Wednesday, February 5, 2014

Caisse Blowing Another $500M in the Wind?

Reuters Canada recently reported, Canada's Caisse buys part of Dong's stake in massive UK windfarm:
Denmark's Dong Energy DOENRY.UL has sold half of its 50 percent stake in the world's largest offshore wind farm located in Britain to Canada's La Caisse de depot et placement du Quebec for 644 million pounds ($1.1 billion), the two sides said on Friday.

The deal reduces Dong's stake to 25 percent and leaves Germany's E.ON as the project's largest shareholder with 30 percent.

The 630-megawatt London Array offshore windfarm is located 20 kilometres off the coast of Kent and was officially opened in July 2013.

"This is an opportunity for us to invest, alongside established partners, in a quality asset in a growth-driven sector," said Macky Tall, senior vice-president of infrastructure at La Caisse.

La Caisse is one of Canada's largest institutional fund managers. It looks after public and private pension and insurance funds from Quebec with a combined value of around $186 billion.

Britain's renewable energy sector has become an attractive market for investors seeking regulated assets as the government backs the development of green energy projects with long-term subsidy payments.
You can download the Caisse's press release on this deal here. What are my thoughts? It looks like the Caisse is blowing another $500 million in the wind. As I wrote in that comment a little over a year ago:
Interestingly, the Caisse isn't the only one interested in wind energy. Warren Buffett's Berkshire Hathaway recently bought two huge wind farms and Google just announced its latest investment in wind power through the construction of a $200 million wind farm in Texas. As you can see, some pretty savvy investors are also betting on wind energy.

Does this mean this investment will turn out to be profitable? Only time will tell but it is a sizable investment in renewable energy. I think the Caisse and others need to look at this sector carefully and judge each project on its merits and profitability.
I'm very skeptical on wind energy and wind farms. As I wrote in my Outlook 2014, illiquid alternatives are frothy and that includes infrastructure where pensions are inflating a major bubble.

Moreover, as I wrote in my hot stocks of 2013 and 2014, the sectors I am very bullish on are solars,  biotechs, medical devices education and technology shares. I am selective but there are plenty of opportunities in liquid stocks, so why tie up your money in some wind farm in the UK? I'd rather see the Caisse follow the Baker Brothers, buying the dips on Idera Pharmaceuticals (IDRA) and a few other biotech companies or buying Twitter (TWTR), my favorite social media stock (we'll see how the stock reacts after they release their first earnings report after the close today). Stock markets are jittery these days but it's a great time to buy those dips!

I'm also highly skeptical of the Caisse's strategy to hire so-called industry experts to help them in their public equities portfolio. This looks great to the public, sounds very promising but it's a loser strategy. I prefer to see traders and portfolio managers who actually know how to make money than a bunch of overpaid fundamental analysts who couldn't make money in these markets if their lives depended on it.  I know I am blunt but this is a cutthroat business and I'm not one to mince my words.

What else? As I stated back in December, it's time to short Canada and I warned my readers the loonie is headed much lower. Buying UK infrastructure carries F/X risk and the Caisse has a horrible track record when it comes to making money trading currencies. They basically had one outstanding year in the last 20 years and have hired more currency strategists than I change shoes. One loser after the other but they look good on paper and talked up their game. Anyways, I will be scrutinizing the Caisse's F/X losses or gains when they release their 2013 annual report.

The Caisse is also getting ripped on their big bet on emerging markets. I wonder if their risk guys warned upper management on their true exposure across public and private markets from Canada to the emerging markets. The way things are going, 2014 will be a terrible year for the Caisse.

Well, now that I got that off my chest, below a few clips from a report in The Telegraph on how wind farms are 'green vandalism driven by greed'. Think the Caisse needs to hire more experienced traders and portfolio managers in public markets who know how to make money in these volatile markets and stop blowing Quebecers' money in the wind.