Carbon Cap Management, a London based environmental asset management firm has launched the World Carbon Fund, a globally diversified fund investing into multiple liquid and regulated carbon markets. The Fund pursues an absolute return strategy, seeking to deliver positive returns with a low correlation to traditional and alternative asset classes as well as a direct impact on climate change. The fund will invest into and trade liquid carbon allowance certificates, carbon futures and carbon options.
Carbon Cap has conducted proprietary research into carbon markets including a research paper “The Carbon Risk Premium” which analyses carbon as a liquid and investable asset class. This research highlights that carbon has generated attractive historical returns with little correlation to other asset classes making it potentially attractive as an addition to a diversified portfolio. Carbon Cap forecast that carbon prices will trend higher over the coming decade in line with research on carbon pricing done by the IEA and renowned economists Nicholas Stern and Joseph Stiglitz.
Increasingly, asset managers and asset owners including pension funds are focusing on climate change risks within their equity and bond portfolios. Carbon Cap believes that a well-managed exposure to carbon could provide a hedge for some of these “hard to measure” and “hard to manage” risks.
Cap and Trade Emissions Trading Systems (ETS) are widely regarded as being successful at reducing carbon dioxide emissions and, reflecting this, are now spreading to multiple countries around the world. These markets place a cap on total emissions and lower the cap each year while allowing market participants to trade carbon thereby setting a market price. The major carbon markets are large and liquid having traded more than $250 billion in 2019. In addition, a liquid carbon price can provide a stimulus for the development of new low-carbon technologies and businesses.
Michael Azlen, Founder and CEO at Carbon Cap, says: “We believe that carbon has now emerged as both a valuable policy instrument and an investable asset class that has attractive properties for investors. Our outlook for carbon prices over the next decade is very positive, however carbon markets can exhibit high volatility driven by a range of “market based” and “policy based” factors. These unique factors create opportunities to add value from fundamental research, active risk management and alpha generation strategies.”
