The identification of green alpha and the ability to harness carbon beta will dominate super funds’ thoughts, and those of their managers, over the next two years.
Last week, just three days before the release of the Garnaut report on Climate Change in Australia, pension funds and a handful of managers discussed the detail of actual and proposed carbon-trading schemes at the second leg of AIST’s Global Dialogue conference in Sacramento, California. At the end of the conference, Garry Weaven, chair of Industry Funds Management, predicted that if Global Dialogue was to be held again in 2010 the one topic, which was certain to be discussed, was the development of an international standard for carbon trading. Earlier, Matthew Kiernan, founder of Canadian-based Innovest research firm, Winston Hickox, partner of California Strategies and former trustee of CalPERS, Susan Wood, chief executive of alternative fuel financier SCC Americas, and Bettina Redway, California’s deputy treasurer, discussed the possible pathways, investment risks and opportunities from the carbon reduction trend. California, along with several other US states, is developing its own cap-and-trade system, in the absence of any lead from the US Federal Government. A Bill before Congress proposing a national scheme – the Warner Lieberman Bill – had been abandoned last month until at least after the presidential election. California is also the leader in reducing energy consumption and has become a centre for research in alternative fuels. In fact, both Winston Hickox and Susan Wood suggested that the market for alternatives was looking a little “frothy” and there seemed to be too much money chasing too few investments. Private equity and some infrastructure managers and their clients were likely to be the big winners in funds management from start-up and second-phase alternative energy and technology developers. The European Emissions Trading Scheme, introduced from January 2005, was generally regarded as having had several major problems, the main one being that carbon credits were still being issued free (although the supply is being squeezed) and this would continue until at least 2013, when phase three of the scheme is due to start. The Garnaut report recommended Australia move to a 100 per cent auction system – effectively a carbon tax – and that this should happen in 2010, which is two years earlier than originally mooted.
Future Fund chief investment officer Ben Samild said that FY24 has been a great year for alpha creation, thanks to strong returns in equities and, unusually, across multiple hedge fund strategies all at the same time. He reflected the past few years have been “a difficult time to be an asset owner and to generate positive returns for risk assets” but the Future Fund is tracking well of its long-term mandate.
Simon Hoyle and Darcy SongSeptember 4, 2024
