Hank Paulson Returns To Wall Street To Run ‘Climate-Focused’ PE Fund

Since overseeing the near-destruction of the global financial system, former Treasury Secretary Hank Paulson has kept a low profile, appearing in public every now and then to laugh in the face of worsening economic inequality – “We made it wider!” – or bemoan the deteriorating US-China bilateral relationship.

But from here on out, the public might be seeing and hearing more from the septaugenarian who once ran Goldman Sachs, before he was tapped to run the Treasury Department by President George W Bush.

As NYT editor and CNBC host Andrew Ross Sorkin reported on Wednesday, Paulson has been tapped by – of all people – U2 frontman Bono to lead a new climate-focused investment fund at private equity firm TPG Capital. The 74-year-old will now return to the private sector for the first time since leaving Goldman in 2006.

Here’s more from the NYT:

This past fall, Henry M. Paulson Jr., the former Treasury secretary, got a call from Paul David Hewson, better known as Bono. The musician-activist-investor had an idea and “an ask”: Bono, who helped found TPG’s $5 billion Rise funds focused on “impact investing,” told Mr. Paulson that the investment firm wanted to create an even bigger platform to focus exclusively on combating climate change — and he wanted Mr. Paulson to run it.

Mr. Paulson, who has spent the last 12 years since leaving his post at the Treasury away from the private sector running his nonprofit institute and working on climate change initiatives, demurred.

“He told me, ‘My dance card is full,’” Bono said of the call. “I thought he’d be amazing,” Bono added, but said he’d been warned by Mr. Paulson’s associates, “There’s just no way.”

This week, after months of calls and meetings that followed with Jon Winkelried, TPG’s co-chief executive – Mr. Paulson’s friend and former colleague when he ran Goldman Sachs – Mr. Paulson will become the executive chairman of a new global fund, TPG Rise Climate.

But why tap Paulson for such a role? As it turns out, the former Treasury Secretary has dedicated himself to combating climate change via various nonprofits over the past decade or so. Paulson and TPG co-founder Jim Coulter said their goal with the fund is to “to make investments in climate that are as profitable as any other kind of investment.”

Paulson plans to dedicate roughly 50% of his time to this new role. Right now, he’s focused on meeting with power players around the world to try and drum up some investment for the fund. But given all the hype around ESG investing, we suspect Paulson won’t have much trouble recruiting investors.

Unsurprisingly, when prodded to offer up an example of a successful ESG investment, Paulson pointed to Tesla. But unless Paulson plans on dumping the fund’s money in OTM $TSLA calls, he will need to find some other ESG-focused companies who are still in the early stages of running their business.

The early returns from TPG’s existing Rise funds — $2 billion of which are in climate-related investments — appear to suggest that socially responsible investing can be just as profitable as other approaches. Mr. Coulter said that with the reduction in the cost of solar energy — for example, bringing it to parity with the cost of building a new gas plant in some places in the United States — the opportunity to make attractive new investments has fundamentally changed. He said he was seeing similar opportunities in electric vehicles and the energy grid that powers them, in agriculture and in consumer packaged goods.

In the public markets, investors are throwing money at companies like Tesla and others that have positive environmental, social and governance models. However, there is not enough of a pipeline of climate-focused businesses ready to go public, Mr. Paulson said: “We need more high-quality investment opportunities from private equity investments that have the potential to become scalable public companies.”

Asked by Sorkin to explain why he thought Paulson would be best suited to lead such a fund, Bono explained that his years of work combating global poverty and AIDS have taught him that sometimes you need “the unusual suspects” to come in and do things differently.

Bono said of his new partnership with Mr. Paulson, “My work on global poverty and then the AIDS fight taught me that we don’t just need the usual suspects, we need some ‘unusual suspects,’ if you like, and some unexpected partnerships in the conversation as well.”

And just like that, Paulson has become the most important ESG investor in the world. Now, all he needs to do is hire Greta Thunberg as chief analyst.