Private equity and venture capital firms are paving the way for clean tech. These firms together poured $8.4 billion into clean tech ventures last year-up 38% from $6.1 billion in 2007, despite the credit crisis and broadening recession, according to the investment research firm CleanTech Group. And 2009 statistics look even more promising.
How best to play this asset class if you're looking for alternative investments for your clients' portfolios? You can pursue several routes.
One is to invest in private equity funds that finance clean tech enterprises. For sure, it is difficult for the average retail investor to invest directly in these funds, primarily because of their high minimums or the need for an investor to be accredited.
An easier way may be through the stock of a publicly traded private equity firm. Several dozen such global firms invest a portion, albeit small, of their capital in green tech. These include well-known firms such as KKR Private Equity Investors LP, Blackstone, Apollo Investment Corp., and BlackRock Kelso Capital Corp.
Advisors such as Matthew S. Hammer, executive vice president of Rosenzweig & Associates Wealth Management Group LLC in Media, Pa., have decided the risks are worth it. The risks are mitigated, Hammer points out, because many publicly traded private equity firms are well-diversified across a range of industries and ideas, which reduces the propensity for an investor to place a bet on one technology. "Even though they may be 3% invested in green tech, the other 90% provides sound, diversified investment behavior," he says. A further attraction: They also pay income and often throw off a high yield, ranging from 1% to 5%.
"These businesses are followed by large Wall Street investment houses; they're very liquid and transparent," says Hammer. "The private equity firms have a responsibility to report on companies. They have to file many more documents with the SEC than several years ago when they were privately held."
If you invest through these funds, keep in mind you're getting exposure to many other opportunities besides green tech. If you're looking for more of a pure play you may wish to invest in a mutual fund that focuses just on this area.
Investors can get exposure to the space but in a broadly diversified fashion through the Listed Private Equity Fund (LPEFX), a pure play mutual fund that invests exclusively in listed publicly traded private equity firms. Launched Dec. 31, 2007, the fund has total assets of $75 million. Top holdings include KKR Private Equity Investors LP and Conversus Capital LP.
"We've seen a nice bounce in these companies from their March lows. A lot of that is due to the closing of the valuation gap between where these companies trade on the open market and the net asset value of their business," says Corey Dillon, vice president and director of advisory services at ALPS Advisors, based in Denver, Colo., which oversees the fund.
Another fund worth considering is the New Alternatives Fund (NALFX), a growth fund with $260 million in assets that invests in the whole spectrum of alternative energy, including solar, wind, hydro, the electric grid and energy conversation. Founded in 1982, the New Alternatives Fund is the oldest alternative energy fund in the U.S. David Schoenwald, a founder with his father, Maurice, is principal manager of the fund.
Two other funds that invest in clean tech are the Winslow Green Growth Fund (WGGFX), with $270 million in assets, and the Winslow Green Solutions Fund (WGSLX), with $35 million in assets. Both are aggressive growth vehicles with respectable returns. Winslow is a separate management division of Brown Advisory Investment Group, based in Baltimore.
Bruce W. Fraser, a freelance financial writer based in New York, is a frequent contributor to Financial Advisor magazine. He can be reached through email at [email protected]. Visit him at www.bwfraser.com/home.