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Willem Appel - CEO
Co-PM - Branta Solutions Fund
12 November 2010
Credit and SustainabilityTBLI Conference London 2010
Workshop 25: TBLI and Fixed Income
Roodhals Capital - Confidential 2
This document has been provided to you by the principals of Roodhals Capital B.V. ("Roodhals") forinformation purposes only.
Roodhals Capital B.V. and Stichting Bewaarder Branta Solutions Fund (Branta Solutions Fund, orthe Fund) are incorporated in the Netherlands and are specifically NOT authorised or regulated bythe Netherlands Authority for the Financial Markets, the Financial Services Authority in the UnitedKingdom nor by any other regulatory body in any other jurisdiction.
This document is for private circulation only. The information and opinions contained in thisdocument are for background purposes only, do not purport to be full or complete and do notconstitute investment advice nor the arranging of deals in investments. No reliance may be placedfor any purpose on the information and opinions contained in this document or their accuracy orcompleteness. No representation, warranty or undertaking, express or implied, is given as to theaccuracy or completeness of the information contained in this document and no liability is acceptedfor the accuracy or completeness of any such information or opinions.
This document does not constitute or form part of any offer to issue or sell, or any solicitation of anyoffer to subscribe or purchase, any investment or to provide services nor shall it or the fact of itsdistribution form the basis of, or be relied on in connection with, any contract therefore.Specifically, neither Roodhals nor its principals has provided you with this document for the purposeof soliciting any investment in the shares of any investment or service contemplatedherein, whether by you or any other person and any such investment can only be made on the basisof the full Information Memorandum of the Fund.
Characteristics of Sustainable Investment compared
3Roodhals Capital - Confidential
Screening based SRI
Risk Managed,Beta 1
Bias Opportunistic, Trend-based, Alpha
HY; L/S credit; capital structure arbitrage
TBL credit fund Cleantech loans and bonds
Exposure to Scalable solutions, all sectors
Index-plus Innovation, new industries
Likely credit quality
HG to HY and Loans HG HY, Loans
Scalability High, albeit research intensive
Limited by screening costs
Limited now, improving
Can a corporate credit portfolio be sustainable and profitable?
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Creditors dont own a company
Shareholders ownership rights create responsibility (UN PRI etc.)
Equitable subordination risk
Lenders: screening is crucial pre-funding, do not expect much protection from covenants
Bondholders/rating agencies: vulnerable to bad news
Make opportunity of sustainable development central thesis
Tendency to focus on downside risk of the unsustainable
Solutions based portfolio, including step-changes
Consider sustainability in all sectors and industries
Higher with screening-based allocation models (BP spill)
A green company is not necessarily a sustainable company
Rationale for credit
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General idiosyncrasies of sustainable investment1:
Status Quo: it takes a Herculean effort to displace existing technologies.
Scale: solutions need to be scalable to make a dent in most sustainability issues.
Size: the enormity of investment to achieve sustainability targets.
Speed: solutions should deliver returns in time: economic, political and ecological time.
Credit markets provides diversification of funding sources for sustainable investment
Sustainable investment offers positive dynamics for corporate credit over time:
Improving credit quality with size
Growing cash flow emphasis with scale
Enhanced sustainability: reduced default risk
1After Angelo Calvello Environmental Alpha 2009.
Current Opportunities in Credit
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Tailwind since early 2009 - Graph spreads
Cleantech sector hit snag: bonds offer better value relative to equity
Interest rates a concern
Next stage Loans for renewable energy generators
$200bn of projects, over half financed with private equity. Less than 2% financed with debt (source: BNEF)
Opportunity for DCM: finance based on future cash flows
Likely need for industry consolidation (for example Green GECCO in Germany)
New governance model for structured credit?
In 2007 Alt-A market started a MBS governance crisis
Restructuring and workouts provide opportunity for distressed investors
A sustainable MBS, model 2.0, would be a game changer in financial markets
Crossover index 5Y
Invest in todays opportunities from tomorrows sustainability challenges
Branta is an alternative investment fund focused on sustainability.
Launched in July 2009 with seed capital from , an initiative of APG Investments.
The opportunity: trend towards sustainable development as a value driver for companies.
Pursuit of absolute returns in the 13-18% range while seeking to maintain portfolio volatility of 8-12%.
Corporate multi-strategy model of equity and debt investments to mitigate risk and limit market correlation.
Branta Solutions Fund
Roodhals Capital - Confidential 7
The Branta EdgePerformance from Thematic Drivers
Long Term Sustainability Themes
Focus on Agriculture/Food, Renewables, Resources, Engineering and Materials
Select investible, scalable and material themes
Current and Near Term Market Trends
Key drivers: Resources, Population and Environment
Select Market moving trends
Identification of Companies and Value Triggers
Companies: select beneficiaries from the trend
Value Triggers: soft or hard, look for a quantifiable effect
Portfolio composition and management
Equity long/short, credit or event
Roodhals Capital - Confidential
Brantas Investable Trends
* EROI = energy return on investment (Energy acquired/Energy expended)
Theme Key Investment Angle Examples of recent trends
Agri/Food Meeting global demand amid economic and ecological challenges.
Consolidation and price recovery in the fertilizer sector Price pressure on premium processed food brands Changing technology in irrigation and water treatment Seed technology to gain greater acceptance and demand
Renewables and Technology
Renewables, energy efficiency and CO2 reduction targets will change energy mix. Renewable energy is currently challenged in capital markets and government budgets.
Semiconductor sector benefits from led and solar tech. Feed-in-tariffs for solar and wind energy lowered in most
markets Renewable energy to take the back seat to economic
Engineering Opportunities from adaptation to carbon constrained world; creators of technologies for diversified sources of energy
Renewed worldwide focus on nuclear energy Demand for safety and improved infrastructure in
Global demand and strategic inventories remain supportive of commodity prices. Key resources are metals and energy.
China and India in strong pursuit of natural resources Uranium demand to strengthen, as nuclear energy
capacity to rise over time The large oil firms to switch focus to natural gas from
renewable energy, citing footprint and EROI*
Materials Products and Services
More companies are pursuing sustainable products and services for profits and strategic (stakeholder) reasons.
Ships ballast regulation to prevent exotic species contamination will benefit filtration industry
Increased competitiveness of high-EROI* products
Sustainability is a financial performance driver
Roodhals Capital - Confidential
Roodhals Capital - Confidential 10
SEGMENTS Large cap Mid cap Small cap
allocation*50% 30% 20%
and special situations
Long: 3 months to 2 years
Short : 1 month to 1 year50%
Investment value from:
High liquidity and quality of
Strong value profile and
Winners in sustainability:
Exceptional growth potential
CreditLong: 3 months
to 2 yearsShort : 1 month to 1 year
Event driven 1 to 6 months 25%
* % of Exposure. Actual allocations and holding periods may vary significantly from the indicative allocations in the table.
Delivering the risk-return and liquidity objectives
The manager will look at a companys capital stru