Environmental Enthusiasm

"We think tremendous opportunities exist for at least the next couple of decades," says Richard Bookbinder, managing member of New York-based Bookbinder Capital Management LLC and its affiliate TerraVerde Capital Management LLC. The latter manages TerraVerde Capital Partners LP, a fund of funds that invests solely in green hedge funds. 

Bookbinder admits it's gotten very challenging to be invested in this area at a time of global economic slowdown, Washington gridlock and cutbacks in environmental financing by the U.S. and European governments. But capital setbacks notwithstanding, a fast-growing global population will have no choice but to address shortages in energy, food and water, he says. 

"The good news is companies around the globe are really picking up the slack," says Bookbinder. Even without government funding, he expects to see much more entrepreneur activity. What's more, sustainable clean tech is still in its infancy in the U.S., he says.

The TerraVerde fund, launched in 2009, has roughly 20% of its assets in water-related investments, says Bookbinder. Its underlying hedge funds also have exposure to wind and solar power, agriculture, fuel cells, biodiesel fuel and other sectors related to reducing the carbon footprint. 

Bookbinder can't mention specific funds that TerraVerde is invested in but says these funds have held positions in leading alternative-energy companies such as Johnson Controls (a maker of energy-efficiency components for buildings and autos); First Solar (which makes low-cost solar panels and photovoltaic systems) and Cree (which produces energy-efficient LED lighting). He stresses these are not recommendations. 

Bookbinder says the TerraVerde fund was in positive territory in 2011 while there was a 50.5% decline in its peer index, the WilderHill Clean Energy Index (ECO). "We're happy to have preserved partner capital and to have delivered some alpha at the same time," he says.

One factor that he says helped was the use of a long/short equity strategy, which is well suited to the clean energy sector. "There are going to be lots of winners and losers," says Bookbinder, who notes consolidation has already begun in the solar industry. The firm also puts much effort into research, quantitative analysis and the ongoing oversight of the underlying funds.

Bookbinder is spending a lot of time researching hydraulic fracturing, or "fracking." "The issue is far from being clear," he says. "It could be the greatest thing since sliced bread or the next environmental nightmare." He's visited wells in Pennsylvania and recently attended a class there on water testing. "Ten people were there-nine water engineers for CE credits and me," he says.

TerraVerde's underlying funds may also use arbitrage with hydroelectric power, electricity and carbon emission trading, predominantly with European carbon credits.