Carbon Capital Markets Launches First Private Equity/Hedge Fund

Mar 8 2007 | 2:40pm ET

U.K.-based Carbon Capital Markets, a carbon emissions trading and asset management firm, recently launched its first fund, the Carbon Assets Fund. The private equity/hedge fund invests in underlying projects that generate carbon credits. The fund lives up to its hedge moniker by issuing monthly NAVs.

The fund’s initial investments are in landfill gas and methane recovery projects in Latin America and North Africa.

“There is a general assumption that this new Certified Emissions Reduction is cheaper to produce in developing countries because they’re generally less efficient and have lower costs to capital,” says Lionel Fretz, CEO. “We obtain the rights to extract the methane form Latin American and North African landfills and then put in place contractors to manage the underlying activity.”

The firm sells the carbon credits from the underlying projects to buyers in the European Union marketplace. “We manage the issuance, approval, and sale of credits into the market. We have a trading desk here that talks to all of the installations covered by the EU trading scheme so they’re all natural buyers of the credits,” says Fretz. 

Since launch in November 2006, the fund has raised €25 million and is looking to close once it reaches €100 million. The fund was flat for the first few months of trading, but made its first gains last month, when it was up 7%, according to Fretz.
 
Fretz says hedge funds of funds, private equity funds and individual investors have been drawn to the new offering because “it is on the edge of a number of different structures.” He says some potential investors are waiting to see how the fund performs because the team has not proven itself yet.

“We’re first-time fund managers with something to prove in a pretty specialist area.”

Going forward, Fretz is banking on greater regulation of carbon emissions by policymakers to keep his fund in the black. “Therefore, if you’re a low-cost producer you’re always going to be able to sell into the European market,” he says.

The new Caymans-based offering charges management fees of 2% and performance fees of 20%. There is a €1 million minimum investment requirement. The fund has a one-year lockup period and investors are charged redemptions fees if they redeem the following year.


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