The cleantech sector soiled a lot of people's portfolios during the market crash. Then again, so did just about every other asset class. But while the sector has rebounded from the March 2009 lows, the bellwether index tracking the space hasn't kept pace with the overall markets.

The closely watched WilderHill New Energy Global Innovation Index (NEX), comprising 88 companies listed on 24 exchanges globally, gained 38.7% in the one-year period ended March 31. The index contains companies focused on renewable energy, conservation and efficient resource use.

During that period, the MSCI World and S&P 500 indexes jumped 52.4% and 49.7%, respectively.

While some publicly traded cleantech, or greentech, companies have rebounded, others remain massively below their 2007 market highs--former solar darlings Suntech Power Holdings and SunPower Corp. are painful examples-and conjure memories of the boom-and-bust days of the dot-com era.

Among many institutional players, the buzz from the peak days of the "green" movement has given way to a collective yawn.
"There's a problem here, and I'm not denying it," says Peter Fusaro, chairman of Global Change Associates in New York City, a consultant on climate change, clean technology and renewable energy. "Investor interest has lagged. In my opinion, they [fund managers] are more interested in distressed assets and the oil and gas market, which they understand a lot better than this sector."

Big investment bucks from hedge funds and private equity funds help goose the cleantech market. But only 15 fund managers participated at the 9th annual Wall Street Green Trading Summit held in late March in New York City. Two years before, the conference attracted 79 fund managers, says Fusaro, whose company organizes the event.

Fusaro believes the cleantech sector has been hurt by a variety of factors including lack of financing, a weak IPO market that doesn't provide exit strategies for investors in privately-held companies, and public companies that haven't yet grown in scale.

He says dried-up financing has hit wind power and other renewable energy sources particularly hard. "Wind has died down," he says. "How's that for a bad pun? But it'll come back."

Why is cleantech attracting less institutional interest? Fusaro says a big reason is that the United States doesn't have a carbon trading market. Carbon trading, also known as cap and trade, has been operating in the European Union since 2005. If done right, proponents say, carbon trading could fill government coffers with billions of dollars from the sale of pollution credits designed to cap carbon emissions. But Europe's system thus far has been dogged by improper execution, fraudulent claims and other problems.

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."

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