This hedge fund trounced the market in 2019 while most others fell way short. Here's how Lansdowne's big bets on clean energy paid off.
- Lansdowne Partners operates one of the largest hedge funds for clean energy. It held $221 million in assets at the end of last year, according to an HSBC report.
- In 2018, the fund saw negative returns in the double-digits, which is what makes this year's performance - returns of more than 37%, besting even the stock market - so stunning.
- Fund manager Per Lekander told Business Insider it's due to three things: The falling costs of renewable energy; the world waking up to climate change; and the absence of "extremely" poor investments.
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Renewable energy won big in 2019, and so did some investors backing the industry.
Lansdowne Partners' clean energy fund surged 37%, besting the broader stock market, according to an HSBC hedge fund report. The fund, with $221 million in assets at the end of last year, is one of the largest green-energy hedge funds in the world.
The fund's returns trounced the average 2019 hedge fund returns of 8%. The surge is a reversal from 2018, when the fund posted negative returns in the double digits, per the report.
The drastic reversal can be attributed to three things, according to Per Lekander, the fund's manager: The performance of two companies in 2018; the world waking up to climate change; and the falling costs of renewables.
The clean energy fund made two investments that performed 'extremely poorly' in 2018
Headquartered in London, Lansdowne is among the largest hedge fund managers in the UK, running several equity-focused funds and owning part of the Manchester United soccer team.
Per Lekander joined the firm in 2014 to lead its energy strategy, and in 2016, began spearheading a new clean energy fund. The clean energy fund, he says, buys positions in a wide range of companies, from utilities with renewable assets to manufacturers of wind turbines and electric trains.
In 2017, the fund saw strong returns - over 14%, according to the HSBC report. But investors weren't so lucky the next year when it flipped, falling by more than 14%.
In an exclusive interview with Business Insider, Lekander attributes that 2018 loss, in part, to two "extremely poor" investments. He wouldn't share much detail on the record, but he mentioned that those losses were tied to energy companies with poor liquidity, and they made up a good chunk of the difference in returns between 2018 and 2019.
"The change in my strategy was really, 'OK, let's focus more on ensuring liquidity in 2019, so we don't end up in this situation,'" he said.
And it worked: "In 2018 we had two investments, which essentially blew up, and in 2019 we had none that blew up."
2019 was the year the world woke up to climate change
Last year, the world woke up to climate change, Lekander says. He said that this global change in consciousness is a key driver of the clean energy fund's spike in performance.
"Everyone acknowledges there is an energy transition going on from dirty, mainly fossil fuel energy towards a renewable future," he said."In 2019, this went mainstream. So obviously this was very helpful to performance."
If you're looking for a sign that the energy transition is underway, just consider the performance in one of Lansdowne's other funds, focused on energy and infrastructure more broadly (and not clean energy). In 2019, it grew by less than 1%, according to HSBC.
"The out-performance of clean versus dirty [energy] has been quite dramatic here," he said.
In an interview with the FT a year ago, Lekander predicted a rapidly changing reality for energy investors, saying that he thinks coal demand in Europe will fall to close to zero by 2021.
The falling cost of renewable energy technologies
The energy transition Lekander described is tied, in part, to the falling cost of renewables. Since the end of 2009, the price of solar panel modules has dropped by about 80%, while the cost of wind turbines has fallen by 30% to 40%, according to the International Renewable Energy Agency.
"It became apparent to the market last year that sustainable technologies no longer costs more," he said. "You don't need subsidies anymore. So you had an explosion in growth rates, which was clearly helpful to companies' numbers."
Among Lansdowne's investments are large, established wind and solar companies in Europe and elsewhere, which have reported big returns attached to the falling costs in renewables. Lansdown declined to share company names on the record.
The question is: Will this growth hold in 2020? Lekander, for one, thinks so, telling Business Insider that his portfolio is going to keep steady for the immediate future.
"This is not a one-year fad," he said. "I'm not changing anything."