East Capital, an emerging and frontier markets specialist headquartered in Stockholm that actively manages €2.1bn of assets in public and private equity as well as real estate, transitioned its East Capital China Fund this January to a “thematic environmental” strategy that seeks to exploit growing investment opportunities within clean technology in China.
Named as East Capital China Environmental, the strategy looks to capture what the firm, the first asset manager in northern Europe to be granted a Qualified Foreign Institutional Investor (QFII) license to purchase Renminbi-denominated ‘A shares’ in China’s mainland stock exchanges of Shanghai and Shenzhen, describes as “the favourable investment backdrop” that the environmental challenges in China offer.
The move comes as the Chinese authorities have been very public about the climate change agenda and embark on a 13th 5-year plan (2016-2020) for economic and social development.
Two of the key tenets of this plan include: (1) Green development in terms of protecting the environment and pursuing environmentally friendly economic growth; and, (2) Openness, whereby China uses domestic and global markets and is more active on global governance. New incentives on renewables, details on taxes and fines, more clarity on Green bonds and the creation of a national carbon market in 2017 are anticipated.
In March 2015, East Capital became the first asset manager to receive approval from Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) for its East Capital China Fund to invest up to 100% of assets in A-shares via the Shanghai-Hong Kong Stock Connect program. On each market investors can use local brokers and clearers to trade the other’s market.
Karine Hirn, a Partner at East Capital, commenting in the wake of fund’s transition said: “The fight against pollution is a fundamental and structural trend in China, and has also become a governmental priority. This implies strong policy support and large investments, as well as stricter implementation of regulations for the non-environmental friendly companies.”
She added: “China is the largest clean-tech market in the world and the investment universe of environmental stocks consists of fast-growing innovative companies and often upcoming global leaders.”
The fund’s investment universe - both in onshore (A-shares) and offshore China equities - includes sectors spanning clean energy, energy efficiency, clean transport, clean water & air, environmental assets and sustainable agriculture. Hirn pointed out that opportunities through “valuation arbitrage” in onshore and offshore equities across the value chain would be pursued.
Louise Hedberg, East Capital’s Head of Corporate Governance, speaking to Ethical Performance in London on the fund’s launch day (18 January), said: “This fund provides clients with an efficient way of accessing clear solutions to the environmental and sustainability challenges in China. We will look at the entire value chain and seek out suitable investment opportunities.”
Stockholm-based Hedberg added on the fund’s attributes: “As well as having no lock-up [period], the fund is suitable for any investor - be they institutional or retail orientated. And, it’s the type of investment that can potentially excite investors.”
The fund, with around €20m AUM at launch, is managed by Peter Elam Håkansson, East Capital’s Chief Investment Officer, and supported by a local Hong Kong team led by François Perrin, formerly head of Greater China at BNP Paribas Investment Partners Asia.
Founded in 1997, East Capital today has offices besides Stockholm in Hong Kong, Luxembourg, Moscow, Oslo, Paris and Tallinn.