Carbon Hedge Fund to Launch in Early 2009 |
Date: Friday, December 19, 2008
Author: Michael Szabo, Reuters.com
London-based CF Partners will launch early next year a new 50 million euro ($70.06 million) hedge fund aiming to profit from volatility in carbon markets. The European Union's emissions trading scheme may be a surer investment following final E.U. endorsement on Wednesday [Dec. 17] of climate goals reaching out to 2020, and recent volatility in commodities markets has opened shorting opportunities. "To date in the carbon space the majority of the players from a fund point of view have been long-only guys," said Simon Glossop, one of CF's founders. "That's been a workable model up to this year, but carbon has now become an asset class in its own right instead of a compliance tool." The global carbon market, expected to be worth $100 billion this year, allows companies to trade rights to emit greenhouse gases blamed for causing climate change. The main participants are companies which need emissions permits to meet legally binding carbon caps, especially in the European Union's emissions trading scheme. The E.U. ETS launched in 2005, forcing big polluters including coal plants and cement makers to buy carbon permits. Recession has hit carbon prices closely linked to energy, with E.U. allowance prices halving since a peak of 29.69 euro this summer. The market also faces policy risk as the world struggles to meet a deadline to agree a new climate treaty next year. "The volatility around the market's policy risk is actually good for us from an investor point of view, so we encourage it," Mr. Glossop told Reuters. The fund will use a variety of trading strategies to take long and short positions both in EUAs and carbon offsets issued under the United Nations-run Kyoto Protocol called certified emissions reductions. Under Kyoto's Clean Development Mechanism rich countries can lay off their greenhouse gas emissions and meet climate targets by earning CERs from investing in clean energy projects in developing nations. Mr. Glossop said the fund was investing in large hydro projects in China. The fund has a staff of 10 in London, with another employee on the ground in China originating deals. The fund could grow to 250 million euro, but still needs to secure initial investment. "It's a very interesting and developing market … and treating it in a more sophisticated manner is attractive to us, and I think increasingly there will be more competitors doing the same," said Mr. Glossop, who expected similar funds to launch in the United States. The United States lacks a national emissions trading scheme but President-elect Barack Obama made that a campaign promise. Minimum investment in the CF fund is 125,000 euro. "It's aimed at institutional investors, professional investors and high net worth individuals," Mr. Glossop said. CF also provides advisory and brokering services. By Michael Szabo
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