Merzbach Launches Carbon Hedge Fund

Apr 9 2008 | 2:00am ET

New York-based Merzbach Group is raising capital for its latest hedge fund, which will focus on the carbon market.

Merzbach's carbon finance strategy seeks to provide capital and services to projects generating carbon assets, according to founder Claude Devillers.

"Our main strategy has been to structure the downside in the emerging and growing market predicated on the assumption that we have an embedded upside in our products in the form of a coupon at Libor +3-4% and warrants in the form of credits ad minima," said Devillers. "The most important thing to this business is structuring the downside risks, so we work hard at applying techniques derived from project financing. By limiting the downside to about 5% and having a substantial upside, we offer a compelling proposition to investors."

He noted that the carbon market is currently valued at about $7 billion and will grow again dramatically within the next five to 10 years. He said firms like Merzbach that can "provide a real service to those who create the underlying carbon attribute and understand the risks associated with the physical assets" will stand to profit handsomely from the burgeoning market.

Devillers is currently in the process of gathering assets from investors and already has about $20 million in soft commitments. He is looking to launch the yet-to-be-named fund with $40 million to $50 million and is aiming to raise about $100 million overall.

The fund has a lockup of between 18 months and two years and charges a 2% management fee and a 20% incentive fee.

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