Nonetheless, Fusaro and others believe regulated carbon trading is vital to cleantech because it provides a framework for carbon reductions.
"I think it [carbon trading] is the Holy Grail for the price of carbon," Fusaro says. "Without a material price for carbon, you don't get investment dollars. Regulatory uncertainty begets financial uncertainty."
Growth Opportunities
Cleantech might be down, but it's not out. In fact, far from it, if predictions come true. According to numbers gleaned from various sources by the hedge fund Green Science Partners LP, the cleantech sector in aggregate is expected to grow 20% to 25% annually during the next five to ten years, or ten times the projected annual growth rate of 2.5% to 2.7% for the U.S. gross domestic product during this time frame, as forecast by the Federal Reserve.
Anticipated growth rates during this period range from geothermal (50% to 100%) and solar (25% to 30%) to electric vehicles (18% to 20%) and water technologies (8% to 10%).
"A lot of these sectors have gone through a boom/bust period, and certain companies will survive," says Chris Tagatac, chief marketing officer at Stamford, Conn.-based Green Science, which runs a cleantech hedge fund that's a hybrid of public and private companies. The fund's current investment minimum is $500,000 for institutional investors, but Green Science may lower that to attract high-net-worth investors. He says they're seeing increasing investor interest from family offices.
Tagatac says Green Science Partners is essentially a long/short equity fund, but investors can choose to opt into private deals that run parallel to the public side, which provides more liquidity and an ability to hedge with "green" ETFs. The private side is much less liquid, but "that's where much of the value in this space seems to reside," he says.
Tagatac says his company is most excited about electric vehicles, which it considers a misunderstood market with plenty of upside. And he notes that federal money earmarked for renewable energy spending has finally started flowing, particularly in popular areas such as wind and solar.
From an investment perspective, though, Tagatac says valuations in the wind and solar sectors are too high. "Areas like electric grid, electric vehicles, biomass and others have reasonable valuations--sometimes below cash value," he says.
Keep Those Shorts Handy
Some cleantech opportunities might not be the most obvious ones. Abby Laufer, CEO of Virid Capital, a cleantech-focused hedge fund in New York City, says that U.S. utilities could profit from greater use of electric vehicles and by playing a big role in vehicle-to-grid technology.
"Electric charging stations will be critical," says Laufer, who manages the Virid Eco Fund, a long/short, global public equity hedge fund. "This is where public companies could have a big impact."
Laufer notes that Pacific Gas and Electric Co. and Xcel Energy are two big players in this space.
Half of the Virid Eco Fund is invested in U.S.-based companies, and all companies included in the fund need at least 35% of their revenue derived from renewable energy. And short strategies play an important role.