Winner: Tramontana Asset Management

There are a lot of things that the ESG market needs to prosper and make a difference, but the most pressing of these is capital. For its contribution to bringing new capital to this market through technical expertise and new products, Tramontana Asset Management is SCI’s choice as ESG Arranger of the Year.

“The broader energy transition requires enormous amounts of capital. The increase in energy prices means utilities and energy companies have found that their regular capital requirements have gone up, in addition to extra capital needed for transition,” says Bharath Manium, md and co-founder of Tramontana.

The investment management firm was founded in 2014 by Manium and Paul Jackman, who previously ran the commodities investor business at Barclays. Based in London, it currently has 11 employees, chiefly drawn from the ranks of ex-colleagues at Barclays. But, as Manium concedes, it needs to hire more staff and not necessarily from the Barclays gene pool. 

Tramontana currently has around US$5bn in assets under management, a number which grew “significantly” over 2022. Though Manium would be the first to admit that he and Jackman didn’t start the firm in 2014 with a view to capitalising on the surge in interest in energy transition – which was no more than a gleam in the eye of an eco-zealot a decade ago – it has followed the market and is now regarded as one of the biggest arrangers and managers of carbon-backed financing in Europe.

One of the biggest contributions to the markets made by the EU has been tradable carbon certificates, the price of which has soared, as increasing numbers of firms have struggled to diminish their carbon footprints. However, despite the utility of the product, they are difficult to hold by institutions other than tier one banks for a host of accounting, regulatory and management concerns. Institutional money is shut out, depriving the sector of an important source of capital.

Tramontana has addressed the issue by repackaging energy transition assets into a standardised note form that can then be held in clearing systems like Euroclear and Clearstream. This makes them accessible to asset managers and opens a much deeper pool of investor capital, while also making the price discovery process more efficient and more transparent.

“What we try to do is to isolate the risk and give it those who understand it. A new financial partner might want to finance the asset but doesn’t want to assume asset-specific risks. We structure it to isolate such risks and the investor is left with only the financing risk, which is what they want,” explains Manium.

Tramontana has also added liquidity to the carbon hedging market. The most common instrument in this space is futures on the EU carbon allowances, or carbon credits, but liquidity is greatly diminished beyond the nearest December contract.

So, Tramontana will buy the physical, hedge it with the nearest front contract and when that expires, hold it in a ring-fenced vehicle for delivery in five to seven years to whoever needs it. This means, of course, that the firm is exposed to the value of the physical, but hedging that type of risk is what Manium and Jackman did during their Barclays years.

In 2022, the firm executed a series of carbon-backed securities transactions to a total value of €1.5bn. Once again, this represented a significant increase over 2021.

It also witnessed several transactions mature last year, which had been initially executed in 2019 and 2020. “It’s always good to see the full lifecycle of a deal happening smoothly,” says Manium.

While the AUM has swollen over the past year, so has the type of client on the roster. Initially, Tramontana targeted the professional and experienced client, who was, for example, familiar with derivative instruments and the operational weight of carrying these types of risks. But this clearly limits the amount of capital that can be brought into the space, and what the ESG market needs more than anything is more capital. 

In addition, corporates at the moment like Tramontana’s structures as they help diversify their sources of funding away from traditional banks - which is particularly pertinent, given market turmoil currently affecting several well-known European banks, adds Manium.

So, in 2022, Tramontana onboarded several new clients with an appetite for buying carbon assets but without the expertise to handle price and delivery risk. The increase in the number of investors has raised the size of the typical transaction to over €300m.

Manium is aware that the sector faces a great many difficulties. There is the ever-present problem of greenwashing, and there is growing scepticism in many quarters that the comparative cheapness of traditional sources of energy makes the attainment of net zero by 2050 – or anything like it – hugely challenging. 

But, points out Manium, the debate shouldn’t be binary. “It’s not all or nothing. You make some changes, and it will make an impact. We are beginning to make a difference, and this is what makes us most proud,” he concludes. 

For full coverage of SCI’s ESG Securitisation Awards, click here.

Simon Boughey