Trade Finance Company of the Year: Tramontana Asset Management
In the increasingly volatile market conditions of 2021, Tramontana Asset Management has developed and deployed trade finance solutions to meet the demand for corporate finance. These solutions have simultaneously enabled a growing number of institutional investors to participate in the energy transition. For its innovative work to make carbon markets accessible to traditional investors and provide companies with better access to finance, Tramontana won Energy risk2022 Trade Finance House of the Year Award.
As a specialist investment firm, Tramontana develops hedging and financing solutions for corporate clients, partnering with large institutional investors to finance these transactions. The eight-person team has amassed over $5 billion in assets under management since launching in 2014, focusing on energy transition and carbon-backed finance.
Tramontana chief executives and co-founders Paul Jackman and Bharath Manium believe that a successful transition to a low-carbon economy requires the full support of global financial markets. The company took a big step towards that goal last year when it closed a major financing deal that served both a hedging firm and a large financial institution seeking exposure to the space. of the energy transition.
Tramontana works with corporate clients to help implement effective hedging strategies that are not constrained by the liquidity limitations of futures markets based on the European Union Emissions Trading System. This particular solution was developed to minimize hedge slippage and reduce the balance sheet burden of managing the margin requirements of hedging positions on the exchange.
“Our solution is to issue secure notes, purchased by our financial partners, and acquire carbon on the market,” says Jackman. “Carbon certificates are kept in a ledger account for the duration of the note – it can be a three, five or seven year note, depending on the transaction. The client company then buys the carbon certificates at the end of this period. »
The solution, which Jackman describes as “a scalable multi-issue program”, repackages energy transition-related assets into standard notes so they can be held in clearing systems such as Euroclear and Clearstream. Physical energy assets cannot be held in clearing systems, a problem that has traditionally left many institutional investors reluctant to participate in this growing market. This solution solves the accounting, regulatory and management challenges associated with holding such assets.
Additionally, to provide investors such as pension funds and insurers with pure-play investments in this space, Tramontana mitigates non-carbon-specific risks such as credit risk through hedging and various collateralization solutions.
As a result, Tramontana was able to build a deeper and broader pool of liquidity to fund such transactions by attracting the interest of broader investors, such as the specialist UK pension company he first worked with last year. According to Manium and Jackman, the growth in investor interest has seen Tramontana’s typical deal size increase by more than 40% year-over-year.
“Our financial partners are sophisticated institutions that are well versed in structured finance and are comfortable with the associated documentation and operational complexity,” explains Manium. “The key objective of our attempt to broaden the market participation of our products was to make them more accessible to insurance and pension fund investors, who have traditionally been less active in structured finance related to the energy transition. “
While interest in green investments has undoubtedly increased in recent years, Tramontana’s trade finance solution aims to enable greater market access, increasing opportunities for hedging companies.
“The energy transition is a subject that everyone is talking about. Many companies are setting investment targets in environmental, social and governance strategies, and so investments like these are an integral part of that kind of strategy,” says Manium. “But I think the situation we’re in right now is that there’s a lot of investor demand but not enough assets.”
Jackman adds, “Tramontana’s carbon-backed securities program allows non-specialist investors access to energy transition markets and has opened the door to a much larger pool of investor capital to deploy in the space. energy transition”.
The investment firm has clearly achieved its goal of boosting access to carbon markets for broader capital markets, significantly increasing its corporate clients’ access to capital for trade finance and management activities risks.