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Sustainable Pension Funds

Written By Nick Hodge

Posted December 12, 2007

Since Sunday evening I’ve been at the greenXchange conference in Los Angeles, and I thought some of the things I learned here were definitely worth passing on. But before you jump to assumptions about the conference just because it has the word ‘green’ in it, allow me to interject.

Indeed, the conference was primarily geared toward renewable and clean technologies. There were, however, companies in attendance that normally don’t come to mind when musing over the green space. There was also talk of oil, coal and natural gas, and how they will continue to play a role as the world journeys ever closer toward a low carbon economy and the US meanders slowly toward attaining energy independence.

That said, the attendees and speakers at the conference looked more like corporate fat cats than tree-huggers, Birkenstock wearers or any other cliché you’d like to associate with environmentalism.

A prime example is Tom Soto, an activist turned private equity guru. Before he began spending his days investing millions in small cap clean-tech companies he was a devoted environmentalist. Now, with his chic black-framed glasses and designer suit, he’s betting that clean-tech will deliver hefty profits for his firm, Craton Equity Partners.

And he’s not alone. Session after session I heard tales of million and billion dollar private equity and pension fund deals, including major investments by the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS).

Those two funds, with $247 and $169 billion under management, respectively, are the two largest pension funds in the US and typically don’t take drastic risks with their investments. That should illustrate just how good of an investment the nation’s top money managers think clean-tech is.

In 2004, the two funds poured nearly $2 billion dollars into the industry, and they haven’t looked back. What started as an investment in California-based clean-tech companies and environmental initiatives has now spread to companies all over the US and the world.

Some of the nation’s other top pension funds, like the Los Angeles City Employees’ Retirement System (LACERS) and New York State Common Retirement Fund, also have large chunks of cash tied up in this space.

So you can see how renewables are fast becoming one of the most sought after investment categories in the pension fund world. This isn’t small time stuff.

And what I found so ironic is that the things these guys are talking about are the same things I’ve been telling readers of this site, as well as readers of Energy & Capital and Green Chip Review.

The kind of lucrative investments the big boys are going after aren’t pie-in-the-sky, unattainable ideals. In many cases their investments fall in the very sectors I discuss day in and day out. And, in some cases, their investments even fall in the same companies.

I can’t tell you how many times I heard panelists in the conference sessions describe the things discussed here in these very pages. Things like next generation biofuels, concentrating solar power, green building materials, water purification and desalination and, of course, the absolutely explosive carbon market.

In fact, I heard one of the boldest predictions to date concerning the carbon market while at the conference. Bryan Martel, Managing Partner at the Environmental Capital Group, said the carbon industry and related sectors represented a $150 trillion market opportunity.

Take a minute to let that sink in.

Martel based his prediction on the Socolow model of stabilization wedges. That model, which came out of a Princeton University study, asserted that the world needed to reduce its carbon emissions 1 billion tons per year until 2055. I assume he used a price of $25 to $30 per ton–the current rate in the European Union.

This isn’t a game, folks. There is no longer a debate. And I don’t want to hear anymore about a renewable energy bubble.

As Eric Wesoff of Greentech Media put it, this isn’t like the dot-com bubble, in which companies were extremely overvalued before the market realized that web-based retail sites were going to be a dime a dozen. It’s more like the stop smoking campaign that started in the 70s, whereby the country finally realized that smoking was causing serious health issues and something needed to be done about it.

The world has realized it has a serious problem. And the solutions to it are going to be providing profits for years to come–not only for funds and institutions, but to individual investors as well.

Until next time,

nick hodge