US-headquartered Karner Blue Capital (KBC) has liquidated its biodiversity fund after five years following difficulties in attracting sufficient capital, Carbon Pulse has learned.

The Karner Blue Biodiversity Impact Fund was liquidated on Feb. 28, ending the longest track record of any biodiversity-themed strategy in the world, according to the fund manager.

“We made the decision to liquidate the fund. That was the bulk of our assets, a difficult decision to make,” Andrew Niebler, Karner executive vice president, told Carbon Pulse.

“We would talk to any number of large banks, or family offices, or pension funds, which really ended the same way: ‘We love what you’re doing. It’s really, interesting, it’s innovative, it’s needed in the marketplace, call us back when you’re bigger’.”

At the end of 2023, the fund had the third-highest net returns out of all funds during 2023 at just under 17%, having grown by $2 million to almost $11 mln that year.

However, it underperformed its benchmark, the Morningstar Developed Markets Index, by around six percentage points throughout 2023.

The underperformance was down to the fund’s exposure to some renewable companies, Niebler said. Conditions for the theme were not easy, with none of the actively managed biodiversity-titled strategies with benchmarks outperforming their indices in 2023.

KBC’s relatively small nature-related fund was not an outlier in size. Last year, BNP Paribas Oasis, CIRCA5000, Mirova, and DWS launched biodiversity-themed funds that each raised around $6 mln by the end of the year.

These new funds will not necessarily have the same experience as that of KBC, with a “tsunami” of activity happening around nature, Niebler said.

Indeed, his company is continuing to manage five biodiversity-related strategies:

• Biodiversity Impact Strategy – global and US
• Conservation Strategy – global and US
• Blue Impact Strategy – global only

Distinct from funds, clients can choose to manage their accounts in accordance with the strategies, Niebler said.

NICHE INVESTMENT

Some investment advisers have a “check the box mentality” of requiring the value of assets in a fund to exceed a certain amount. “I don’t think there’s anything we didn’t try,” Niebler said.

Larger pension funds felt they could not allocate sufficient assets into the fund to make the transaction worthwhile, as they would not want to take majority holdings, he said.

“Without getting bigger, that limited the amount of the allocation that some entities could make to us.”

“We really needed to find somebody like a family office that didn’t have that kind of limitation. We were looking for a partner, that could be the anchor client. And we were just not able to find that.”

Having ‘biodiversity’ in the title triggered an immediate reaction from people, Niebler said. “We heard the word ‘niche’ on a not infrequent basis.”

“I think some people probably perceive that as being limiting, in terms of the types of stocks that we would hold in there. But in reality, it’s just like any other investment fund.”

The strategy was invested in between 50 and 80 companies by the end of 2023 across 19 industries globally.

Source: Karner Blue Capital fact sheet, Dec. 31 2023

The fund sought long-term growth by investing globally in industry leaders with respect to protecting biodiversity, mitigating climate change, and improving animal welfare, as identified by Karner Blue Capital’s proprietary research, according to the fund’s fact sheet.

By Thomas Cox – t.cox@carbon-pulse.com

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