Hedge funds: Green trimmings
Climate Change Capital: Towards a carbon hedge fund
Clean Energy Asset Management: Focusing on renewable energy
BioFinancial Corp: Creating new markets to trade in
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“We’re not looking to quantify the social aspect of our business” |
Impax Asset Management has 13 years of experience in environmental finance. Since early 2003, its long-only funds have produced average annual returns of 20%. The firm also has private equity investments in environmental projects. In May 2007, the firm opened its first hedge fund, launching the Impax Absolute Return Fund. “We’d been long-only for many years, and we noticed that stocks in our sector and the related energy and utilities sectors were becoming fully valued or overvalued, and, therefore, made good short candidates,” says Ian Simm, CEO of Impax.
“From a hedge fund perspective, as environmental stocks become larger and more liquid, they become more appropriate for shorter-term trading strategies. And if you have an information edge, and a specialist strategy, this long/short space is ideal.”
Although most hedge funds investing in environmental technology stocks will claim some moral aspect to what they do, Simm says Impax is agnostic. “We don’t screen, and don’t claim to be ethical investors. We’re not looking to quantify the social aspect of our business. But our starting point is that we see environmental technology stocks as a good opportunity on the long side for investors because of their growth characteristics.”
Impax’s strategy differs from that of Clean Energy Asset Management (see following page). The Impax fund looks to go long companies that are making money from selling environmental technology, and to short companies that might suffer because of their detrimental impact on the environment, such as fossil fuels, gas and other utility and energy companies. “For example, we may go long a solar energy stock and short a company selling coal-fired generation equipment,” says Simm.
The fund invests globally (with a European bias) and typically in medium-sized companies. In the pure environmental technology sector, Impax has a universe of 500 names to choose from, plus about 1,000 in utilities, energy and infrastructure.
Investors are attracted to the fund’s exposure to environmental stocks, says Simm, because they view this as a new area that is not well covered. “I think it is an area where a manager who knows what he is doing can create significant alpha. It is about picking the right stocks and getting the right net exposure. Specialists can really add value.”
The fund has produced positive returns since its inception, in spite of the widespread declines in global stock markets in June and July.
