This AMC Transforms Carbon Market Expertise into Climate Finance Alpha – Here’s How
Our latest podcast told the story of the world’s first investment-grade carbon asset AMC. In this post I look at why the AMC structure is so well suited to the idea.
On Tuesday I published my talk with Professor Lisa Wilson. She's the mastermind behind the new Actively Managed Certificate on Investment Grade Carbon Assets, which is being sponsored by Orpheus Capital and distributed by Shire Capital, two companies we work closely with here at GenTwo.
One of the things that surprised me in our talk was the extent of the carbon opportunity. Despite the headlines around climate backlash and the death of ESG coming primarily out of the States, this market is expected to grow to over 16 trillion dollars by the mid 2030s from a starting point of just under a trillion today. I thought that was good news.
This was also yet another example of how well suited Actively Managed Certificates are for financial innovation, especially supporting new types of asset classes. (This is a big theme at The Assetizer of course, see here, here and here for other examples.)
In this post, I would like to unpack that aspect.
Carbon Four
In Professor Wilson’s AMC the underlyings are various kinds of carbon assets. If you look at the public marketing document, you see the product is focused on four broad categories:
“Direct Investment grade carbon credit investments: Spot credits that are verified registry-delivered with high-liquidity, used to anchor redemption stability
Carbon Trading: Structured carbon futures and forward Emission Reductions Payment Agreements (ERPAs) with milestone payments and wrapped with delivery insurance.
Arbitrage Strategies: Tactical trading strategies to exploit supply-demand imbalances and regulatory changes in regional compliance and voluntary marketed carbon credits and assets.
Project-Based Carbon Credit Acquisition: Jurisdictional and strategic long-dated, sovereign-aligned instruments, including Article 6.2 Paris Agreement Mitigations, with premium pricing potential, and securing pre-issuance rights discounts agreements to provide additional alpha generation.“
What's interesting about this approach is how it mirrors a sophisticated hedge fund strategy - from buying liquid assets for stability to early-stage venture capital plays for maximum alpha. This isn't just carbon credits in a wrapper; it's a multi-strategy alternative investment approach that happens to use carbon as the underlying asset class.
The Expertise Engine
But why is the AMC structure particularly well-suited to this kind of innovation? The answer lies in what AMCs fundamentally are: flexible, regulated containers that can hold virtually any asset or strategy while maintaining the familiar characteristics institutional investors expect.
For alternative asset classes generally, this creates three distinct advantages in my opinion:
Flexibility. First, there's the flexibility of the AMC, which is basically just an investible and tradeable balance sheet. This lets the product sponsor mix and match the best possible strategies in its estimation. And it does so in a fairly straightforward way compared to, say, creating a standard mutual fund. Yes, there were difficulties in this case, as Professor Wilson alluded to. It took her two years to get this done. But that's because this was a first-of-its-kind. With the infrastructure in place, follow-up products will be easier to do.
Bankability. Second, this product shows the real maturation of carbon credits and related tools into a real asset class. This is where our work at GenTwo becomes particularly relevant. Carbon credits are essentially non-bankable assets crying out for better financial infrastructure. They're highly fragmented (different standards, vintages, project types), often illiquid, difficult to custody and transfer, and subject to quality concerns and "greenwashing" risks. The AMC is an ideal wrapper to solve these problems and make exotic or non-bankable assets bankable. That in turns brings them much closer to the mainstream of finance.
Expertise. Third, this shows how you can use an AMC to easily bring individual expertise into the picture. You can pack your expertise, ideas, and creativity into it. That's what differentiates these products. Wilson does it with her knowledge of carbon markets and what constitutes good projects. Others we've covered – like the teams at Partasio for fine art and Bond Wine for fine wine – are doing the same thing in their respective fields. The AMC is proving to be an excellent vehicle for bringing individual and inimitable expertise to market.
In a world where specialized knowledge is increasingly valuable, AMCs are becoming the wrapper of choice for turning personal expertise into alpha.
Best,
Tom