Ecosystem Investment Partners is targeting $650m for its latest environmental restoration strategy that targets wetlands, streams and endangered species.
This article was originally published on Agri Investor.
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Ecosystem Investment Partners has reached a first close on $235 million for its fifth fund, for which the Baltimore, Maryland-headquartered firm is seeking $650 million to support its US mitigation banking strategy.
AP Pension said in a statement that it had joined fellow Danish pensions Laerernes Pension and Sampension in collaborating to pledge $160 million to Ecosystem Investment Partners V, which was launched in March.
The fund will continue EIP’s focus on investments in environmental restoration of wetlands, streams and endangered species habitats in projects used to produce credits that meet requirements created by the US Clean Water and Endangered Species Acts to offset the environmental impact of new infrastructure, industry or property.
EIP co-founder Nick Dilks told Agri Investor the unnamed LPs in the first close on $235 million included endowments, pensions, and individuals. He said recent attention to the potential of natural capital in private markets has helped boost interest in his firm’s long-established strategy.
“It’s widely recognized that these environmental markets are one of the legs of the stool they want to be involved with,” he said. “There’s also a wide recognition among smart institutional investors that, for better or worse, what we do in the mitigation space is highly technical, very unique and really hard to replicate.”
EIP was established in 2006 and in addition to its environmental offset business, the firm also undertakes regionally significant restoration projects in co-ordination with local governments under a pay-for-success model that involves fixed payments.
It closed its fourth fund on $454 million in early 2020 after attracting investors that included the New Mexico Educational Retirement Board, the Los Angeles Fire & Police Pension System and Washington State Investment Board, which also committed $100 million to a co-investment vehicle managed by the firm.
EIP head of investor relations Catherine Carmen told Agri Investor commitments to Fund V have come amid growing efforts in Europe to replicate the markets created by the US Clean Water Act and Endangered Species Act that have historically been the focus of the firm.
“We have investors that are investing in this strategy for very different reasons,” said Carmen, who assumed a newly created position as head of investor relations at EIP in September 2022 after seven years at T Rowe Price, according to her LinkedIn profile.
“The Europeans are addressing biodiversity mandates and looking for non-concessionary returns that also ‘do good.’ US pension funds are traditional natural resources and real assets investors looking for totally uncorrelated returns to what are traditional natural resources buckets or highly levered infrastructure.”
Dilks said most of EIP’s investors have allocations to natural resources and are
well-established in timber, ag or both asset classes.
“While mitigation markets are quite different, there is a fundamental understanding of rural real assets, how land use works, the role of property. It’s a quicker uptake for folks that are already doing those types of investments in the real assets space, versus those who are really new to how real estate works, how development happens and how big the country is,” he added. “When the inevitable opportunity or challenge comes up, those investors are really valuable to us to be able to look to for good collaboration and partnership.”
Dilks added that despite fears about the durability of wetlands regulations and potential for changes to the laws on which the environmental offset market depends, demand for mitigation has been unwavering.
“The practical reality is we will always have this mix of wanting development
we want schools, highways, reservoirs and copper mines – but we also don’t want to affect the environment. We want clean water. We want open space. We want endangered habitat to thrive. What mitigation markets do is provide a very efficient way to achieve that compromise,” he said. “People buy these credits because they have to, not necessarily because they want to, or they taste good.”
EIP managed $972.6 million as of December 2023, according to a March filing.