Canadian hedge fund seeks carbon profits
06 May, 2009
Blue Marble Capital Partners Limited (BMCPL) has launched a hedge fund to invest in securities set to benefit from the “global transition towards carbon-constrained societies”, including carbon credits.
The Carbon Alternative Fund Limited Partnership will look for opportunities to invest in carbon instruments, including allowances for the EU Emissions Trading Scheme and Clean Development Mechanism credits, as well as emissions units in future carbon regimes.
Investment manager Trevor Giles told Carbon Finance that his current fundraising target is C$50 million-100 million (US$43 million-85 million).
“The partnership will invest in primary and secondary carbon instruments in order to take advantage of perceived value imbalances, pricing differentials, event probabilities and long-term price appreciation,” the offering document says.
British Columbia-based BMCPL will act as general partner. The firm was set up specifically to manage the fund, although it is also at the early stages of developing a ‘carbon bond’, said Giles, who is also managing director of BMCPL and its sister firm Blue Marble Capital Management, a private investment manager founded in 2000.
Giles said that the limited partnership could be described as a “conservative hedge fund” – it will leverage up to 25% of its total capital, and use investment techniques such as short-selling. This is conservative, he said, compared to some hedge funds which have been leveraged to 1,000 times their capital. “We’re not cowboys,” he added.
The fund will invest globally, but it is only open to Canadian residents living in the provinces of British Columbia, Alberta and Saskatchewan, and international investors “as long as they are allowed to invest in a foreign fund according to the securities laws of their jurisdiction”. US residents will not be able to invest.
It will look for opportunities in commodities, particularly to take advantage of “transient adjustments and demand for different commodities” as the economy shifts to being more carbon-constrained. For example, said Giles, it could invest in oil contracts, on the view that it is unlikely oil prices will stay low considering the predictions of the International Energy Agency. Or, instead of investing in specific thin film solar companies, the fund could invest in the raw material used by many manufacturers, indium.
But the fund will also invest in private and public clean technology firms and ‘corporate sustainability leaders’, or firms who are changing their behaviour in anticipation of emissions caps, carbon taxes, mandatory renewable energy targets, resource constraints or rising energy prices. Around 50% of the fund’s capital will be put into sustainable investments, with the remainder in carbon-linked investments.
According to the offering document, the fund will also invest in ‘special situations’ which promise above-average returns. For example, Giles said, the fund might invest in trading seats on exchanges. He noted that the cost of a trading seat on the Climate Exchange has risen from around US$14,000 at launch to US$135,000 last year and, in the event of the US introducing a federal greenhouse gas cap-and-trade system, a seat could be worth “a few million dollars”.
Investors can buy securities in the fund, initially at C$10.00 a unit. After the first close, on 1 December 2009, securities will be offered at net asset value.
