes, but for climate outcomes. My message […] is there is significant appetite for investable solutions, whether that be the venture capital end, or where I play, which is the long-term real asset investment space.”

O’Leary said there was a “conundrum” around natural capital in that it is still a nascent asset class everywhere in the world, with understanding of its potential and definition varying in different jurisdictions.

“Unfortunately, it looks a little different and sounds a little different everywhere around the world. And so it’s actually very difficult for a fiduciary to get their head around how to underwrite risk in this space.

“But I think we sit here today at a pretty exciting time in terms of capital availability, if we can solve some of these problems.”

Macquarie Asset Management has been shifting its focus in the agriculture investment space, with O’Leary adding ‘natural assets’ to her previous job title of head of agriculture since the start of 2021. This forms part of moves to build out a broader natural assets investment platform with investments in forestry, water, carbon credits and biodiversity credits under consideration, Agri Investor understands.

It has also been building a team in the US, hiring Eric Hallstein, former head of impact management at NatureVest (The Nature Conservancy’s impact investing division) as a managing director based in San Francisco.

The firm manages several Australia-focused farmland funds and has secured multiple commitments from the Clean Energy Finance Corporation to work towards decarbonization and emissions reduction across its agriculture portfolio. The most recent of these was a A$75 million ($48 million; €48 million) commitment to the open-end fund that owns Paraway Pastoral Company.