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Powering Up an Idea for Investing in the Sustainable Energy Revolution

March 6, 2023
Abby Baer

IDEA

The founders of Corestone Capital and the Energy Mineral Group (EMG) identified a market opportunity. They observed that while investors sought exposure to the green energy revolution through stocks of Tesla and other electric vehicle (EV) companies using lithium batteries, these companies did not provide adequate exposure. The prices of the battery source metals—lithium, cobalt, copper, and nickel—remained relatively flat. Recognizing the potential for future price increases in these source metals due to the rising demand for EVs and green technologies, and understanding the underdeveloped supply chain for each metal, the founders, as major private equity investors in the energy sector, conceived the idea of creating an investable opportunity for liquid investors. Their aim was to offer investment options in these metals, with portfolio weights that mirrored the percentages of metals required to create a lithium battery.

ENGAGEMENT

These partners, known for their expertise in this asset class, acknowledged the complexities involved in implementing this idea and the necessity of collaborating with an expert in ETF manufacturing, creation, and execution. Therefore, they sought the assistance of Vident to navigate these challenges.

Considering that the source metals do not exist within a conventional marketplace like gold or platinum, Vident’s experts initiated an investigation into obtaining exposure to these metals within a regulated exchange environment.

SOLUTION

The Vident team demonstrated their creativity and expertise by identifying the optimal solution for our client. Their efforts included: 

  • Recommending the futures market as an initial point of exploration, where a diverse range of commodities are available.
  • Identifying futures contracts for the desired metals, while carefully evaluating daily liquidity constraints and potential risks associated with each contract.
  • Collaborating with brokers to gain a comprehensive understanding of the available possibilities.
  • Consulting with in-house quantitative experts to develop portfolio models that realistically align with the envisioned weighted portfolio structure.
  • Utilizing their extensive knowledge of relevant regulatory requirements.

The partner firms are now actively managing this portfolio, which was constructed based on the Vident-designed strategy. Subsequently, an ETF has been launched.

Vident welcomes individuals with visionary ideas into its ecosystem and actively seeks to be a part of innovative opportunities that require creative solutions. We foster a collaborative environment that enables the activation of ideas and the development of products with the highest probability of success. How do we achieve this? By leveraging our experts, resources, and a mindset that effectively bridges the gap between vision and execution.

This case study is not a recommendation to purchase or sell any security or commodity referenced herein. The case study is an illustration, as authored by Vident, of how Vident can and does partner with others in helping bring ideas to life. There is no guarantee that any product, security, or commodity will be profitable. Investing involves the risk of loss.Vident serves as sub-adviser for EMG’s product.

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