New York fund manages in-house environmental funds

Thomas DiNapoliThe $109 billion New York State Common Retirement Fund will internally manage $200 million allocated to companies in the FTSE Environmental Technology 50 and the HSBC Global Climate Change Index under the fund’s green strategic investment program.

The program was created by New York State Comptroller, Thomas DiNapoli, in April last year to increase commitments to environmentally-focused strategies across the whole portfolio by $500 million in three years. In June, $200 million was allocated to Generation Investment Management.

The fund, which is the third largest in the US, manages the majority of its equities in-house, under senior investment officer, Robert Arnold. Nearly three-quarters of the domestic equity exposure is managed using structured index management, including S&P 500, S&P MidCap 400 and S&P SmallCap 600 funds.

The FTSE Environmental Technology Index requires companies to have at least 50 per cent of their business derived from environmental markets and technologies, and was developed in collaboration with Impax Asset management.

It measures the performance of companies globally whose core business is in the development and deployment of environmental technologies, including renewable and alternative energy, energy efficiency, water technology and waste and pollution control.

The FTSE50 comprises the 50 largest companies, and as at the end of December 2008 the companies with the largest weights were: Vestas Wind Systems, Suez Environnement, First Solar Inc, Stericycle Inc and Novozymes A/S.

The HSBC Global Climate Change Benchmark Index was launched in 2007, with the research team at HSBC identifying about 300 companies that were well positioned to benefit from the challenges of climate change. There are now about 377 companies in the index. From this HSBC has also established four investable climate change indices that can be used to create portfolios: the climate change index; low carbon energy production index; energy efficiency
and energy management index; water, waste and pollution control index.

DiNapoli said FTSE and HSBC would help the fund take its indexed equity investments into a promising market sector.

“This move should help deliver strong risk-adjusted returns to the fund while providing capital to environmentally sustainable companies that are providing solutions to climate change,” he said.

At the time of the Green Strategic Investment Program announcement last year the fund had $40 million invested in private equity funds focused on renewable energy and clean technologies, and more than $440 million in commitments to funds where clean tech was a component of the overall strategy including more than $16 million
invested in New York-based clean tech companies through the fund’s instate co-investment program.

The fund has been reviewing the clean tech and renewable energy sectors for potential private equity investments since 2005. DiNapoli’s Green Strategic Investment Program allows for the expansion of the fund’s private equity exposure to these sectors while encouraging additional investments across the fund’s entire portfolio.

“Clean technology and renewable energy have become increasingly profitable,” DiNapoli said at the time. “It’s not just about doing good for the environment; going green is good for the bottom line too. The Common Retirement Fund has a unique opportunity to produce strong, risk-adjusted returns while at the same time supporting our goal of curbing greenhouse gas emissions and decreasing our dependence on foreign energy sources. This investment commitment will put us half a billion dollars ahead of the green curve.”