CO2 - Carbon Fund units

[Sideshow Bob]

Carbon Fund collects fees of 1-2% on the fund. The larger the fund becomes the more the managers earn. The fund will use new investors' money to continuously buy carbon units but would be reluctant to sell any.

So buying on market is only trading existing units.

But then presumably buying through Salt, new units are issued. And that would be at the market price? (Otherwise would be a great game paying last announced NTA of $1.82 vs today price of $1.99).

Does the difference between the market price get pocketed by Salt or go into the fund??

[Lizard]

So buying on market is only trading existing units.

But then presumably buying through Salt, new units are issued. And that would be at the market price? (Otherwise would be a great game paying last announced NTA of $1.82 vs today price of $1.99).

Does the difference between the market price get pocketed by Salt or go into the fund??

From PDS: "If you purchase units in the Fund they will be issued at the unit price. The unit price is calculated bydividing the Fund’s net asset value by the number of units on issue. Valuation Days currently occurevery Friday. When a Wednesday or a Friday fall on a public holiday processing of applications andValuation Days will defer to the next Business Day. Generally, if we receive a valid application (andaccept that application) before 1.00pm on the Wednesday immediately before a Valuation Day, wewill issue units at the price set using the Fund’s net asset value for that Valuation Day. If we receivethe application on or after 1.00pm, we will issue units at the price set using the next Valuation Day’svalues. You can access the net asset value of the Fund on the website www.carbonfund.co.nz. We alsomay defer processing applications if we consider it necessary or desirable. "

Draw your own conclusions...

[KJMLimited]

There's an obvious arbitrage opportunity subject to shares being issued by the fund at a price sufficiently below market to account for delay and tax. Existing holders would be able to make best use of the gap if it exists. At the moment the gap is 10 cents. Worth it for some.

[Newman]

If everyone buys units from Carbon Fund, there will be no buyer on the NZX market. Selling to buyers via NZX is the only exit way.

[tommy_d]

The price has jumped up considerably since the auction. You seem to be quite knowledgeable on CO2. Where do you see a fair SP currently for this fund. $2 seems quite a leap from where it was recently sitting. Do you feel this rally will subside back to around 1.7- 1.8 again?

they update NTA daily on NZX (announcements). Current fund price is pricing in an increase in NZU price, which is speculative. Until recently it traded more-or-less at NTA. There are commentators who think NZU price will rise, others that think it will stay reasonably static, and others even picking a price correction. I dunno, i'll watch with interest, the December auction will be telling, but I suspect it will cause over-reactions.

someone mentioned arbitrage - look up NZ ETS post-1989 forestry arbitrage for a now-ended opportunity for foresters

[Maxtrade]

SP up 5% so far today, is this normal trade action for CO2, seems like a pretty firm rally?

[Davexl]

SP up a further 7.6% today, another strong move - is this sustainable at ~ 16c above NTA ?

Not that I'm complaining!

[kiwi_crusader]

James Shaw about to burn a heap of Carbon lol

[tommy_d]

SP up a further 7.6% today, another strong move - is this sustainable at ~ 16c above NTA ?

Not that I'm complaining!

right now, CO2 is basically an index fund on NZU prices. So, for recent price movement and trading in the fund above NTA

you'd want to:
a) think seriously about future price movement; and
b) more importantly, look at the volumes being traded driving nzu (i.e. underlying instrument) prices.

NZUs are commodities, not financial products, and in a sense the market is fairly unregulated (for background, see open consultation on changing governance of the nz emissions trading scheme secondary market here: https://consult.environment.govt.nz/...or-the-nz-ets/

NZ's Environmental Protection Authority published on privately held NZU holdings (i.e. the NZU market) yesterday: https://www.epa.govt.nz/industry-are...ly-held-units/
there was a change in published breakdowns, it is unclear why, and that might give some clues on likely future price scenarios in this market. The EPA have not explained the rationale for this change.

Of note, this is data at 30 June, and since then there has been an auction at which ~12 million NZUs were sold into market.
That suggests +/- 150 million privately held NZUs, current secondary market trade value (although possibly illiquid due to no sellers?) of approx. $65 - call that $10 billion-ish?

This is an unsophisticated market, with opportunity for those who take the time to understand it. However.... it's a market entirely created by regulation/law - no underlying fundamental desire for product.

Fascinating stuff eh....

edit: if you want to look at how seriously this is being considered, and use the market smarts of analysts from Genesis energy, check out their most recent results presentation, e.g. slide 24 here: .http://nzx-prod-s7fsd7f98s.s3-websit...944/353149.pdf

@Beagle will be able to explain this better than i can, but NZUs as i understand it are treated as excepted financial instruments so retained in books at cost of purchase rather than being revalued.

NZ ETS impacts are not well considered by most....

[tommy_d]

NZU price dropped back to $61.50 from almost $66 over the last couple of days.

Could it be that successful bidders at the 1 September auction (cleared at just under $54) finally received their units and are taking profits?

Note, the delay between the auction and bidders receiving units isn't clear, however this FAQ from the auction website suggests that it may take up to seven working days https://www.etsauctions.govt.nz/public/training/faq :

Q: When will I receive my NZUs?
A: After settlement (12pm, four business days after the auction), the Auction Operator will provide the EPA Register with NZU transfer instructions for all fully paid invoices. These transfer instructions will be validated by the Ministry for the Environment before the EPA Register can transfer the units.

If you have not received your NZUs 7 business days after the auction, please contact the Auction Operator at auctions@nzx.com or (+64) 4 470 9768 and the EPA Register at emissionstrading@epa.govt.nz.