BNP Paribas Asset Management has launched the BNP Paribas Environmental Absolute Return Thematic (Earth) Fund to professional investors in Hong Kong and Singapore.
The fund, which is in Ucits format, is a global long short product that invests in various environmental themes, according to Edward Lees, co-manager of the Earth Fund.
Lees and co-manager Ulrik Fugmann were hired by BNPP AM in September to develop the Earth strategy, Lees told FSA recently, noting that this will be the firm’s first long short product with an environmental focus.
Both Lees and Fugmann have been working together for 20 years. Before BNPP AM, they co-founded thematic boutique asset manager North Shore Partners, which was subsequently acquired by London-based alternative asset manager Duet Group.
At Duet, they served as co-chief investment officers and managed a natural resources fund. Before North Shore, both worked at Goldman Sachs. Both managers are supported by a quantitative specialist, who was also hired last year.
At the time of their hire, however, the firm also saw an opportunity for the duo to take over the firm’s oil and gas-focused product to transform it into the Energy Transition Fund.
“The investment of the old strategy were things that we do not touch, and the performance of that fund had been really bad,” Lees said. The Energy Transition Fund invests in companies that engage in energy transition, such as renewable and transitional energy, energy efficiency and the electrification of transportation.
The fund had been underperforming both its benchmark and sector in Hong Kong for the past few years, according to data from FE Fundinfo. However, Year-to-date, the fund is up 40%, which compares with the negative returns of its sector peers and benchmark.
The Energy Transition Fund’s discreet calendar year returns
| Fund / sector / index |
YTD 2020 |
2019 | 2018 | 2017 | 2016 | 2015 |
2014 |
| BNP Paribas Energy Transition Classic Cap EUR in US |
40.27 |
2.55 | -23.24 | -1.98 | 30.69 | -24.74 |
-21.43 |
| Sector : HKM Equity Energy TR in US |
-9.01 |
11.77 | -20.5 | 3.94 | 13.98 | -21.89 |
-9.86 |
| Index : MSCI World Energy 10/40 GTR in US |
-34.21 |
13.31 | -15.67 | 6.26 | 28.82 | -22.85 |
-11.28 |
Source: FE Fundinfo
Lees explained that the newer Earth Fund will be similar to the Energy Transition strategy. However, it has a broader environmental theme and will include other themes such as waste disposal, sustainable forestry and water and ocean health.
Long short features
Another difference is that the Earth Fund is a long short product.
“It will be less volatile than the Energy Transition strategy. But at the same time, its return target will also be lower, at around mid-to-high single-digit returns because it is an absolute return vehicle,” Lees said.
Lees explained that the fund’s long short features are for two purposes, which are hedging and for generating alpha.
“We can hedge to reduce risks, which could be futures on indices or sector swaps to reduce sector exposure. We can be looking for ways to offset some factors if we want to offset a size, growth or value factor,” he said.
When it comes to generating alpha, Lees said that the fund can take short positions on companies with unsustainable or technologically inferior business models vulnerable to transition risk.
“We can short companies that are dirty. What we know is that trillions of dollars are going to be spent on helping to grow environmentally friendly industries as the world goes through this energy transition.
“Some industries will be disrupted, such as diesel, coal, oil or gas, and here we can look for some shorts to create alpha from these shrinking industries.”
