Craigmore Sustainables NV is a “green private equity” fund being launched at the beginning of 2010. It invests in both carbon sequestration and sustainable energy projects. Its starting portfolio contains New Zealand forestry projects generating yield from carbon credits – in addition to which these forests are growing valuable wood.

A sister fund in the Craigmore funds range is Craigmore Credit NV, a mix of credit and hedge fund investments, following the expertise of its founders, who worked in fixed income most of their careers.

The Craigmore funds are managed to generate returns for investors, after fees, of between 8% and 25% per year, with a target minimum average return of 12% compound over five years.

Craigmore’s portfolios are positioned to take advantage of changes in the terms of trade of industry. As taught at Harvard Business School, while 40% of the success of a business may be attributed to high quality management and execution (clearly this is vital), 60% of “excess returns” is, in fact, attributable to being in the right industry. Craigmore seeks to position its capital in the right industries (while always paying careful attention to top quality management and to careful management of costs).

One industry beginning to exhibit positive terms of trade is the supply of capital to the “green” or sustainables industries. These industries have large needs for capital. Importantly, the pricing of the former carbon externality means that, throughout the economy, the relative valuations of assets are going to change when their carbon characteristics are priced by the market. Some (like forestry) will be more valuable. Others (like some fossil fuel industries – particularly coal) are likely to fall in value. This shift in terms of trade is a major investment opportunity.

Note however, that even in sectors with positive terms of trade trends, it is possible to lose money. A new industry does not grow in a straight line. It will over-expand at times. Other times, after excessive expansion and some losses, it will lose confidence. Right now, investing in green is particularly appealing as, after an initial euphoric expansion in 2007-2008, the green sector is soft right now, offering good value to investors. We expect these attractive investing conditions in obvious strategies (carbon forestry in NZ is a pretty obvious strategy) to persist for perhaps another 12 months. After that, in well capitalised countries like New Zealand it will likely offer less opportunity. At that time we will rotate capital to less obvious parts of the green financing market.

The Craigmore Funds were set up to be an extension of the Founders’ family trust funds and are managed as such. The Elworthy trust will keep substantially all of their family’s non-property savings invested in the funds. If we don’t believe in investments, and if they do not offer high enough returns to meet our targets, we will not invest. We would prefer, if that occurs, to return capital to investors.

Craigmore will invite investors to invest at times, like now, when markets offer attractive opportunities in selected strategies. We are determined to then have the discipline to harvest those strategies once they become more richly priced and to either rotate capital into new, more attractive strategies or, if those cannot be identified, to return capital to investors.