Investment Insights

Jeff Benjamin

Fund of hedge funds aims to profit from green movement

Bookbinder's TerraVerde to invest in clean-energy, clean-tech companies

Jul 31, 2009 @ 4:12 pm

By Jeff Benjamin

It was only a matter of time before the green-investing movement reached the hedge fund industry, and you can now credit Bookbinder Capital Management LLC with breaking the ice.

On July 1, the New York-based company launched TerraVerde Capital Partners LLC, a fund of hedge funds designed to take advantage of the various swings unfolding in the green-investing and alternative-energy arena. The fund, which can best be described as fledgling at this point, is expected to allocate assets to about a dozen underlying hedge funds that fit a broad definition of “green,” according to Richard Bookbinder, managing member of the firm.

“We're looking at funds that invest in anything that serves to reduce the carbon footprint,” he said. “Our managers are dedicated to trading companies involved in clean energy and clean technology, and all the strategies are interrelated.”

It is too early to know if investors will jump aboard such an unproved strategy, but Mr. Bookbinder insists that the market is ready, and he added that making money is still the fund's first goal.

“At the end of the day, investors' motivations won't be any different than ours,” he said. “We're both looking for positive returns.”

Mr. Bookbinder might be onto something, said Thomas Orecchio, principal of Modera Wealth Management in Old Tappan, N.J.

“We are getting a lot of requests from clients for this type of thing,” said Mr. Orecchio, whose firm oversees $420 million in assets. “Of course, we would be very cautious about moving into this space, because as long as fossil fuels are inexpensive, there's going to be very little money going into the development of alternative energy.”

Mr. Bookbinder, who spent two years developing the strategy, has identified more than 100 hedge funds that fit TerraVerde's investment profile. In doing that research, he sought input from money managers as well as from politicians, scientists and engineers.

While the underlying funds are not specifically sold as green, they fit the category because they provide exposure to everything from carbon emission credit trading to alternative-energy technology, Mr. Bookbinder said.

Citing public-disclosure restrictions related to hedge funds, he declined to reveal the underlying funds or the amount of money TerraVerde has raised.

The fund has a $1 million minimum-investment requirement and charges a 1% management fee, plus a 10% performance fee.

While Mr. Bookbinder expects the fund to appeal to investors with a passion for saving the planet, he said his main objective is to generate positive returns.

“I don't wear Birkenstocks, I didn't go to Woodstock, and I don't drive a Prius,” he said. “But as we look at the green space, we see tremendous opportunities.”

But even with a pragmatic approach to the green movement, Mr. Bookbinder isn't completely immune to the tree hugger movement.

“There's a real problem out there, and as the global economy starts to recover, there will be an increase in greenhouse gas emissions,” he said. “Climate change is a real game changer.”

Mr. Bookbinder also supports the controversial cap-and-trade legislation that is designed to limit carbon emissions through taxation.

“We think that's a positive for us because it calls into question what is going on on this planet,” he said. “That's what our strategy is all about.”

Part of that changing game is likely to include a flood of new businesses and industries expanding into the environmental and alternative-energy area.

And as in any developing movement, there will be winners and losers, which is where the investment opportunities reside, Mr. Bookbinder said.

“Short-selling opportunities will exist because many of these green companies are not going to make it, and that's why the opportunity to make money in this space is greater in a hedge fund format than it is in a long-only format,” he said. “We think we're going to find a real benefit by investing in these strategies.”

A new Investment Insights column appears every Monday on InvestmentNews.com. E-mail Jeff Benjamin at jbenjamin@investmentnews.com

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