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Playing Offense in the Net-Zero Transition

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Stockholm (HedgeNordic) – The world’s adoption of cleaner energy had been ongoing prior to Russia unleashing war in Ukraine. The war and its consequences demonstrated the urgency of accelerating the energy transition, kicking clean energy transition efforts into higher gear. After three years of running an energy transition-focused market-neutral fund, Joel Etzler and Vidar Kalvoy from Coeli are going on the offense. The duo is launching a more long-biased long/short equity fund focused on renewables named Coeli Renewable Opportunities.

With the transition to clean energy expected to generate more value creation than destruction in the renewables space, a long/short equity vehicle is better positioned to generate attractive risk-adjusted returns than a market-neutral one. “While the environment for a market-neutral strategy might be more attractive than at any point in the past 15 years, we see better opportunities for a longer-biased long/short equity fund,” says Kalvoy. “To be able to focus on the strategy we believe in the most, we decided to liquidate the market-neutral fund,” adds Etzler.

“While the environment for a market-neutral strategy might be more attractive than at any point in the past 15 years, we see better opportunities for a longer-biased long/short equity fund.”

“In the new fund, it will be much easier for us to express long-term views on stocks,” according to Etzler. While the market-neutral fund focused on the entire energy spectrum, the soon-to-be-launched fund will focus solely on renewables. “We focus on the whole ecosystem around decarbonization,” reiterates Etzler. “While investments into fossil fuels will also accelerate in the next few years, we are much more positive on the sustainability of investments going into renewables and decarbonization.”

Unprecedented Capital Reallocation

“We have been optimistic about the renewables space for a long time, even before launching our energy transition market-neutral fund in mid-2019,” says Kalvoy. “With the climate crisis now accompanied by an energy crisis, our optimism about the renewables space has increased further.” Annual clean energy investments worldwide will need to increase many-fold to move the world to net zero by 2050, with this unprecedented capital reallocation bringing massive value creation – and destruction.

“With the climate crisis now accompanied by an energy crisis, our optimism about the renewables space has increased further.”

The duo is launching the long/short equity fund with a net exposure between 40 and 80 percent to capture some of that value creation – and destruction. The investment process is centered around a top-down analysis of supply and demand in the different sub-sectors in the renewables space, complemented by a detailed bottom-up analysis to identify companies with and without competitive advantages. The fund will keep 25 to 50 names across the entire portfolio of long and short ideas.

“We are going to pick the winners in a booming industry with a tremendous amount of CAPEX coming,” starts Kalvoy. “Then we are going to find the losers to short them. When too many companies start chasing the same demand, not everyone will succeed. We are going to take advantage of that,” points out Kalvoy. “And third, we are going to use our 40 years of financial markets experience to adjust the gross and net exposure.”

“We are so bullish on the renewables space that we don’t want to be allowed to go to zero exposure,” emphasizes Kalvoy. “We all know that you lose too much if you miss those five trading days in a year when the turning points are happening,” he adds. “It is also useful for investors to know they are buying an exposure toward renewable energy.”

“We are so bullish on the renewables space that we don’t want to be allowed to go to zero exposure.”

Etzler and Kalvoy have been increasingly optimistic about the pace of the energy transition. “While achieving the energy transition is extremely challenging, both energy security and energy transition are now at the top of the agenda for most countries in the world,” says Etzler. The Inflation Reduction Act in the United States, for instance, is one of the most significant pieces of legislation encouraging investments in renewable and clean energy projects. “When you see the EU looking for alternative sources of energy, the US Inflation Reduction Act passed into law, and now potentially the EU copying this legislation, it just proves the anchoring of this boom has strengthened in the last couple of years.”

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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