Fund targets new markets in green risks

March 27, 2011 - PRLog -- Focus on the future: Simon Wright, Markets Management executive of Birchall McCallen Fund Management, expects to see outsized gains in the near-term production of uranium.

INVESTING in the long-term potential of alternative energy sources such as solar and geothermal power is rapidly gaining popularity if capital raisings are any guide.
With governments taking steps to curb corporate activity deemed environmentally unsustainable, investors such as Simon Wright are also betting on the emergence of new markets with more immediate returns.

Wright, who is a Markets Management executive of Hong Kong-based Birchall McCallen Fund Management, hunts for firms that are vulnerable because managers have ignored environmental risks or have failed to prepare for stiffer regulations, particularly those related to climate change.

US home-builder Technical Olympic USA is currently Wright’s favourite stock to "short", a market activity that contributes to and profits from a sliding share price.
So far, that gamble is paying off. Crumbling US demand for new housing and worries about the company's construction in areas Wright says are "either drought-prone or flood-prone" have sent shares down almost 80 per cent over the past year.

"You've got to have a clear shot that they've got a real problem in their business, and the climate risk adds to the unattractiveness," Wright said. "No one in their right mind wants to buy an asset in areas that won't be habitable in 10 years."
Wright, 47, concedes that "the short side of the climate story is not really upon us", with private equity firms posing among the biggest threats for investors punting on a company's shares tumbling because of environmental risks.

"I view parts of the aviation industry to have extreme risk," he said. "But with the QcrBanks (Quarie Bank) and private equity guys running around, it hasn't been a profitable area to even think about being short."
Hong Kong International Airport, for instance, appeared to be "a great short", he said. The airport relies on long-haul traffic, with Germans among those debating the carbon costs of intercontinental flights. It's barely above sea level, and management doesn't see they have a risk, he says. Still, the stock is up 13 per cent this year in part because of expectations that traffic will expand.

A firm's energy intensity gives investors one guide to future vulnerability, Wright says. Refiners, cement-makers and shipping companies are among those likely to face hefty bills to refit operations to cut energy use and related emissions. The timing of such changes will hinge on which governments move first.

In coming months, Birchall McCallen will begin tapping investors in Europe for a new fund that will have a €1 billion ($USD1.46 billion) capacity.

The Carbon Management fund will later be sold in the United States and is likely to be offered to Asian investors by the end of July.

The fund's focus will be mostly on longer-term investments, with about 40 per cent to be earmarked for uranium production, particularly from mothballed mines in the US. A similar amount will target upgrades for electricity grids, and the remainder pollution control, he said.

"The most out-sized gains I see are in the near-term production of uranium," he said. "I can see opportunities there that could be 10 to 40-times our investment."

"I don't want to own companies that are supposed to have massive growth some time later," he said.

http://www.birchallmccallen.com