Boutique manager Hazel Capital has closed a hedge fund that it set up to take long and short positions in green energy companies. The decision to shut down one of the few remaining hedge funds dedicated to the sector comes amid a 35% drop in the value of clean stocks this year.
Ben Guest, the founder of Hazel Capital, notified investors in a letter that the $30m Santa Ana hedge find was to wind down. He said: “We have frustratingly observed that stocks with poor return on equity and high valuations have often outperformed stocks with high return on equity and low valuations, sometimes for extended periods of time.”
Santa Ana also found it hard to find shorting opportunities, with ratings so depressed, according to Guest.
Political wrangling has left the world without an effective replacement to the United Nations Kyoto accord, which limits some carbon dioxide emissions. Kyoto is due to expire in less than a year, with little optimism that a climate summit called for Durban can reach a meaningful agreement, amid concern over the global economy.
Christian Yates, a partner at Hazel Capital, agreed that the clean energy sector was out of favour. He said that because it has become starved of liquidity, rogue share price valuations have emerged: “There is a view out there that governments and phasing out feed-in tariffs for clean energy, whereas the opposite is the case.“
The specialist Nex index, which comprises clean stocks, had plunged by 35.6% in the year to date, further sapping sentiment, according to Yates.
Since inception in September 2007, Santa Ana has outperformed the Nex by 15 percentage points. But recent performance has not been encouraging. Following discussions with Santa Ana investors, Hazel Capital decided to give them a chance to transfer to its long-only fund, which it will continue to run alongside its venture capital funds.
Guest used to work for William von Mueffling’s fund boutique Cantillon Capital before starting Hazel. He said clean technology stocks are being valued at levels which are even lower than the trough seen following the collapse of Lehman Brothers: “Many key markets have reached grid parity meaning the sector now stand on its own. Global investment volume in clean technology has never been higher.”