Study: Investors Should Expect Growth of Clean Tech Private Equity

A study by Switzerland-based SAM shows that investors should target their investments to exploit growth in the clean tech private equity sector.

(June 22, 2011) — Clean tech private equity investment is expected to surge, according to a study by Switzerland-based asset manager SAM.

Its study — titled ‘Clean Tech Private Equity: Past, Present and Future’ — shows that the clean tech energy industry is poised to continue earning above-average growth. The drivers of that growing demand, the asset manager says, includes profits for higher cost competitiveness compared to conventional energy sources coupled with robust investor demand for clean energy solutions.

The report states: “Moves toward a more sustainable use of resources and energy have gained momentum, and several countries have assumed a pioneering role in this effort, often facilitated by incentive schemes. However, investors remain reluctant to invest in what they regard as a heavily subsidized industry.” Yet, the report also notes that clean tech sectors will gradually become less dependent on government subsidies, which could benefit private equity investors.

SAM’s study references a recent report by Mercer, which worked with 14 major institutional investors to conclude that over the next 20 years, the uncertainty surrounding climate policy and associated adjustment costs can contribute as much as 10% of the portfolio risk of a typical asset mix. According to Mercer, renewable energy-related private equity and infrastructure as well as venture capital and buyouts focused on low-carbon solutions and efficiency can help improve portfolio resilience.

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Without a doubt, institutional investors around the world have been more aggressive in keeping clean energy factors in mind when making investment decisions, Mercer Consulting’s Craig Metricktold aiCIO earlier this year. But, while there has been a greater recognition globally to reduce emissions, the United States is still lagging behind Europe, largely due to the less supportive regulatory environment in the US. According to Metrick, Principal and US Head of Responsible Investment for Mercer, one of the reasons that US institutional investors have not been as aggressive in investing in renewable energy compared to their European counterparts is because of a lack of legislation. “In Europe, there are certain regimes for reducing carbon emissions, fostering a better legislative environment, whereas the debate on climate change and renewable energy has been very politicized in the US,” he said. Nevertheless, Metrick acknowledged that the consultancy’s clients are generally investing more heavily in renewable energy and clean tech through private equity funds.

Adding further heft to the SAM’s findings, an additional survey conducted by Mercer and released June 13 — which studied pension funds, foundations, and investment managements firms — revealed that the majority of respondents saw global climate change as both a potentially significant investment risk and as an opportunity. Overall, the survey found that 98% of pension funds and foundations and 87% of asset managers believe that global climate change poses risks but also offers opportunities. It also found that 57% of pension funds and foundations and 80% of asset managers make specific reference to climate change risk in their investment policy.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

JP Morgan Settles SEC Charges of Misleading Investors Over Housing Market

JP Morgan has agreed to pay $153.6 million to settle US regulatory claims that it misled pension funds and other investors while selling a product linked to risky mortgages as the housing market crumbled.

(June 22, 2011) — The Securities and Exchange Commission has announced that JP Morgan will pay $153 million to settle charges of allegedly selling $1.1 billion in mortgage-backed securities that were designed to fail.

Following the financial crisis and housing collapse, countless other cases of alleged fraud and acts of misleading investors among the nation’s largest banks have been brought to light. Similar to suits against Goldman Sachs, Citigroup, and other US financial institutions, the case against JP Morgan encompasses an accusation that a hedge fund was seminally involved in the selection of the underlying collateral in the portfolio while simultaneously betting against it with a short position.

The US regulator asserted that as the housing market crumbled in March and April 2007, JP Morgan executives urged the marketing of Squared CDO 2007-1, a synthetic collateralized debt obligation (CDO) linked to a collection of residential mortgages, without informing investors that a hedge fund — Magnetar Capital — helped select the assets in the CDO portfolio and had a short position in more than half of those assets. Consequently, the hedge fund was positioned to benefit if the CDO assets it was selecting for the portfolio defaulted.

“J.P Morgan marketed highly-complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests,” Robert Khuzami, the SEC’s director of the division of enforcement, said in a statement. “What JP Morgan failed to tell investors was that a prominent hedge fund that would financially profit from the failure of CDO portfolio assets heavily influenced the CDO portfolio selection. With today’s settlement, harmed investors receive a full return of the losses they suffered.”

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The SEC release states: “The SEC alleges that by the time the deal closed in May 2007, Magnetar held a $600 million short position that dwarfed its $8.9 million long position. In an internal e-mail, a J.P. Morgan employee noted, ‘We all know [Magnetar] wants to print as many deals as possible before everything completely falls apart.'”

Instead of closing the deal, the SEC said the bank continued to pitch the failed product to institutional clients to avoid additional losses over its already $40 million mark-to-market loss.

J.P. Morgan sold the approximately $150 million of “mezzanine” notes of the Squared CDO’s liabilities to more than a dozen institutional investors. These investors, who lost nearly their entire investment, included:

  • Thrivent Financial for Lutherans, a faith-based non-profit membership organization in Minneapolis.
  • Security Benefit Corporation, a Topeka, Kan.-based company that provides insurance and retirement products.
  • General Motors Asset Management, a New York-based asset manager for General Motors pension plans.
  • Financial institutions in East Asia including Tokyo Star Bank, Far Glory Life Insurance Company Ltd., Taiwan Life Insurance Company Ltd., and East Asia Asset Management Ltd.

In a statement, JPMorgan said it was “pleased to have reached agreement with the SEC to put this matter concerning certain 2007 disclosures behind us.” In settling the US regulator’s fraud charges against the firm, JP Morgan agreed to improve the way it reviews and approves mortgage securities transactions, the SEC said.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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