Private market portfolios flying blind on extreme weather
Asset owners with private market allocations face a black box as more than half of private market managers do not perform climate stress tests
As far as the financial materiality of extreme weather goes, El Niño 2026 is a turning point. Not only is it unusually intense, but it also sits against a backdrop of rising inflation and widespread fiscal headwinds.
In response, asset owners such as the UK’s Pension Protection Fund (PPF) have engaged with fund managers on the risks posed by extreme weather. While demand for testing portfolios against climate scenarios is rising, private market managers are lagging.
Longview Networks Insurance Investment Forum | 20th January 2027 | London
New research from investment consultants XPS found that 56% of private market managers do not perform climate stress tests on their portfolios.
Private climate stress
The research was published as part of XPS Group’s annual investment fund ESG rating review. In 2026, the review covered 146 funds across 40 managers.
The review comes at a time when the world’s largest investors are eyeing up opportunities in private markets. From Singapore’s GIC and America’s CalPERS to Britain’s Mansion House Accord signatories, portfolios are embracing the lure of private assets.
“I have had a number of conversations with our internal portfolio managers who look after our EMD allocation, to understand what we can do to monitor or scenario-test our exposures”, says Claire Curtin, PPF’s head of ESG and sustainability. The PPF recently assessed physical risk exposure across listed assets for the first time, and the conversation is moving into private territory.
“It’s definitely on our radar”, says Curtin, when asked if El Niño 2026 had a role to play.
Weather visibility
Alex Quant, head of ESG research at XPS, says the gap in private market climate stress testing is concerning on two counts: increasing exposure and long-term horizons.
“The lack of climate stress testing is worrying, particularly for private markets where holdings are typically long-term. There’s a risk many investors do not have a good understanding of how their portfolios will behave in a world of more frequent climate shocks and a disruptive economic transition”, he warns.
Private market managers have often pointed to information constraints on climate risks. Additionally, compared to listed peers, privately owned companies are subject to lower disclosure. Where information does exist, comparison is a tough sell.
Quant’s reckons the information lacuna problem is losing its power as a justification.
“This isn’t a data problem – climate scenarios are readily available, and private market managers have detailed access to their underlying holdings, in terms of geography of physical location and sector exposure, which should make it possible for them to stress test performance under different climate scenarios”, he explains.
With asset owners looking to grasp financial risks posed by extreme weather and private managers falling behind on climate stress tests, the pressure on the latter is set to rise.
“Asset owners need to engage with their private markets managers to hold them to account and see what progress can be made to embed climate stress testing into ongoing portfolio management”, Quant recommends.
