Energy Hedge Fund Goes Long (And Short)

Apr 22 2008 | 2:00am ET

Electranet Capital, a San Francisco commodity shop, has launched its maiden hedge fund, a long/short public equity portfolio.

Electranet Fund I will seek opportunities arising from developments in energy efficiency, storage and management, as well as electric infrastructure, according to John Morris, chief investment officer. 

"Our strategy is to invest in energy productivity and to monetize the constraints and arbitrages created by the movement toward clean energy," said Morris, a former energy analyst and trader with Sempra Energy Trading and PG&E. "My partner, Thomas McAndrew, and I have significant experience with the US electric grid and the North American energy markets. Logically, we will make investments where we feel we can leverage this core expertise. "

Previously, McAndrew founded and managed Enchanted Rock Energy, a $200 million energy hedge fund, and, less auspiciously, was a senior trader at Enron Corp.  from 1994 to 1997. Clark Thompson, head of research and former consultant to the National Aeronautics and Space Administration, Boeing, Lockheed Martin, and Rohm and Haas, rounds out the management team.

The fund will invest in companies experiencing exponential unit volume growth and rapid equity appreciation associated with smart grid development. It will hold 15 to 30 positions in energy equities, equity options and exchange-traded funds.

Morris said the a confluence of factors—including high energy prices, a declining cost curve for energy productivity technologies, growing support for clean energy programs, regulatory requirements for grid modernization, an awareness of the impending cost of carbon effluence and the general business case for cost savings during an economic slowdown—should put the new fund on firm footing.

"I believe we are only in the very early innings of this energy productivity opportunity and investors should expect this theme to yield significant returns over the next three to five years."

Electranet hopes to raise $350 million. The fund charges a 2% management fee and 20% incentive fee, and has a $1 million minimum investment requirement.

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