Green investing taking root in Asia

LATE into the interview, Andrew Pidden, chief investment officer of the Clean Resources Asia (CRA) hedge fund, says something that throws this reporter off. 'I'd be delighted if there were another five to ten funds doing what we do,' he says. 'Sure, there's more competition, but there is always competition with other types of funds for investors. If there were more Clean Technology funds, investors might not be so sceptical - all we'd have to do is prove we are best in class.'

Launched in Aug 2006, CRA is one of a handful of Asian funds dedicated to the suddenly popular theme of green investing. This is not to be confused with mere ERI (environmentally responsible investing), where investors sieve out companies with poor practices.

Rather, Mr Pidden says, the fund buys into businesses that directly address efficient use of energy and resources. There are many more of such firms than even he - an investment professional with nearly two decades of experience and with an M Sc in Environmental Technology from the UK's Imperial College to boot - realised.

'We looked at 200 companies in Asia when we started; now we're looking at over 400. It's not because they came to market, it's just because we found them,' he says.

The fund's universe now has a market cap of over US$900 billion, with four sub-themes: Clean, and cleaner, energy; water treatment; waste management; and environmental technology.

The 'biggest and easiest part' is in cleaner fossil fuels, says Mr Pidden. Though of limited quantity, these will continue to dominate energy supply for a long time. Over a third of CRA's investible universe is involved in LNG or natural gas; the fund also invests in nuclear or clean-coal technology.

Next is water, and its related field, waste management. In response to investor demand, CRA last month started a sub-fund dedicated to water. The theme is built around improving infrastructure, but it's not just about treatment plants.

Seventy per cent of water in China and India goes toward irrigation, says Mr Pidden. Sure, water tariffs and treatment revenues are higher in cities, but the fund can find exposure in other ways, such as factories for irrigation equipment.

Environmental technology is where the cutting edge stuff lies. Included are Asian firms that manufacture the carbon fibres and composite material that Boeing uses to make its 787 Dreamliner aircraft, which requires less fuel due to a lighter body. Or firms that make LED or fluorescent lighting, which will replace the incandescent bulbs that Australia has recently banned.

Mr Pidden says CRA has enjoyed a return of over 50 per cent since its launch. 'I'm not sure we expected a return so quickly, and the whole market is up so it's not just us.'

Is it simply market sentiment and rich valuations driving returns? No, he says. The fund's stock universe has an average CAGR (compound annual growth rate) of 30 per cent and average PE of 21x, while its portfolio - the ones it actually owns - has average CAGR of 40 per cent and PE of 16x. It previously held stocks like local market darling Sino-Environment, as well as the Hong Kong listed BYD, which developed an electric car for the Chinese market, though Mr Pidden declines to say if these are still held.

Housed under CLSA Capital Partners and started with US$11 million - including some from Mr Pidden and his partner Anthony Wilkinson, formerly CLSA's head of power and gas research - the fund's assets under management have hit US$83 million.

CRA is not the only greenie on the street. Bowen Asia's Green Dragon Fund in Hong Kong, launched in Oct 2006, likewise targets growth companies that serve environmental needs in Asia. Its net asset value was up 30 per cent by May.

But according to the Association for Sustainable and Responsible Investment in Asia, most of the almost 50 green funds emphasise eco-friendly management, rather than explicit business opportunity. 'The story will run and run,' says Mr Pidden. 'No matter how much we spend in water or clean energy, in five years the problem will be worse.'