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Private equity to boost clean tech investment recovery

Despite the recent slump in clean tech venture capital investment, the long-term outlook for the sector remains remarkably upbeat, according to new research from analyst firm Preqin.

The study found that while levels of private equity clean tech investment have fallen this year, there are still growing numbers of investment funds showing an interest in the market.

According to the survey, the number of funds globally with a clean tech focus quadrupled between 2004 and 2008 to 117 different funds, while the number of funds solely dedicated to clean technologies also grew dramatically from just nine funds in 2004 to 39 funds last year.

Growing numbers of venture capital firms are using the recession to refocus on clean tech investments, and as a result the sector will continue to grow rapidly over the next five years, the report added.

"Despite the slowdown in the global economy, this sector seems set to continue its growth with a total of 78 clean tech-focused funds currently in market seeking investment," the report noted. "It is likely that we will see a record number of funds commencing investment in the clean tech sector during 2009, both in terms of solely clean tech-focused funds and in terms of funds that include clean tech among a number of industries they invest in."

Report author Tim Friedman said that with environmental concerns entering the business and political mainstream, investors were increasingly aware of the long-term returns offered by clean tech firms.

"The growth in the private equity clean tech market ties in with the increasing consumer and investor awareness of climate change and environmental issues, growing levels of regulations and incentives provided by national governments and the ever-increasing global demand for energy and improvements in technologies within the clean tech sector," he observed.

"These factors have assisted in improving the potential profitability of the market, with increasing numbers of private equity and venture capital fund managers seeing suitable opportunities opening up for investment, and a high proportion of investors in private equity now seeking to gain exposure."

The report also highlighted the global nature of the clean tech sector, noting that while 45 per cent of funds are based in North America, 36 per cent are based in Europe and 19 per cent in Asia and the rest of the world. "Clean tech research and development may have its origins in the US, but these figures show that it is increasingly becoming a global sector," the report noted.

However, despite the strong long-term prospects for the sector, recent figures show that the global economic downturn is having a significant effect on current levels of clean tech investment.

Analyst firm the Cleantech Group showed that venture capital investment in clean tech firms in North America, Europe, China and India fell 48 per cent year-on-year during the first quarter to $1bn (£604m).

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