|May 29, 2019|
This hedge fund superstar thinks climate change will impact all your investments---and soon
|Since November, Robert Gibbins has crisscrossed the globe attending scientific conferences, traveling from his home in Geneva, Switzerland, to Arizona, Spain and Austria. The events had a common theme---climate change---and were well attended by academics, bureaucrats and politicians. One group was conspicuously absent. "I didn't see any other investors there," he says.|
That boggles his mind. "Climate change is something we have to include in every single analysis, every investment," he says. Most people think---or hope---that global warming is something their children or grandchildren will have to reckon with. Gibbins disagrees. The 49-year-old founder of Autonomy Capital ($5.5 billion in assets) thinks that climate change is happening suddenly and soon.
He structures every bet his hedge fund makes around his belief that the world is skidding toward a future that's overheated and underwater---and that carbon will be treated as a costly waste product that needs to be captured and stored. Gibbins has already made good money betting on European carbon-futures contracts and expects richer plays to come.
Gibbins has an impressive track record making big calls. His fund, which places large bets on sweeping economic and political trends, is an industry standout, returning an annualized 12.85% net of fees since its November 2003 inception, compared to 8.9% for the S&P 500 index.
The ski-happy, outdoors-loving son of a Vancouver real estate agent, Gibbins made stops at the University of Pennsylvania and the trading desks of JPMorgan and Lehman Brothers before starting Autonomy. For many countries, he believes, climate change will be a major stress on economic stability. If a country is a basket case now, it's only going to get worse as the seas keep rising and other fast-paced changes hit. "It's not enough anymore to create a cheap T-shirt, car or semiconductor," he says. To that end, Gibbins recently shorted the debt and currencies of Turkey and South Africa. He views both countries' governments---led by Recep Tayyip Erdogan in Turkey and the ANC party in South Africa---as totally inept. "You can choose to be ruled by the ANC or Erdogan, or you can be a modern industrial economy," he says. "You can't have both."
By contrast, he's going long on Argentina. On recent trips there, Gibbins found people were exhausted after a decade of economic hardship and failed policies, convincing him the country won't return populist Cristina Fernández de Kirchner to power (she last held the presidency in December 2015). The country's debt is priced for disaster. "My view is, in Argentina, the society has had enough. It doesn't want policies that are designed for the next three days," Gibbins says.
As he sees it, all sophisticated investors these days have access to the best government and economic data. He travels 150 days a year in the pursuit of an edge and expects the 24 investment pros and economists working for him to do the same. He meets with local bureaucrats, journalists and business executives to gauge how decisions are made and how well local institutions function---and whether they can handle challenges like climate change.
What about individual stocks? One obvious thought is to avoid property insurers like AllState and Travelers, which seem likely to get clobbered by rising costs, paying out more as weather-related damage piles up. Gibbins doesn't buy it. He thinks insurers could fare just fine because much of their business is writing coverage for short periods, giving them the chance to reprice their products. Gibbins says REITs have a lot more risk.
You want even more against-the-grain thinking? Despite President Trump's decision to pull out of the Paris climate accord, Gibbins anticipates the U.S. will eventually take the lead with Europe on a global deal to limit carbon emissions and penalize countries that don't comply. So Gibbins thinks big oil stocks, like Exxon, or the currencies of oil-addicted nations, like Nigeria, are vulnerable.