New Opportuities For Hedge Funds: Sea Walls, Desalination Plants, Inland Aquaculture - Bloomberg
A top investment strategist for JPMorgan Asset Management sent a note to clients earlier this year with a dire forecast. Despite global efforts to stop climate change, sea levels are likely to rise dramatically, threatening the 40 percent of Americans who live along the coast. On the other hand, there will probably be some investment opportunities in seawalls.
“A storm surge barrier system protecting New York City and parts of New Jersey could cost $2.7 million per meter,” Michael Cembalest, the asset manager’s chairman of market and investment strategy, wrote in his annual “Eye on the Market” energy newsletter in April. He added that governments would probably struggle to pay that cost, perhaps turning to either bonds or outright privatization.
As the U.S. grapples with a second straight year of record hurricanes, floods, and wildfires, a small but growing number of hedge funds, pension plans, and other investors are testing strategies to take advantage of those signs of climate change. Where they’re putting their money provides a glimpse into some of the likely tangible impacts from higher temperatures. The investments include storm and flood protection along the coast, desalination plants in drought-prone regions, new approaches to agriculture, and even land far from the ocean for when rising seas shift the real estate market. “In the early stages, people will be nervous,” says Cembalest, who calls himself an advocate for better flood control. “And the returns will be higher.”
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In other cases, making money off climate change can be as simple as thinking through the consequences of a hurricane. Last August, a week before Hurricane Harvey struck Texas, Rod Hinze had an idea. The principal and portfolio manager at Key Point Capital in Dallas, Hinze invests in real estate investment trusts, or REITs. As Harvey approached the coast, the cost of REITs that held hotels around Houston was falling, as investors assumed the hurricane would scare off tourists and business visitors, and maybe trash the hotels themselves. “People thought they’d be offline,” Hinze says. “What they don’t realize is the demand in short-term housing after a hurricane like that, it’s astronomical.” So Hinze bought low—first in Houston, and then, as Hurricane Irma followed a week later, in South Florida. “We saw occupancy go to 100 percent in a lot of those hotels,” Hinze says. “We didn’t crush it. But we made 25 percent, 30 percent, pretty quick.”
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https://www.bloomberg.com/news/articles/2018-10-08/climate-change-will-get-worse-these-investors-are-betting-on-it
