Disruptive and wonky, PACE operated at the intersection of finance and policy. Although residential PACE boomed in California, it’s struggled to expand much further amid a yearslong fight with a federal housing administrator and allegations that the program is susceptible to abuse. It’s now being marketed in California and Florida to create resilience to hurricanes and other weather events. PACE for commercial properties, meanwhile, has become a popular program in more than a dozen states—especially for older buildings. Today, Tannenbaum is also working to support Puerto Rico’s expansion of emission-free power in the wake of Hurricane Maria.
He says his proudest climate-related accomplishment came in 2017. Three years earlier, Tannenbaum had championed a move by Fir Tree to save U.S. solar company Silverado Power from bankruptcy by merging it with another company he thought could better manage its growth. The new company, sPower, had about 50 megawatts of projects under development. By the time Fir Tree sold the company in mid-2017 for about $1.6 billion in cash and debt, it was one of the biggest solar companies in the U.S., with 1,300MW of operating assets and a pipeline of developments totaling 10,000MW, enough to power about 1.8 million homes.
It was a rare solar-power success story from a financial point of view. Many earlier stars of the industry created wealth by listing their companies on stock exchanges, only to lose it when the shares dropped. Shi Zhengrong, for instance, rose to become one of China’s richest people through the rapid growth of Suntech Power Holdings Co. Forbes estimated his wealth at $2.9 billion in 2008. The company’s 2013 bankruptcy erased most of that. Li Hejun’s rise and fall was even more dramatic: His stake in Hanergy Thin Film Power Group Ltd. was worth about $15.4 billion before a collapse in its stock price in 2015.
Despite sPower’s rapid growth, Tannenbaum pushed for a careful approach to its expansion. “We lost some auctions by 30 to 50 percent,” he says. “We didn’t rationalize acquisitions.” When investment bankers armed with briefing books pitched an initial public offering for sPower’s power plants, he ultimately said no. He resisted doing residential solar because of the heavy cost to acquire customers. While he tried to imbue Fir Tree with his climate concerns in other ways—the firm’s Midtown Manhattan office, he says, exceeds LEED Silver standards—“I ultimately concluded that it wasn’t enough for me.”
At Titan Grove, he’s focused on young, principally private companies that need guidance with strategy and business planning. “In some ways, this is harder,” he says. “It’s different muscles than the last 10 years at Fir Tree, when I was much more in a management role. It’s more akin to the muscles I used building sPower and PACE.”
The firm is drawing on lessons Tannenbaum learned from his mentor Jerry Kohlberg, a leveraged buyout pioneer who co-founded KKR & Co. Kohlberg preached the importance of aligning corporate ownership and management. (Tannenbaum says Kohlberg, who died in 2015, in turn derived part of his thinking from Adolf Berle and Gardiner Means’s 1932 The Modern Corporation and Private Property, which warned that managers who aren’t large shareholders might not act in stockholders’ interests.) With Titan Grove, Tannenbaum expands that principle to include other stakeholders. “It means when making board decisions you have to consider four things: shareholders, employees, the community, and the environment,” he says.
That approach will be more appealing to the next generation of wealthy investors, Tannenbaum says. The reason is simple: They’re interested in social justice and the environment. “They’re living the negative consequences of having unsustainable capitalism,” he says. “So they’re more on board with moving our nation and globe towards sustainable capitalism.”
This article was provided by Bloomberg News.