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Role of Private Capital
CNBC.com | October 19, 2009 | 09:38 AM EDT

At a recent biomass conference in San Francisco, one institutional investor with capital exposure to carbon transactions lamented the “crowds of unemployed bankers” roaming around looking to create carbon “deals” and launch funds based on credits that have a tenuous value.

“Even the people trading carbon since it’s been around don’t know what they’re doing,” he said. “It’s a lot of risk to take in.”

It's a common refrain in investment circles these days.

Carbon may be a dynamic new investment opportunity but the classic risk/reward dynamic still applies--even with game-changing, cap-and-trade legislation on the horizon.

“Capital in the U.S. is beginning to be mobilized into carbon funds, ready to be deployed once the President signs into law the requisite legislation,” wrote Environmental Finance editor Mark Nicholls, in his firm’s just-released 2009/2010 carbon fund survey.

The survey counts 89 carbon-related investment vehicles with assets under management of $16 billion. That's ten more funds and $3 billion more in capital than a year ago.

Though private equity and hedge funds have already begun placing their bets in the carbon space, its unclear at this point whether the old investment models are best suited to play a market that could hit $2 trillion in a few years times.

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