Hedge Funds Struggle as Green Stocks Crash
- The freezing of the IRA and rollbacks on climate policies are forcing hedge funds and pension funds to rethink their strategies.
- Green energy stocks have fallen to five-year lows, and a hedge fund founder declared the energy transition “dead for now.”.
- The growing divide in the investment world is forcing financial institutions to take sides.
Donald Trump’s second presidency has unquestionably upended the energy world—and the energy investment world. With the IRA in deep freeze and rollbacks of various climate change-related regulation, some of the biggest players in financial markets are feeling the heat. Hedge funds with a focus on energy have found themselves in a juggling act on a tightrope.
Bloomberg wrote this week that a lot of money managers were scrambling to strike the right balance between investors who were still insistent that emission-cutting commitments were priority number one and those who are accepting energy reality for what it is and seeking to replace those commitments with profits.
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Some pension funds in northern Europe, for instance, were discussing a pullout from the United States because of the Trump administration’s dismissal of the climate change fight, which those pension funds’ managements see as ignoring a substantial future investment risk, Bloomberg reported. Interestingly, British funds are doing the opposite, riding the wave of reprioritization to keep those investors who are in the game to make money rather than save the planet.
Some specific examples provided by Bloomberg include a Dutch pension fund, DME, that is reviewing a $5-billion mandate with Blackrock because its management feels the U.S. financial giant has stopped taking its transition ambitions seriously, jeopardizing the Dutch pensioners’ money. As the fund put it, “BlackRock’s diminishing ambitions in responsible and sustainable investing” were threatening the $5 billion.
Related: Chinese EVs Surge in Global Markets
Interestingly, BlackRock is also the central character of another investment review noted by Bloomberg, this time for its too big of a focus on the energy transition, as perceived by the investment fund—the state pension fund of Indiana. Because of that perception, which is the exact opposite of DME’s perception of the same investment bank, the pension fund of Indiana pulled its money out of BlackRock and put it in State Street.
The Bloomberg report comes days after the founder of a hedge fund specifically set up to invest in the energy transition declared the transition dead, “for now.” Speaking to Bloomberg again, Nishant Gupta, founder of Kanou Capital, said that “The whole sector — solar, wind, hydrogen, fuel cells — anything clean is dead for now,” adding that the fundamentals in the energy transition space were “very poor.”
Another recent report, this time by the Financial Times, strengthens the perception that not all is well with the transition and maybe the investment entities shifting their focus have a point. In that report, the FT said that green energy stocks had slumped to the lowest in five years despite an improving interest rate environment and continued strong government support for all things transition.
“Companies that we hold in the decarbonization sector have seen strong growth and stable returns, but they have underperformed in terms of share price,” the FT cited the chief of sustainable equity at Ninety One, Deirdre Cooper, as saying. “I have never seen such bearishness in terms of the valuation for companies with structural growth . . . The market is assuming no growth for decarbonisation [ie the sector],” Cooper added.
In the latest sign that a shift is underway in the energy investment world, Aviva Investors, a division of French insurance giant Aviva, revised plans to divest from companies that are, according to Aviva, not doing enough to decarbonize. The investment arm of the insurer cited a “very different macro backdrop” and the fact that “Concerns over energy security and economic recovery have come to the fore, which in turn has had an impact on the regulatory environment and trajectory of national decarbonisation plans.”
The energy transition was supposed to be strong, unstoppable, and accelerating. Instead, it is slowing down, despite the massive government support, and returns, where there were any, are down, too. As one executive from a French climate NGO told Bloomberg, “Financial institutions will need to pick a side.” Indeed they will—the choice would be between the side that makes money and the side that loses it.
By Irina Slav for Oilprice.com
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