Fri, Jul 10, 2020
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Carbon Cap's World Carbon Fund wins Amsterdam AIF Factor prize

Thursday, February 06, 2020

Matthias Knab, Opalesque for New Managers:

The 9th ABN AMRO Amsterdam Investor Forum (AIF) organized by ABN AMRO Clearing on Feb. 5th 2020 saw once more five alternative investment funds competing to deliver the "most convincing" 3-minute pitch to an audience of 250+ professional investors and managers. Delegates then cast their votes, selecting the most convincing pitch as the 2020 AIF Factor winner.

The following five funds were shortlisted:

  • World Carbon Fund, Carbon Cap Management LLP
  • NN (L) Multi Asset Factor Opportunities, NN Investment Partners
  • VOC Fonds, Stuiver Asset Management B.V.
  • Systematic Alpha FX Master Fund Ltd., Systematic Alpha Management, LLC
  • Tages Paladin UCITS Fund, Tages Capital

Carbon Cap Management's World Carbon Fund, represented by Founder and CEO Michael Azlen, won the competition with a clear margin. The fund is currently in its final launch phase and will invest across multiple liquid compliance carbon markets. The management and investment team comprises a combined experience of more than 75 years across investment management, energy and carbon market proprietary trading and global carbon pricing policy design and analysis.

Azlen believes that the outlook for carbon prices over the next decade is very positive, however, carbon markets can exhibit high volatility driven by a range of "market" and "policy" factors. As such, his fund will deploy two complementary strategies: "Core Long" and "Alpha Strategies". The Core Long strategy will generate returns from a rising carbon price combined with disciplined risk management. The Alpha Strategies will generate returns from arbitrage and relative value strategies deployed across physical carbon, futures, and options.

Carbon markets have expanded globally and now trade more than $1 billion per day and are liquid and transparent as well as highly regulated. Azlen pointed out that the World Carbon Fund will not trade in the Voluntary carbon market as it is much smaller in size and does not have daily liquidity.

Carbon Cap has completed proprietary research on carbon as an asset class and has determined that carbon has no correlation to traditional and alternative asset classes and has been generating high annualized returns over the past 7 years since the signing and ratification of the Paris Agreement.

In addition, alpha opportunities exist due to the unique nature and structure of these markets and Portfolio Manager Nigel Felgate PhD, has been trading carbon very successfully over the past 15 years for major US banks.

How carbon markets address an important market failure

Climate change and carbon emissions are a good example of what is known as a market failure since the market is not functioning to maximize the welfare of society as it does not factor in the damage caused by carbon emissions.

It is generally accepted that the best way to correct a market failure is to place a price on the externality that reflects the true cost. In the case of climate change, this requires putting a price on a tonne of carbon that reflects the real cost to society. This cost is sometimes referred to as the "social cost of carbon" and by some estimates ranges from $10 to up to $5,000 per tonne of emissions.

Cap and trade carbon markets have been a successful policy tool to reduce carbon emissions and facilitate the achievement of the Paris Agreement goals to limit global warming to well below 2 degrees. These markets place a cap on total emissions in a region and the cap is reduced annually providing environmental certainty on emissions reductions. Covered entities can trade emissions allowance certificates, and this trading activity ensures that the emissions reductions are achieved at the lowest possible cost.

Successes with Emissions Trading

One of the earliest success stories for cap and trade was the system implemented in the USA in 1990 to curb sulphur dioxide (SO2) emissions that were causing acid rain. The Clean Air Act amendments of 1990 aimed to slash annual SO2 emissions by 10 million tonnes, out of the total 26 million tonnes being emitting mainly by 3,200 coal plants. The government freely allocated emission allowances and then let the companies decide how to trade them in order to meet the requirements under the new, much lower cap on total emissions. Between 1990 and 2004, SO2 emissions from the power sector fell 36%, even though total energy output from coal-fired power plants increased by 25% over the same period. By 2010, total emissions had fallen to only 5.1 million tonnes, a reduction of 81%. The program was so successful that Harvard University produced a full report highlighting the successes and what was learned.

In Europe, the EU Emissions Trading System "ETS" was established after the success of the US system and is also considered to be a success. Since its implementation in 2005, annual emissions have declined by approximately 1 billion tonnes or 29% while real GDP grew by 8% over the same period. The EU has one of the lowest per capita emissions in the world and the emissions per unit of GDP continue to fall.

Azlen added that his firm is fully committed to "market-based" solutions for climate change that will assist in the capping and reduction of emissions, both directly and indirectly. As the fund grows, it will hold more Carbon, taking this supply out of the market and assisting in providing a strong carbon price "signal" to the market. Secondly, Carbon Cap has committed 20% of the performance fees generated to the purchase and permanent cancellation of carbon allowances/offsets, thereby achieving a direct climate impact.

As an example of the impact, Carbon Cap has calculated that a $1 million investment in the World Carbon Fund could eliminate 200 tonnes of carbon per year based on achieving a 10% net return. This is approximately 30 times the carbon footprint of the average European.

Michael Azlen is building this firm based on his 25 years of industry experience, including the founding, growth, and sale of a regulated investment management business to a public company. Since the beginning of 2018, he has been researching climate change and environmental investment and has focused his research on carbon pricing and Emissions Trading Systems (ETS). Carbon Cap has written an academic paper "The Carbon Risk Premium" which will be shortly published in an academic journal. |

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Coronavirus crisis: PE industry mulls more realism and longer holding periods[more]

    Laxman Pai, Opalesque Asia: More realism, longer holding periods and an advantage for investors with a long-term focus - these are the main changes that investment managers in the German private equity market expect as a result of the coronavirus crisis. The PE transaction activity is not exp

  2. Multi-strategy hedge funds post double-digit gains, Tiger Global, Coatue score double-digit fund gains in 2020, Lone Pine soars after losses earlier this year, Can Pershing Square's standout year continue?[more]

    Multi-strategy hedge funds post double-digit gains From FT: Large multi-strategy hedge funds have posted double-digit gains for the first half of the year, reversing losses from March, as markets defied the economic downturn brought on by the coronavirus pandemic. Citadel Advisors

  3. Tech: Pandemic boosts digitalisation across the fund industry, The India-China bust up and what it may mean for tech, Machine learning goes global[more]

    Pandemic boosts digitalisation across the fund industry From International Investment: The pandemic has certainly accelerated change and digitalisation in ways that we never imagined, including the funds industry in Luxembourg. Business Continuity Planning and Disaster Recovery Pl

  4. New Launches: Hedge fund Marshall Wace will bet on ESG stocks with new $1bn fund, Stafford Capital raises initial $532m for ninth timberland fund, Nalanda Cap eyes $800m fund, China's Unity Ventures hits first close on US dollar fund[more]

    Hedge fund Marshall Wace will bet on ESG stocks with new $1bn fund From Forbes: Hedge fund Marshall Wace plans to raise $1 billion for a new fund that will invest in stocks with strong environmental, sustainability and governance (ESG) ratings while betting against stocks with poor rating

  5. PPP: Troubled firm Marto Capital asked for PPP money - and got approved, records show, Fallen hedge fund's head among money managers getting PPP relief, Wall Street investors scored emergency government loans amid pandemic, The asset managers approved for PPP money[more]

    Troubled firm Marto Capital asked for PPP money - and got approved, records show From Institutional Investor: Marto Capital - a former wunderkind founded by an ex-Bridgewater Associates star - got approved for emergency funds from the U.S. government, records showed Monday. Katina Stef