Hohn vs Odey: the hedge fund battle for the planet
It’s not exactly Tyson Fury vs. Anthony Joshua. But in a hedge fund heavyweight contest, with stakes not much higher, Mayfair investment giants Chris Hohn and Crispin Odey are ending the planet’s survival.
Last week, the Financial Times reported that Odey, a seasoned hedge fund manager who had had a rough few years, was feeling smug again after regularly buying unpopular oil and gas assets and seeing them recently explode as the wholesale prices were increasing. Its European fund has more than doubled in value this year.
Odey, in the Red Corner (Tooth and Claw), is the poster child for a handful of London and US-based hedge funds that have struck opportunistically as environmental, social and governance concerns have pushed traditional asset managers to divest themselves of their dirty energy assets. . “They are leaving fantastic returns on the table,” Odey told the FT.
In the green corner is Hohn. The few old-fashioned rail stocks and tech and telecoms giants that make up the lion’s share of its portfolio don’t look like big-powered hedge funds. These farms do not cry out for environmental passion either.
Yet they made Chris Hohn’s TCI one of the most successful and outspoken hedge funds in the world, with assets under management of nearly $ 40 billion, roughly 10 times the size of Odey Asset Management. . While Odey lost money in five of the six years leading up to 2020, TCI fared much better, in part thanks to successful activist campaigns that pushed for large-scale deals or restructuring. companies in which it has invested.
Over the past couple of years, however, Hohn has shifted from focusing his activism solely on portfolio companies to one of the asset management industry‘s most vocal critics of climate-damaging activities for companies. and the failure of policy makers to curb this behavior.
The last targets of the financier, via his charitable foundation, are the world’s main central bankers. He wrote to Bank of England Governor Andrew Bailey, European Central Bank President Christine Lagarde, European Banking Authority President JosÃ© Manuel Campa and Janet Yellen, the US Treasury Secretary, who assesses the climate-related financial stability risk for the Financial Stability Supervisory Board. The basic message: The ultimate supervisors of the financial system are not using their powers to save the planet.
âInvestments in new fossil fuels must stop immediately,â he writes. âBanks react far too slowly to an urgent crisis. Bank regulators should demand full transparency about banks’ exposure to fossil fuel production, and they in turn should demand full transparency from their customers.
As a specific priority, he calls for “all loans for the expansion of fossil fuels. [to be] considered to be equivalent to exposure to equities â. Global regulators, he says, have already proposed that cryptocurrency exposures come with an unusually high bank capital weighting of 1250%; why should coal, which endangers the very existence of the planet, be considered less risky?
In some ways, the proposals build on existing commitments by banks (albeit with little action so far) to move away from larger carbon producers. More than 250 banks, representing 40% of banking assets worldwide, have now adhered to the United Nations Principles for a Responsible Climate Bank.
Like other climate activists, Hohn uses banks and their highly regulated status as leverage to force better disclosures and carbon reduction commitments from the companies that are their customers.
In another green initiative, the Glasgow Financial Alliance for Net Zero, led by former BoE Governor Mark Carney, banks refused to sign a strict International Energy Agency roadmap for decarbonization, preferring a less prescriptive UN roadmap. This revelation appears to support Hohn’s contention that statutory regulation is needed.
As Odey would happily attest, however, Hohn’s timing is bad. The explosion in gas prices in recent weeks, in part because weather conditions have limited wind and solar supplies, has shown that even the current pace of energy transition is problematic.
Given the political fallout, policymakers will fear further accelerating this transition. Whether your climate activism involves letters to central bankers or clinging to a highway, the fight to save the planet will clearly involve battles against political populism and opportunistic investors.