Emissions House of the Year: CF Partners

With the world’s largest emissions market facing a period of stark uncertainty about its future, the past year has not been great for carbon traders. Doubts have been cast on the viability of the European Union Emissions Trading System (EU ETS) ever since the aftermath of the financial crisis, when the continent’s economic slowdown gave rise to a huge oversupply of European Union Allowances (EUAs). In November, things began to look up when EU authorities proposed addressing the problem through postponing – or back-loading – the sale of 900 million EUAs. But a vote against the measure in the European Parliament caused the price of the EUAs to collapse in April, leaving many observers fretting about future of the market.

While other firms stepped back from emissions during the past year, London-based CF Partners remains firmly entrenched. For the advisory, trading and investment firm originally set up by founding partners Jonathan Navon and Thomas Rassmuson, environmental markets are the source of the firm’s competitive edge. “Unlike other players, our business to date has been focused on carbon, so we have to do it well,” says Navon.

The firm serves a wide range of clients active in carbon markets, including utilities, industrial firms and sovereign entities. And despite the pullback by some firms, it has enjoyed considerable growth. Amid the start of Phase III of the EU ETS in the first four months of 2013, the volume of spot carbon trades it executed increased by 325% compared with the corresponding figure during 2012.

In some ways, the recent turmoil in the EU ETS has helped level the playing field, reckons Navon. “One of the consequences of carbon prices coming down is that the ability for firms like ourselves to provide liquidity in bigger volumes has actually increased. Balance sheet is no longer the distinguishing factor – now it is the execution of service, client relationships and advisory work you do that are going to be more important to clients.”

At the same time, Europe isn’t the firm’s only focus. CF Partners is also active in carbon markets in Australia, New Zealand and South Korea and is eyeing an entry into the regional emissions trading schemes developing in China.

Balance sheet is no longer the distinguishing factor – now it is the execution

A major achievement came in June 2012, with the launch of its CFP Direct electronic trading platform. The platform gives clients the ability to execute trades electronically on a range of products offered by CF Partners, including spot trades, futures and spreads. While many of the firm’s clients still prefer to execute large trades over the phone, the main advantage the platform brings is transparency, says Navon. Within the emissions market, not all instruments are created alike – depending on the nature of the emission reductions achieved, certified emission reductions (CERs) might be ‘green’ or ‘grey’, while EUAs could have been issued in Phase II or Phase III of the EU ETS, for example. Such distinctions lead to slightly different prices – and CFP Direct gives clients an insight into exactly how big those differences are.

While compliance-based trading in emissions remains the firm’s core priority, CF Partners is more than just a one-trick pony. Many of its clients have hedging needs elsewhere, says Navon, so it makes sense for the firm to offer trades in other energy commodities. Utilities need to buy carbon credits, but they also need to hedge their coal; small airlines might want to voluntarily purchase emissions, but they also have a pressing need for hedges on jet fuel. Luckily for such clients, the company has the ability to serve these requirements too.

Elsewhere, CF Partners’s asset management business launched a new long/short equity hedge fund at the end of March, while in September 2012, the firm began a voluntary emissions reduction firm known as Arctix Sustainable Solutions.

As Energy Risk went to press, CF Partners was locked in a legal dispute in the UK’s High Court with Barclays and Stockholm-based carbon credit origination firm Tricorona. The case relates to the bank’s June 2010 takeover of the Swedish firm, which had previously been eyed as a potential target by CF Partners. But whatever the outcome of the court case, it is likely CF Partners will continue to have plenty of achievements to boast about.