This month’s newsletter analyzes the response to the BP oil spill in the Gulf of Mexico, solar energy developments in Europe, growth in Chinese and Indian carbon emissions as well as growing corporate awareness of sustainability and the business bottom line.

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This month’s newsletter takes a close look at the oil spill disaster in the Gulf of Mexico, recent solar investments in Asia and the Middle East, the U.S. climate bill as well as the worsening global water crisis.

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This month’s newsletter takes a close look at President Obama’s show of support for the U.S. nuclear energy industry, China’s growing energy demands and increased investment in smart grid technologies, as well as other headlines from the global energy sector.

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Opalesque Exclusive: Highlight on energy (5) – Earth Wind and Fire Fund aims for uncorrelated portfolios in volatile sectors

From Kirsten Bischoff, Opalesque New York:

The philosophy behind investing in energy and resources is a simple one for Anric Blatt and Lauralouise Duffy, founders of Global Fund Exchange, the growing number of people around the globe is putting stress on the resources of our planet; smart investing in energy, clean energy and natural resources can drive positive environmental change and positive profits.

There are many factors placing stress on our resources, two of the biggest are population increases and development as the global economy reaches undeveloped nations.

- With the population growing by approximately 79 million every year, energy consumption in the developing world will overtake the amount consumed by the developed world in 2015. That’s a mere five years from now.
- As nations and economies develop over the next 25 years, global energy demand is estimated to increase by almost 60%.

Industry in transition
“We are in a bridge period,” Blatt says, regarding global efforts to change energy consumption habits. With traditional energy usage pegged at 96% and alternative energy hovering at only 4% (not to mention the slow pace of environmental regulation in many countries), change is going to be gradual.

“So we’ve come to this bridge period where traditional energy starts to become cleaner or more energy efficient, and where alternative energy becomes more cost efficient,” he says. “For those with a vision, these are really exciting times. This global energy transition offers the most significant investment opportunities my generation has ever seen. We’ve pioneered the concept of ‘Investing in the Bridge’ to take advantage of these profitable themes.”

Where is the money flow?
Deciding that the energy and natural resources space would provide opportunity to both invest in a positive future for the world and a profit, Blatt next determined on a strategy. Venture capitalism is high risk, and the firms with access to cash flows are not the small, emerging firms, but listed, public companies with access to stimulus money and targeted government-driven investments in the environment. Private equity difficulties include liquidity mismatches.

Tracking capital expenditures around the world is something the team does very carefully. Denmark, for example, has focused on wind technology, Germany and Spain on solar, Italy on solar and geo thermal, and South Korea has spent immense amounts of money on smart grid technology. China has recently surpassed the U.S. in allocations to smart grid technology.

“At the end of the day, all that funding goes into public markets,” he says. “So we made a conscious choice to find the best niche managers around the globe and run with them what is an energy hybrid portfolio.”

Targeting opportunity
New York-based Global Fund Exchange manages The Earth Wind & Fire Fund Ltd. with a mandate to utilize a diversified global macro, multi manager investment approach to investing in the world’s premiere specialists in all areas of the new energy revolution.

The fund focuses on clean energy, traditional energy, water, natural resources, carbon and agriculture, and then adds a hedging strategy to all of these to reduce both volatility and market-related risk. The focus of the fund crosses so many areas of energy because as Blatt points out, everything is interconnected.

“In order to produce energy you need water and in order to produce water you need energy. To convert commodities into a usable, commercial format you need energy. To convert energy into a usable format you need natural resources. Everything is interconnected and all of these things have climate implications.”

Building an uncorrelated portfolio in a volatile sector
Investing in any single area of the “Energy” space has two distinct risks: market exposures, especially during the financial crisis, have created additional volatility; and the risk of investing in a single sector where everything is correlated. To manage these risks one of the main focuses for the team is in calculating, tracking, and building a non-correlated portfolio.

Perhaps the best way to break down the portfolio is in terms of the three major working parts that it is comprised of. Investments have been identified as sensitive to equity markets (clean energy, water, and agriculture investments) and sensitive to commodity markets (energy, carbon, and natural resources). A third group of strategies, those that work to take the volatility out of the prior two groups are the trending and alpha strategies (systematic trading, a hedge portfolio, and a cash portfolio).

This focus on non-correlation within the sub-portfolio has seen the overall portfolio make solid gains during the three years since its January 2007 inception (annualized gains are +14.22%, with only three down months).

Private money is taking stakes in the future of the planet
While government spending in many countries has started to focus on alternative energy, there is additionally a shadow network of private money that has started to heavily invest in the space. Both environmental philanthropists and large businesses are positioning themselves with large stakes in this still-burgeoning industry.

“It has been a wonderful experience to focus not only on the profit aspect of business, but also on the impact of our actions on the planet and its people. Hence our philosophy – People, Planet, Profit.
Part Six: next Friday.

Part one (Tiburon: Wind and solar won’t save the world, hence the renaissance of nuclear) can be found here,

Part Two (ARP: Now we can all hedge power exposure intelligently) here,

Part Three (Rampart bets on UK power) here, and

Part Four (FoHFs Culross looking for lower vol hedge funds) here.

Thank you for using Opalesque,
Matthias Knab
Founder and Executive Editor
Opalesque Ltd.
+49-89-2351-3055
www.opalesque.com

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A monumental shift is taking place in the debates over energy and climate change. Nowadays nobody is asking whether clean energy should be adopted or whether climate change is really happening. Every country in every region is enthusiastically searching and adopting renewable energy as they are convinced of the impact of indiscriminate fossil fuel burning on the environment and climate,’’ Olafur Ragnar Grimsson, President of Iceland said in his keynote address at the concluding  session of the Summit.

“The humanity is facing a financial crisis, a humanitarian crisis emerging out of the lack of means for subsistence for vast sections of people and an ecological crisis. Renewables have an important contribution to make in addressing all these forms of crises,’’ Prince Albert Alexander, Louis Pierre of Monaco, Marquis of Baux said in his keynote address.”

Global Fund Exchange hosted an information booth at the 2009 World Future Energy Summit, presented by Anric Blatt, Lauralouise Duffy and Sachin Hirani

Day 1 Newsletter Handed out to delegates

Day 2 Newsletter Handed out to delegates

Day 3 Newsletter Handed out to delegates

Click on the thumbnail picture to view this video

Advances in Technology will make conventional energy generation cleaner & more efficient whilst making alternative energy more money efficient. A Paradigm shift is occurring, but it will be an evolutionary process converting the planet to renewable resources. This Bridge period presents the best opportunity that our generation has ever seen.

Presented by

Lauralouise Duffy, CEO -

Global Fund Exchange

Annual compound return remains at over 14% p.a. at a volatility of less than 4% p.a. with 89% profitable months.

Below – please find the attribution of December’s performance

For further information on the fund, please contact us by clicking here. Please note that our funds are available to accredited investors or qualified purchasers only.

Please click here for the latest PDF version of our newsletter “Investing in the Future of Energy” with a special focus on the Copenhagen summit

Global Fund Exchange is proud to be a signatory of the United Nations Principles for Responsible Investing (PRI), an investor initiative supported by more than 650 institutions representing in excess of $18 trillion in assets.

We believe that environmental, social and corporate governance (ESG) issues can affect the performance of our business and investment portfolios, and it is increasingly important for the investment community to align its goals with the broader aims of society.

Global Fund Exchange is committed to applying the Principles for Responsible Investment to all of our business and investment decisions in line with our fiduciary responsibility to our clients.  We are proud to join with our fellow Signatories in this historic effort to promote responsible investment.

To learn more about the UN PRI Initiative and how you and your organization can join the effort, please visit the UN PRI Website.

To learn more about Global Fund Exchange and its investment philosophy, please visit our website – click here