Toby Birch

Gaia: Financial Survival in a Finite World

Blog by Toby Birch

23rd September 2011

In Greek mythology Gaia is the goddess of Mother Earth, the namesake of our Gaia Opportunities Fund. The combination of ethical and environmental investing is of course a familiar theme of recent years. However, the unspoken association with green investing is that of underperformance, high volatility or at best one that carries an opportunity cost. In extreme cases, such as Sino Forest, it may even encompass deception leaving the world’s greatest investors shame-faced following its suspension.

Since abandoning the Gold Exchange Standard forty years ago we have pursued a failed philosophy of chasing infinite growth on a planet with finite resources. Few in the investment community comprehend that exponential activity is not a panacea but pre-cursor to collapse, as evidenced in nature by yeast and cancer cells. The so-called credit crisis may prove a blessing in disguise as we are yanked from danger like a disorderly dog on a leash. We lash out with the pain without recognising the ultimate benefit. Many green investment products have overtones of guilt, with the emphasis on obligation rather than satisfaction. Human beings may well be motivated by noble deeds and duty but the pursuit of gain is undeniable and it is disingenuous to ignore one of our foremost emotions.

While it is fashionable to flagellate banks, they do at least know a thing or two about marketing. Through credit cards, loans and speculative products they are tapping into our desires for the accomplishment of dreams and aspirations. While we are not endorsing principles that promote selfishness and consumption there is nothing to stop investment being lucrative, fulfilling and fascinating. The Gaia Opportunities fund is not just about sustainability but is designed to offset risks that are endemic in this post-bubble economy. It provides leadership by example through investment in areas that are beneficial to humankind today and more importantly for generations to follow. This need not be sentimental or socialist; it is using a key component of capitalism whereby price changes spawn solutions that can rarely be achieved politically. Rising energy prices will act as a catalyst for alternative energy, like a flash flood in a desert; technology that once seemed barren and hopeless will be given life.

While ‘Peak Oil’ is hotly debated it appears unlikely that we will run out of black gold any time soon; it will just be far more expensive to extract, process and distribute fossil fuels in future. Commodity protectionism is already with us only it is taking the form of local taxes on multinationals rather than outright trade tariffs. Nationalism has most clearly been shown with last summer’s wheat shortages in Russia when exports were banned as the fires blazed. This is a clear dress-rehearsal of things to come when national interests are put before an out-dated ideology of globalisation and liberalisation, so aggressively promoted by the World Bank. This is one of the most overlooked aspects of climate change, population growth and resource scarcity which when combined creates a highly inflationary cocktail.

The Fund is one of the few to encompass a broad range of asset classes and special situations related to climate change and tangible investments. Most green funds invest heavily in equities related to specific topics such as solar energy or in illiquid (albeit vital) private equity projects. We have taken the Gaia principle further by holding natural resources that offer long-term protection against inflation and currency debasement; namely precious metals and commodities. While mining may not be the cleanest activity on the planet, investors have little choice in protecting their wealth other than buying bullion. It is one of the many dilemmas of living and investing in modernity; no one is entirely innocent and no solution is perfect. We do not invest speculatively nor do we engage in leverage as this is an extra risk factor that benefits the manager at the expense of the investor. The Fund is about balance and equity, sharing risk and reward. It meets two natural human desires that act in concert as the yin and yang of investment activity. The first is to endow the fruits of one’s labour into new ventures to yield greater returns. The second is to act communally which has been repeatedly witnessed in studies of behavioural finance. Investing in earth-related activities enhances the positive aspects of trade that reward measured risk-taking while combining it with our innate sense of stewardship.

This may sound noble in theory but one could still be accused of hypocrisy by died-in-the-wool capitalists or ecologists alike. This is a small price to pay to benefit future generations who may judge us with disgust in decades to come, should we choose the default option of doing nothing. The trick here is to emphasise that climate change is a way to make money for those from the agnostic or sceptical school of thought. For those in the latter camp this is the sales pitch for investing in the interconnecting themes related to climate change and inflation, catered for by the forthcoming fund launch:

• Natural Resources: commodities, rare earth metals, forestry, water
• Food Chain Disruption: fertiliser, agriculture, soft commodities, infrastructure
• Population Growth: healthcare, biotech, waste management, emerging markets
• Currency Devaluation: precious metals & mining stocks to offset currency dilution
• Green Revolution: clean technology, renewable energy and strategic assets

If, like us, you believe that climate change has a financial element within the cause and effect then one can propose that the problem is also the solution. What we need across this range of industries is long-term capital investment. This will not come from governments (other than China) but from financial markets. After all, this used to be the whole point of stock markets; to match entrepreneurs with money. This ‘wisdom of crowds’ generates the most efficient form of pricing and allocation of resources. In the past speculators were a necessary evil for liquidity. Now that volume is dominated by High Frequency Trading it is clear that markets have mutated with their decade-long lame performance. Nevertheless they are not beyond repair. In an environment of sound money backed by precious metals, equities became dividend machines and show their worth through compounding, like the fable of the tortoise and the hare. It is still possible, even preferable, to aim for stability over growth as equity investment offers transparency and sustainability over the falsehood of interest-bearing leverage.

One could still be accused of profiteering so we have decided to act as a role model. Instead of hoarding profits we will recycle capital by investing a significant portion of the management fee into sustainable communities, especially in those countries that will suffer further from climate change in future. At the risk of sounding naïve, this is no marketing ploy but a genuine attempt to prove that financiers can be positive contributors and not simply profiteers. This can be achieved through interest-free loans to stimulate work and self-sufficiency rather than microfinance and charity. In summary, the solution to climate change lies in correct allocation of capital away from speculation, consumption and debt-fuelled ‘growth’ to useful production and economic equilibrium. Government intervention and regulation is a poor substitute for the wonders of the price mechanism that draws investment to areas that are profitable. A sustained rise in the oil price will be the tipping point for better things to come. In the meantime the holdings will offer a degree of protection from the continued dilution of paper money that will impoverish many through inflation.

Toby Birch, Managing Director, Oppenheim & Co Limited
Telephone +44 1481 721 981

Oppenheim and Co Limited is regulated by the Guernsey Financial Services Commission in the conduct of investment business. The Luxembourg-based Gaia Opportunities Fund is launching in October 2011 for professional or well-informed investors only.

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