Alternative fund opportunities

FINANCE: ENVIRONMENTAL INVESTMENTInvestment managers must be innovative if they are to respond to the interests and demands of investors with new, appealing and topical funds.

A number of products have caught the eye of investment brokers and investors this year in assets relating to climate change, alternative energy and environmental-related investments.

KBC Asset Management has been pushing alternative energy investment funds for almost eight years but Irish investors have responded strongly in 2007 to four of its products - the Climate Change Fund, the Alternative Energy Fund, the Water Fund and the Innovator Fund.

The last fund, launched in October 2006, covers a diversified range of products for the investor who finds it difficult to choose between alternative energy, water, commodities and emerging markets.

KBC sells the funds to institutional investors who are putting up at least E1 million, but it has a distribution with New Ireland which offers the funds to personal investors.

Noel O'Halloran, chief investment officer at KBC, says the funds have proven attractive - more than E100 million have been invested in the funds in Ireland since their launch- because investors want to diversify their investment portfolio away from property and traditional equity stocks.

"We see this as an area of growth into the future. We believe that this will be an area that will be there for the next five, ten, twenty years," says O'Halloran.

He says alternative investments have become much more mainstream. "It is not just about tree-huggers and people who wear sandals. There are people out there making money in this area and we are trying to make money for investors. It is not a fad or bubble - this is here to stay," says O'Halloran.

"It is a much more tangible concept than what the dotcom era was. If you take the Water Fund, the amount of water on the earth is - factually and scientifically - finite and the demand for water is increasing, so your supply-demand metric works in favour of water."

O'Halloran refers to the huge interest in the recent visit of former US vice-president and environmental campaigner Al Gore and the returns for investors in alternative energy company Airtricity as examples of how the interest in alternative energy and environmental-related investments has gone mainstream.

In October Eagle Star launched its Earth Resources fund which gives investors an opportunity to gain from potential growth in demand for energy and resources as the world's population continues to grow. The company predicts that world energy consumption will increase by 57 per cent between 2004 and 2030. The fund will invest in oil, alternative energy precious metals and agriculture.

Ian Mitchell, managing director of Deloitte Pensions & Investments, says the basic principle of supply and demand is driving investor interest in these products and companies are responding with innovative funds.

"Population growth is outstripping everything and that is creating more demand than supply. That is what economics is about. These investments are getting back to basics. They are a complete antithesis of the dotcom period," says Mitchell.

"It's a change in investment sentiment. It is a message that needs to get out there. There is no confidence in standard equity markets at the moment."