Hedge Funds See Carbon Opportunities

Rapidly developing carbon trading markets are creating a range of promising opportunities for hedge funds to participate in this new sector, says a report from Man Investments, the world’s largest provider of hedge fund investments.

Carbon markets, already trading significantly, have sprung up as the result of measures taken to reduce carbon emissions, such as the sale of carbon credits. The European Union’s Emission Trading Scheme last year saw financial volumes on exchanges and through brokers totalling EUR 14.6 billion, about three times the total for the previous year.

Thomas Della Casa, Head of Research for Man Investments and one of the authors of the report, says that, based on these opportunities, hedge funds have introduced, or are working on, new investment strategies, including: trading emissions, financing carbon projects, trading electric power, cross-commodity trading, long/short listed equity and private equity.

The report, An Update on the Carbon Market, is published in Man Investments’ April Quarterly Review, which examines developments and trends in the hedge fund industry. It observes that putting a value on emissions has now become mainstream financial thinking.

"Carbon trading is emerging as one of the most significant new sectors for hedge funds and we can expect continued rapid growth, particularly if the US and China in due course join in and establish their own carbon markets, as is widely anticipated," Della Casa said.

Man Investments, the Asset Management division of Man Group plc, is a global leader in the fast-growing alternative investments industry. It manages over $61 billion and employs more than 1,300 people worldwide. Man Investments has key centers in London and Pfäffikon (Switzerland), and offices in Chicago, Hong Kong, the Middle East, Montevideo, Nassau, Sydney, Tokyo and Toronto.