The Green Advisor: Green Hedge

“We’ve spent an extended period of time in understanding what’s taking place in the whole supply chain, the whole value chain of green and clean investing,” Bookbinder explains. His conversations have been with people in the political arena as well as those playing in the private equity and venture capital fields.

Another thing that helped convince him was that he saw a shift in investor philosophy toward climate change taking place as he talked with advisors, high-net-worth individuals, and family offices. “They’re very keenly aware of the issue of climate change and global warming and want to do something, and this is a way to participate,” he says of his own fund of funds. “This is a way to make money in the equity portion on longs as well as to make money on shorts from companies that may obviously have bad product introduction, bad management teams, or just simply don’t have enough funding.”

Then there’s alternative energy and green stimulus money. “In the last nine to 10 months or so, global governments have spent about $2.7 trillion on stimulus packages,” Bookbinder notes. “Of the total stimulus about $500 billion globally has gone into clean tech, clean energy, and renewable energy. That money is now starting to make its way, in the case of the U.S., from the Department of Energy into the hands of entrepreneurs who are developing some sort of a process, a product or a service to reduce carbon footprints.” (See Green Energy Gets Green Light sidebar.)

“We think these are all reasons why people should be looking at this strategy as one in which they can make money,” he says.

Not for Everyone

Of course, hedge funds are not for most of the average advisor’s clients. TerraVerde requires a minimum investment of $1 million and has a 1% management fee and a 10% performance fee. For those who want to add some green to their portfolios, Bookbinder notes that there are numerous mutual funds and ETFs with compatible strategies. “One of the indices that we follow very closely is the Wilderhill Clean Energy Index (ECO),” he reveals. (The PowerShares WilderHill Clean Energy Portfolio (PBW) is an ETF that seeks to mirror the performance of the index. There are also futures on the index offered by the Chicago Climate Futures Exchange.)

From Bookbinder’s perspective, the potential to make money from green investing is huge. He cites reports that the economy is starting to improve and that industrial production is starting to pick up. He sees the economies of China and India as remaining strong in the coming years.

“We believe that over the next 10 to 20 years, there are going to be increasing shortages of water,” he adds, touching on another part of TerraVerde’s strategy. “The reason is simple–global populations are growing. People need water. They might not need alcohol and they might not necessarily need ethanol or gasoline, there might be substitutes for that, but they do need water. With growing populations we think that our strategy is well positioned to be able to participate. Water is a critical ingredient of what we invest in.”

Just like anyone else that talks about climate change or global warming, Bookbinder has run into his share of skeptics. He says he tells them, “I’m not a scientist, I’m a financial services professional, but there are an awful lot of strange things that are going on out there in the environment. What I do know is a) water, they don’t make it anymore, b) we’re running out of space, and c) eventually we’re going to run out of fossil fuels, so it’s time to step up to the plate.”

While interest in the green sector continues to grow, Bookbinder thinks we ain’t seen nothin’ yet. “I like to think of it as the newest of the emerging markets,” he says using a baseball analogy to explain. “We’ve asked several of our managers and other people in the hedge fund space, ‘Where are we, in the top of the first or the bottom of the first?’ The answer from several is simple, ‘We’re still filling out the scorecard.’ We think that it’s still very early on in this to participate. These problems aren’t going away. Period.”