Energy & Environmental
Hedge Funds
By Peter C. Fusaro
WE ARE NOW in the fourth year of the strongest energy commodity
TABLE 1: FUND DISTRIBUTION
market in history and continue to see the launch of many hedge
funds, each pursuing different market strategies. When we began
By Fund Strategy
tracking energy hedge funds in October 2004, there were 180 such
• Long/Short Equity 200
funds in our universe.
• Commodity 196
• Fund of Funds 46
As of August 1
st
2007, we now track 586 energy and environmen-
• Hybrid (Equity/Commodity) 44
tal hedge funds through the Energy Hedge Fund Center. According
• Alternative Energy 36
to our classification system, the funds are distributed as shown in
• Infrastructure 17
Tables 1 and 2.
• Water 2
The latest trends in new energy and environmental hedge fund • Shipping 4
launches are as follows:
• Unclassified 41
• Another round of commodity funds have been launched in the
Total 586 Funds
last few months. Many tend to be more broader-based than in
Source: Energy Hedge Fund Center LLC
simple energy while the reminder appear firmly targeted on
European regional energy markets. The New Flavour of Hedge Funds
• Fund-of-funds in natural resources and environmental markets Investors continue to clamour for
are in vogue and being created at a rapid pace. green investments, but the capacity is
• Water is increasingly a focus for funds with a small number being still limited. While untold billions are
launched in the last few months. waiting to be deployed in the clean
• Everyone wants to get into the environmental markets and we energy and technology sectors,
see funds being launched with different environmental spins hedge fund capacity is limited. The
across the spectrum (carbon being the dominant fund strategy). better strategy may be to deploy cap-
• Finally, commodity hedge funds are moving into the physical ital in increments as the market con-
side of the energy industry. tinues to mature. Otherwise, there
may be a tendency to deploy capital
Table 2 shows that North America and Europe continue to domi- in more risky strategies. Market
nate energy and environmental hedge fund activity, but we expect immaturity for all things green does
to see more funds in Asia in coming years. This is particularly true for not bode well for impatient investors
commodity hedge funds which are continuing to grow throughout clamouring for returns. Whilst we see
the world. green investments as an asset diversi-
Investors continue to clamour for green
fication strategy, investors must be
cognisant of the risks in this early
investments, but the capacity is still limited
stage emerging market.
The market size today for all environ-
Hedge Fund Trends mental financial commodities is only
Many of the best funds are full to capacity and are largely US$41 billion, but doubling every year.
becoming unavailable for new investment. This impacts fund-of-
funds investment as negotiated capacity rights are increasingly
TABLE 2: FUND LOCATION
needed to achieve superior returns. This problem will not disap-
By Fund Location
pear, as the proprietary trading divisions of investment banks used USA 384
to be the training ground for the next generation of hedge fund
UK 82
managers. This has been eliminated in favour of direct hedge fund
Canada 38
Switzerland 28
investment by the banks. While some future hedge fund managers
Norway 10
will be spun out of the top tier hedge funds, the numbers will be Holland 6
dwarfed by those that were lucky enough to be in formal bank Australia 6
training programmes.
France 6
The issue of fund-of-fund access will become even more important
Hong Kong 5
Others 21
in coming years. While there are several new energy and environ-
Total 586 Funds
mental fund-of-funds, the most established ones have been around
Source: Energy Hedge Fund Center LLC
for several years and have better access to fund managers.
COMMODITIES NOW SEPTEMBER 2007 61
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96