Advisory Solutions

A Hedge Fund Manager Who Is Not Afraid to Talk About Climate Change

The typical hedge fund manager is not in the habit of proselytizing about and searching for the gloom and doom scenarios that can wipe out investment gains. Robert Gibbins, however, is not a typical hedge fund manager. A recent Forbes Magazine profile and interview of Gibbins paints him as the lone wolf investor at climate change conferences around the world.

Gibbins is far from a contrarian or a climate change denier. The conferences that he has attended beginning in late 2019 draw large crowds of like-minded scientific, academic, and political policy makers. His role as an investor and hedge fund manager make him the outsider at these conferences, where other attendees are more likely to criticize the investment community for supporting the global industries that pour carbon emissions in to the atmosphere at an increasing rate.

Gibbins demonstrates as much consternation with the investment community as do other conference attendees. He founded Autonomy Capital, which currently has US$5.5 billion in assets under management. Outside of the policy specialists that he mingles with, he perceives that most people just want to kick the climate change can down the road for resolution by a new generation. Gibbins believes that this is folly. He sees the effects of climate change taking hold more quickly than on a generational timeline, and he structures his investment management philosophy to internalize those effects now. In the process, Gibbins has found ways to profit from his philosophy.

Each investment decision he makes assumes that climate change will be the cause of near-term heat waves, unprecedented storms, and rising sea levels. Industry will be forced to develop and employ systems to capture carbon, and the companies that produce the most effective technologies for that purpose will draw the biggest investments. Investors in his funds are already seeing gains from Gibbins’ investments in European carbon futures contracts.  The S&P 500 has realized an average annual return of 8.9% since November 2003,when Gibbins his company. In an equivalent period, investors in his funds have seen returns of 12.85%.

Gibbins connects climate change to many global catastrophes and economic downturns:

• The 2018 Carr, Camp, Woolsey, and other major fires that destroyed almost 2 million acres of California forestland also decimated PG&E’s stock price, which lost more than half its value due to liabilities it faced from those fires;
• Heavier-than-normal monsoon floods have hit government bond price and yield in the Philippines and other Asian countries;
• European car sales fell by more than 8% in the first half of 2019, continuing a slide that is driven, in part, by tighter regulations on emissions and an inability of manufacturers to comply with those regulations.

Gibbins graduated from the University of Pennsylvania. He founded Autonomy Capital after trading desk stints with Lehman Brothers and JPMorgan. In an industry populated by market cheerleaders, he is not a prophet of doom but is instead a realist who believes that companies which factor climate change into their business strategies will survive and thrive as climate stresses threaten global economic stability. In contrast, companies and countries that simply focus on the next big thing and ignore or defer action on the reality of climate change will never stand a chance. Gibbins cites the economies of Turkey and South Africa as reflections of inept political leadership. His fund has taken a bearish position on the currencies of both countries, while adopting a more positive stance on Argentina. He believes that the South American country’s debt load will push its citizens to reject the short-term thinking and populist philosophies of current president Cristina Fernández de Kirchner.

Gibbins has faith that intelligent investors will use their access to technology and data to make smart decisions. He and his investment team spend roughly half of their time every year traveling the globe to meet with the academics, politicians, and newsmakers and writers to advise their investment decisions with direct knowledge of the people who are addressing climate change issues.

He dismisses groupthink mentality, for example, that sees property and casualty insurers as losers in the global climate change debate. AllState, Travelers, and other companies in the liability sector will face more claims as climate events damage and destroy property, but their underlying insurance contracts give those entities an opportunity to raise their premiums more quickly. REITS and property investors that have large land holdings will face greater exposure as their annual insurance costs go up.

Gibbins refrains from jumping on the bandwagon of naysayers that criticize the United States and its current presidential administration for inaction on climate change. The U.S. no longer participates in the Paris climate accord, but Gibbins sees the country as having no alternative but to join forces with European interests to implement the carbon emission limitations and penalties that are highlights of the accord. Consistent with his fund management philosophy that places a climate change overlay on every decision, Gibbins bets against companies and countries that continue to rely on fossil fuel development.