YouSaid · the spoken record

Colin Campbell

lines on the record: 80
first: 2023-03-20
most recent: 2023-03-20
sittings or episodes: 1
sources: podcast

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“Trying to just get that deeper understanding of, oh, this is how it really works, or, oh, there's that angle I never saw before. It's hard to accumulate and know that early in life, but I'd say as I rear my own kids, I'm trying to explain, give them a chapter or two from my textbook on physics so that they can have their own understanding of the world accelerate a little bit from the years and years it took me to kind of get up to speed.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“So many things in the world, whether it's investments, whether it's people, countries, cultures are nuanced and different and heterogeneous. And early on in my life, I was just trying to figure out the physics of the world and how everything worked and what turned out to be, as I'm now in my mid-40s, turned out I was using a very high level perspective. And while I did all kinds of granular research, didn't really have a full appreciation for just the volume of different opportunities, whether they're investment or otherwise that are out there. And as I've had more experience being able to see, whether it's, again, different asset classes, different cultures, different geographies, meet different people, different styles of investing has really opened my eyes to all the nuance that's out there. And I wish my understanding of the physics as the world has gone from Newtonian to Einstein to now hopefully a little closer to quantum, never quite there.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“To learn, but ended up getting discriminated against by sexist professors and colleagues. The lesson is sort of think for yourself and set your own path. And what she ended up doing was actually leaving HBS in spite of thriving academically. And her logic was, look, I don't need this to be my own person. I'm going to sort of have my own career and do my own things. That's always stuck with me for a variety of reasons, including the one of which, you know, just challenge conventional wisdom, set your own path. That stuck with me as well.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“My father had a saying he loved that's always stuck with me, which is there's three types of people in the world. There's people who make things happen. There's people who watch things happen. And then there's people who wondered what just happened. And you definitely don't want to be the third one, Colin. And it's up to you to decide whether you're going to be in the first camp or the second camp. I like both that framework of thinking about the type of impact one can have and the type of motivation one needs to have, but also the fact that it was presented to me as an option and a choice. And it wasn't so much a didactic you must do this and be this type of person. It's just like, here's the menu you pick. And both framing it that way and then really giving me the choice to sort of choose has always stuck with me. And if I could share another, actually from my mom, my mom was one of the first women to get admitted to Harvard Business School back in the 1960s, where she was in, I think the second or third class of students that had women in it. And when she got to HBS, she was really excited.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Early in my career, when you're young and still figuring it out, having your first big, big, deeply researched stock call go against you and go wrong leaves the mark and sort of makes you never want to feel that again. In the mid-naughts, there was a particular company.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Been very lucky to have so many terrific partners at Bane Capital over 22 years. It would be hard to point out just two. But I would say Dom Ferrante very early was a terrific mentor, led our public equity business for many years and I had the privilege of working with him for a good period of that time. And then as I moved into this role 15 years ago, Ed Brakeman was another partner at Bain who also had previously worked in the public equity business, was a terrific river guide for me and mentor as I started to learn the ropes of the allocation space and then many, many others from our private equity business credit business, just been very impactful.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't love when investors don't distinguish between beta and alpha. So early in my career, it wasn't something I necessarily had a profound appreciation for, but over time, both in the equity markets and then certainly in the last 15 years have come to develop the framework that many others use and think about really disaggregating what drives returns. Is it a beta? Is it a common beta? Is it exotic beta? Is it a style factor? Is that a common style factor or real style factor? And what is true alpha relative to particularly the common betas and common style factors? For me, when people sort of talk about returns and sort of treat it very superficially, it's all about unpacking what's really embedded in that return and overlooking the value of like true differentiated alpha is something that on the margin I'd say annoys me.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is the tricky part. That is the tricky part. That's what we and the team in our group are trying to do, trying to do every day.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“I really like very high risk adjusted investment strategies. So I think a prototypical example would be like a low risk arbitrage. So something where you can earn a very low risk 15 or 20% sounds a lot more interesting to me than something where you're going to take very high risk to get something in the low 20s.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“It depends on who you ask. I would say the consistent favorite is a game people may know called Ticket to Ride, which is a game we started playing when our kids are young. That's a classic. We like that one. More recently, my two sons have gotten into a very long play, a strategy game called Twilight Imperium. It has nothing to do with vampires and the like, but it's a lot of fun.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“My family were big board game players. So my wife, my kids, and I, we like playing board games. I know it's kind of nerdy, but it's a lot of fun. We like teamwork games. We like long-term strategy board games, but that's just fun activity and one that's great to do, whether you got half an hour at the end of the day or six hours during the holidays to do together.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Lots of operational resources to help us figure that out. If one were to look at it as an allocator, what do you need? I mean, it's really whatever comfort level you need about investing in a new opportunity. So whatever research bandwidth you need. And then there are investment funds that are out there that have been set up that act and feel just like any other investment fund might be. And so it would be some allocator's normal process to underwriting a manager, a strategy. And it's not any more operational intensive as a fund investment, let's say, than investing in a hedge fund or a private equity fund.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“You're going to do these trades directly, you need to have the operational capability. So if one is going to participate in a compliance market and actually buy the certificates, you generally need to open a special account with the regulator. So it's much more complicated than opening an account with Robinhood. It requires months of paperwork, you know, legal advice. In some of these markets, there's actually extended wait periods in order to get access to the market. To us, that's another sign that there's lots of capital waiting to get into these markets because it takes, again, pick your market. It takes a period of time to actually get approved to participate. If you're trading futures on the underlying certificates, that also is a very involved process because you need to have an account with an FCM broker. You will likely need to have CFTC registration in the US to trade exchange-traded futures. So it's a non-trivial thing to actually trade futures yourself. We work at Bank Capital. Our firm has been around 40 years.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Major news in any given quarter. There are news developments and there is price action you need to monitor, but for the most part, we're only getting involved where we feel like the situation is relatively stable, where there's unlikely to be stroke of the pen risk and meaningful regulatory change that would sort of fundamentally change the rules of the game and or where the supply demand situation is really a question mark. Like we're involved in markets where we look out a couple years and say this is going to get very tight and we think price needs to be a lot higher. So that doesn't necessarily need daily oversight in the same way you might if you were monitoring a public stock like I did for my first decade at Bank Capital. So there's that research resource we need to deploy”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“For us specifically, we wanted to understand these markets granularly. So even when we were thinking about using external parties to be our agents in investing in these markets, we wanted to understand them ourselves. So we deployed our investment team. I think everyone on our 13-person investment team touches these investments in some way. About half of us are spending a good chunk of our time looking at these markets. So we have six or seven people focused on underwriting in the first place. That takes a process of two to four months depending on the complexity of the market where again we'll go and hire a consultant or an advisor to help us who is very well versed in that market if not involved in the sort of architecture of that market. So research is an important part of what we do and not only doing that up front, but over time having enough bandwidth to be able to monitor what's going on in those markets over time. These aren't stocks where there's necessarily like could be”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Partner with a local operating partner in order to actually go and implement a real estate strategy or a permanent agricultural plantation strategy, we will be partnering with developers on the voluntary side of things in some cases. And we'll take it case by case and look at different markets. In some markets, it'll be so transparent to us what's going on. We don't necessarily need a fund manager river guide, but we're flexible and we try and use humility when we assess like what can we do directly versus partner with a third party who may have some expertise that we don't and have tried to strike a balance between those two different models.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question, and I think speaks to the flexibility we use within our group where we're open to different models. When it makes sense, we will express investments and bets directly, but we're also willing to partner NJV with external parties, whether they're fund managers or developers, as the case may be. We've utilized both approaches and particularly early on. We often look for river guides to be our partners as we explore these markets. And I'd say we've at this point think we've developed enough knowledge in many of these markets to be able to express BETS directly in some of these markets. In some investments, we're more likely to use a third party in what we do, particularly on the voluntary carbon side of things, where even if we sort of vertically integrate and go way up the supply chain, we're not going to have a team doing the development project in Indonesia ourselves. We're going to be partnering with a local developer. So very much like one in sort of allocator, parlance, one.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you've done your research on both of these markets and you decide you want to participate, how have you thought about whether to do this directly or partnering with managers who are focusing on it?”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“The negative news, you would think, is probably going to make the end users just take more time in assessing what to do and may slow down some of them from pulling triggers quickly. I don't think it significantly alters the secular theme or the trend that's happening. It just speaks to the fact that it is a bit of the Wild West.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Bad news is generally not very good for any market. And I'd say this is no exception. Just to catch up for listeners who may not have had as much exposure, there have been a number of press articles, everything from a big piece in The Guardian newspaper in the UK a couple of weeks ago to John Oliver had a great segment on it in late 2022, talking about the dubiousness of some voluntary carbon credits. And when we first started looking at these markets starting three or four years ago in detail, it became very clear that there is just significant heterogeneity in the quality of what different participants were doing, particularly on the voluntary carbon market side of things. And one really needs to be careful with what you're buying, who you're partnering with, so whether you're an end user who's trying to offset emissions, whether you're an investor who's going to make an investment in this space, need to understand all of the nuances that exist within the voluntary carbon markets.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“As you mentioned, there have been some high-profile instances recently of the projects that are creating these carbon offsets, not producing the benefit to the environment that they imply that they were going to and then sold off. How does that activity impact what happens in the voluntary markets?”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Financed offset projects is going to help, say, remove carbon out of the atmosphere. That's good for the planet. It's good for our species. Our firm is a big believer in being very ESG aware as we do our investing at Bain Capital. And on the compliance side, helping the policymakers achieve their objective of reducing emissions from their emitters by being part of that market and participating in that market, which is explicitly contemplated by the market design in order to want investors to be in these markets, to be able to more efficiently price these markets and drive efficient price discovery that much sooner. It's this unusual confluence of attractive investment opportunity and something that you feel really good about participating in because of sort of the impact it has on the world around us.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's been a lot of news and press recently around the validity of different voluntary carbon offsets and their legitimeness at actually having impact were finely attuned to that and what we look at and we think it's very important for allocators to really think about that as they look at this space and users ultimately are very focused on this. So if you're effectively trying to develop and create product and commodity that you're going to sell to the end users, you need to make sure that there's product market fit clearly. It's one of these examples of these nascent markets and nascent strategies where the long-term secular trend seems very clear to me where there is not yet tons of capital populating this space, sort of fairly pricing the opportunity set that's there. But at the same time, I do feel like these strategies are fundamentally doing good for the world, which just helps me sleep that much better at night.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a great question. There's a wider band of both return potential and risk in the voluntary side of things compared to many of the compliance markets. There's just a broad menu that one could pick from. You could buy offsets that have already been issued. So that's relatively low risk. They've already been produced. They've been verified by a third party. You can figure out roughly the prices where those trade. And there's also much earlier stage opportunities where you could work with a project developer who is undertaking a project where they have a 20-year plan in order to, let's say, reforest a certain section of the Amazon and whereby virtue of undertaking that project, a greenfield development project, that project will issue these offsets starting, say, in five years from now, once enough trees grow that you can validate how much carbon has been removed from the atmosphere. So it's really quite a broad menu of different investment opportunities available.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Then we think this market will be needed in order for people to sort of buy these offsets to undo the carbon footprint that still just needs to occur.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Underlying certificates, and it's not entirely clear that this market will go the exchange-traded route in the same way the compliance markets did. Because in a compliance markets, they're all interchangeable. They're all exactly the same thing. Whereas in voluntary carbon markets, one of them might be, well, this offset was because you helped regrow a forest in the Amazon. And another one might be, well, you help provided cook stoves to low-income families in Kenya. And another one is because you helped grow some mangrove forests on the coasts of Indonesia, all very different underlying projects. And the end users might have different preferences for which specific voluntary carbon offsets they want. So for instance, bank capital as a private company, we've been buying these voluntary carbon offsets to offset”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is needed in order to be able to issue the offset. So these are companies like Vera and Gold Standard, and there's half a dozen others where the world seems to be gradually gravitating, but they're not exchanges per se. They're more the good housekeeping seal of approval of, yes, this is a project that actually did what they said they were going to do. In the last year or two, some of the commodities exchanges have introduced exchange-traded futures that cover voluntary carbon markets, still relatively low liquidity for those instruments today. And in light of the underlying heterogeneity of different voluntary carbon offsets that are associated with many, many different projects in many, many different countries, it's very hard to have a standardized exchange-traded standard that really captures all of the nuance and all of the diversity of the”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“On the voluntary side, the answer is no, not yet. And there may never be, just given the natural decentralization of what this market is. We're using the word market to imply that there is one, but the reality is it's very much over-the-counter bilateral type relationships where, let's say, the project developer who undertook the project to issue these offsets might be selling directly to an end user or they might be selling to a broker or some other intermediary who may be selling it on to an end user. So it's very much a kind of off the screen OTC type market today. There are a number of registries, which are the verification bodies that have developed in order to basically vouch for the offsets. And there, think of them as really the audit institutions that come and make sure a particular project developer has done what”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Like the wild, wild west, where nobody really knows for sure what exactly the shape of that market is going to look like over time. Because, again, by definition, there is not yet government legislation that's requiring participation in those markets. So what we have seen is a very, very disparate set of opportunities in the voluntary markets, many of which are interesting, but many of which are also not interesting, both as actually doing good in the world as well as investment opportunities. And the headline point, I think I'd make on that side of the environmental markets is it's far less structured and people need to be very wary of different instruments on the voluntary market side of things.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“All of a sudden have a modern appliance, let's say the UN or some NGO gives you a modern appliance to be able to cook your food more carbon efficiently, you are now avoiding an emission you would have emitted otherwise. So those two types of projects, removal projects and avoidance projects, both of them are entitled to issue a certificate, basically an offset. And once those certificates are issued, they go through a verification and registration process with a third party. And once that occurs, then there may be someone who wants to buy them. Again, myself, let's say, or a company or a government that wants to offset their carbon footprint. So those are the underlying instruments, but I would say this is a market that is by definition far less structured with far fewer formal rules around it. So the analogy I like to use is it's a bit”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“To offset that behavior by buying some sort of instrument. So it's something I'm doing totally voluntarily. No government says that I have to do it. And these offsets need to be created by somebody who is undertaking an action in order to have that offset impact. And there's really two types of voluntary carbon offsets. There's offsets where you undertake a specific task in order to remove carbon out of the air. So an example of that might be planting a tree. If you plant a tree, the tree will grow. It will absorb carbon dioxide out of the air as part of its growth. So that's one way you can create a voluntary carbon offset. Another would be by avoiding some activity that you would have done otherwise that might have emitted some sort of carbon. So an example there might be in a developing country, you might be a family that historically has just burned firewood in order to cook your food. But if you”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, voluntary markets are the second side of environmental markets. And per their name, these are markets where the people who are buying the underlying instruments are doing so completely of their own volition. So there's no government requirement that they buy the underlying instrument. So what is the underlying instrument in voluntary carbon? There's a lot of vocabulary people may have heard, things like a carbon credit or a carbon offset or a voluntary carbon credit. Let's just use the term offset. And when someone is participating in the voluntary market, they are basically saying, I want to buy something to offset the impact, the carbon emissions that I have had on the world. So I've already done some activity. Let's say I took a plane ride on a jet and that used up some fuel and some share of that is due to me.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the market designers are very thoughtful and do capture those issues. I think there's the broader public policy issue of are you going to be one of those either countries or subnational jurisdictions?”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Clearly leakage across borders is an issue that the regulators and that the technical teams that design these markets think a lot about. I would think of it this way. The compliance markets effectively cover stationary emitters, so things like a factory, which doesn't move in and of itself, a refinery, a large power plant, for example. Now, while the emissions themselves may float around in the air, of course, and around the globe, the idea is sort of what is that particular jurisdiction's contribution to that sort of global pool? And there are specific regulations that deal with like the importation of power across state borders, for example. So if you have a state program like California does, the program specifically contemplates the fact that emitting power physically in California might be more expensive than, say, emitting next door Nevada. So power imports from Nevada are also burdened with this same requirement to have an allowance.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Copyright 2026. Stanley? And now back to the show. These compliance markets in that Carbon emissions don't follow state border. So how do the regulatory regimes think about you have a California market, but you may not have a Washington or an Oregon market? How does that all fit together?”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Utility is modest in light of what we think the return potential is. So the sort of implied sharp and or sortino one might be thinking about as you think about, even though it's just a single instrument in a given market, if you thought about it sort of as its own strategy, it's something that we think is quite attractive and stacks up relatively well to other investment opportunities one might consider.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you look statistically at the annualized volatility of some of these instruments, I would think of it as, you know, while these are commodities, it's something like a modestly volatile single stock equity. So you're looking at annualized vol that could be in the 30s, something like that. Perhaps some of the markets more volatile than, say, an equity market index. But it really depends on the market. For a long time, the California market had very low volatility because for most of the last decade, the price was at the regulatory price floor, where it basically the auction prices couldn't go down, the futures were trading right around this price floor. So you saw it really as almost a flattish price gradually escalating with the minimum price escalation, which is 5% plus CPI per year with relatively low volatility. It's increased somewhat as prices come up off the floor in California, but still relatively modest by commodity standards. And I think if you're using the time horizon that we do, we think the volatile”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Close to regulatory price floors and where in some of these markets there is the potential for greater increases than there are declines. So as we look at these markets, we think now is a very interesting moment to be looking at them in light of the relative lack of investment capital in some of the instruments in these markets.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Comes out of those fundamentals is uncorrelated with the equity markets, with the macroeconomy. And there's such a unstoppable secular trend, it seems, of these markets being penetrated by investment capital and more and more regulatory changes that are bullish on price in these markets that we think that happens and is likely to continue regardless of what's going on in the broader market. So that's the time horizon that we think about for thinking about price action. On a day-to-day basis, the price action between the markets, it can and should be independent of each other in light of the fact that the fundamentals are different market by market and where each market has its own supply and demand fundamentals, its own regulator, which is governing the different compliance markets. The general theme is that we feel like it's early in the life cycle of these markets and where some markets are at or relatively”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's different market by market, but I would say as a general theme, we think about the price action in really two different time horizons. The first is on a shorter term basis, we do think some of these markets will have some correlation to equity markets, especially for the exchange-traded instruments, where you're just seeing involvement in markets where there are financial market participants in other instruments. So we think inherently there is some modest connection there. While these markets are driven by their own fundamentals, in the short term, there could be some moments of positive correlation. But I think the more important time horizon that we use is focusing on the medium and long term of what will drive prices in these markets. And that's the fundamentals of each of these individual markets, the supply, the demand, the regulatory changes that are occurring. And we believe the price action that”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of the futures contracts. So we see the size of these markets and the compliance side growing, the volumes of actual permits come down over time, but we believe price will be growing as the shortages that we expect to take place start to manifest themselves in different markets.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“The size of this specific market will vary by the jurisdiction, the largest compliance market in the world is the EUA market. For that market, we see annual trading volume of futures in the hundreds of billions of dollars, which sounds kind of big, but that's a relatively small niche commodity market. In California, the annual trading volume of the futures is in the tens of billions of dollars and even smaller commodity market. And the underlying permits in California is single digit billions of dollars. So these are not tiny, tiny markets, but I would say they are absolutely small and niche relative to traditional asset classes like equities and fixed income and much, much smaller than what I'd call more competed commodities like oil and gold and natural gas, which tend to be in the trillions of dollars of annual turnover.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“At expiry. And so, what we often see is financial market participants accessing these markets via financial futures as opposed to the permit itself, but the two are very, very closely linked.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a couple different ways to participate in many of these compliance markets. The underlying instrument is permit, an electronic certificate in most of these jurisdictions that is issued by the regulatory body. Think of it as a permit that you buy. That's one way you can access these markets. A second way in many of these markets, particularly the larger ones, there are exchange-traded futures, which reference the underlying certificate. So one can buy exchange-traded futures, for instance, that reference the CCAs, the California carbon allowances. And those futures settle physically, which means at the expiration of the futures contract, the person who is long the futures contract actually gets a certificate from the person who was short that particular future. So the pricing between the futures and the underlying instruments, because they settle physically needs to convert.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Thread around the pricing dynamics of the California market in particular are actually worth highlighting. And it's part of the reason we find some of these markets so interesting is the governments are often regulating price minimums and even escalating price minimums, which can create unique and interesting and positively skewed investment opportunities for investors.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Year or two, you started to see the price creep up to be in the mid to high 20s, but still relatively low. And this is the cost per ton of CO2 for these permits. Right now there is this existing surplus for emitters to be able to buy them. So there's no issue with the emitters being able to buy them. But at some point, there will be a shortage. And what will happen then is the price will go up significantly. And in the California market, there are certain price guardrails. And if price reaches a high enough level, there is a cap and it goes up at 5% plus CPI every year. There's both a price floor, which is currently for 2023, $22.21. There's also a price ceiling. And at the price ceiling, if price ever hits that price ceiling, an unlimited number of permits become available to enable emitters to buy whatever they need, but at much, much higher prices than we are at currently. And this whole...”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is starting to get into the micro, and it's going to vary market by market. But in one example, let's take California because that's the biggest one here in the US. So what an emitter will need to do is to buy a number of allowances. In California, it's a rolling three-year compliance window. And essentially the emitter needs to buy enough allowances to cover their emissions over that three-year window. And there's a certain schedule associated with when they need to buy those. If they don't buy enough, then they are going to be significantly penalized by the jurisdiction. In the program's history to date, there has been 100% compliance as far as we know with this program. And that in part has been not that big of a lift for the emitters because the prices have been low, relatively low historically. In California, they've been in the neighborhood of $10 to $20 per ton from the time from 2012 to roughly 2020 in the last”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“In and weigh in, and they, along with the technical staff at the relevant regulatory jurisdiction, decide how that's all going to be handled. So we don't see a lot of controversy in those precise measurements. At the end of the day, we see more and more of the emitters actually buying into these programs. And while there was resistance 10 and 15 and 20 years ago, where you would see oil companies lobbying against these sorts of programs, which you've seen in the last half decade is more and more of them see the writing on the wall. They realize we're past the point of sort of no return in many jurisdictions. And so they're buying into these programs. And what they're trying to do is at least influence some elements of them, but there's less and less resistance compared to what we might have seen 10 or 15 years ago. And again, back to our investment thesis, that's part of what we've been waiting for is seeing a point where even those entities being regulated are going, you know what, it's just the right thing for us to do. Now let's just talk about the precise.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“They are precise enough for the purposes of what this program is trying to do. So each of the different jurisdictions has a certain set of rules around what the entities must do in order to both measure their emissions in the first place to figure out whether or not they're large enough in order to be covered by these sorts of programs. And then on an ongoing basis, measure their emissions to basically make sure that those entities are purchasing enough allowances in order to offset the activity that they have as emitters in those markets. And the precise rules in terms of how frequently and the process vary from jurisdiction to jurisdiction. But I would say that's not a particularly controversial area of these sorts of markets. Once the programs are implemented, it's generally a multi-year process of both rulemaking and socialization amongst all the constituencies in a market. Trade associations on behalf of the emitters coming.”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source
“Ask you a couple of basic questions about how these permits work to just put it in some perspective. So I guess the first is how precise are these measurements of the emissions that companies are putting into the atmosphere”
2023-03-20 · Capital Allocators · Colin Campbell – The Case for Environmental Markets (Climate Solutions EP.3, Capital Allocators EP.302) · IDENTIFIED FROM THE TRANSCRIPT · source