Billionaire hedge fund operator and “green” energy magnate Tom Steyer has pledged $100 million in the 2014 election cycle to help Democratic candidates who oppose the Keystone pipeline and who favor “green” energy over fossil fuels. Steyer claims to be a man of principle who has no financial interest in the causes he supports, but acts only for the public good. That is a ridiculous claim: Steyer is the ultimate rent-seeker who depends on government connections to produce subsidies and mandates that make his “green” energy investments profitable. He also is, or was until recently, a major investor in Kinder Morgan, which is building a competitor to the Keystone pipeline. Go here, here, here, here, here and here for more information about how Steyer uses his political donations and consequent connections to enhance his already vast fortune.

But Steyer’s hypocrisy goes still deeper. Today, he is a bitter opponent of fossil fuels, especially coal. That fits with his current economic interests: banning coal-fired power plants will boost the value of his solar projects. But it was not always thus. In fact, Steyer owes his fortune in large part to the fact that he has been one of the world’s largest financers of coal projects. Tom Steyer was for coal before he was against it.

A reader with first-hand knowledge of the relevant Asian and Australian markets sent us this detailed report on how Steyer got rich on coal. He titled his report “Hypocrisy & Hedge Funds: Climate Change Warrior Tom Steyer’s Secret Life as Coal Investment Kingpin.” Here it is, in full:

Tom Steyer founded Farallon Capital Management L.L.C. (“Farallon”) in 1986. Farallon has grown to become one of the largest and most successful hedge funds in the United States with over $20bn in funds under management.1 Mr. Steyer’s net worth is reported to be $1.6bn.2

Mr. Steyer left Farallon in 2012 to focus on political and environmental causes and potentially to position himself for public office. He has been described in the press as the “liberals’ answer to the Koch Brothers”3 due to his wealth and his opposition to the Keystone XL pipeline and carbon-based energy in general. He has dedicated some $50 million of his personal fortune to back political candidates who support his position on climate change – and punish those who don’t. Mr. Steyer has led recent campaigns with Bill McKibben to encourage university endowments to divest coal equities.

In his recent letter to the Middlebury College and Brown University Boards of Trustees, investment professional Mr. Steyer wrote:

I believe a coal free portfolio is a good investment strategy…4

In a recent interview, Mr. Steyer was quoted referring to “coal-industry baron David Koch”:

[Koch is] taking the most incredible risk that I’ve ever seen someone take, of going down in ￼history as just an evil – just a famously evil – person!5

By their nature, hedge funds are shadowy organizations and Farallon is no exception. Farallon staff do not talk to the press. Their website provides virtually no information and, because it is a private fund, Farallon is not required to report details of its investments.

Essentially all the public knows about Farallon’s investment activities is what the fund is forced to file; for example when their ownership stake in a publicly listed company rises above a disclosable threshold, or when they are compelled to disclose information pursuant to a lawsuit.

While a few bits of information on Farallon’s investments in carbon energy have seeped into the North American press via these disclosures, this information doesn’t begin to scratch the surface. The North American press’s lack of awareness of Mr Steyer’s activities in the coal sector is due to the fact that all of Farallon’s investments in coal have been made outside of North America, and wherever possible through opaque structures which mask their direct involvement.

In order to gain an appreciation of the extent of Farallon’s epic involvement in the coal sector under Mr. Steyer’s tenure one needs to spend time in Jakarta and Sydney, and in the regional financing centers in Hong Kong and Singapore, and speak to professionals (bankers, lawyers, mining consultants and principals) who were directly involved in these Farallon-sponsored coal transactions. With a modicum of effort one discovers that since 2003 Farallon has played the pivotal role in financing the tremendous restructuring and growth in thermal coal production in the region. All of this took place under Mr. Steyer’s tenure as founder and senior partner of Farallon.

Buried in his recent missive to the Middlebury College and Brown University trustees on the evils of investing in coal, Mr. Steyer added this statement:

…I have directed my financial team to divest my holdings of coal investments so that I will have a ￼￼coal free portfolio…

Perhaps he is being disingenuous and wishes people to believe that some low level employee at Farallon bought a few shares in coal companies without his permission. It is possible that he is trying to inoculate himself against the inevitable perceptions of hypocrisy that he knew would arise when the scale of his involvement in the coal sector came to light, as eventually it must.

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The facts, summarized below, might lead one to conclude that:

• Mr. Steyer has had a direct, personal involvement in assembling, through Farallon, a portfolio of strategic investments in overseas coal miners and coal fired power plants which is unprecedented in scale. The total quantum of Farallon’s investments in these transactions is not publicly disclosed, but reasonable estimates suggest that it could be between US$1 and $2 billion in total.6 Taken collectively, the coal producers in which his fund has amassed these investment interests represent one of the largest sources of thermal coal in the world;

• The financing provided by Mr. Steyer’s fund enabled these coal producers to restructure and recapitalize thereby freeing them to grow rapidly during a period of rapidly rising coal prices, leading to one of the largest expansions of thermal coal production in modern times7;

• Made during a period of ever rising coal prices, these investments were almost certainly extremely profitable for Mr. Steyer’s fund overall, and my extension Mr. Steyer personally. It stands to reason that few people in American history have made more money from investment in thermal coal than Mr. Steyer.

Some facts:

• As casual conversation with professionals involved in the regional coal sector will confirm, over the past decade Farallon has become, without question, the pre-eminent financier of coal transactions in Asia and Australia.

• Under Mr. Steyer’s tenure as senior partner, Farallon has been responsible for providing acquisition and expansion funding to about a half dozen of the largest coal mine and coal power plant buyouts in Australia and Asia since 2003. In each case the funding provided by Farallon was pivotal to the success of the transaction.

• Without the leading role played by Farallon many of these transactions, and the subsequent leaps in production (often necessary to repay Farallon’s high interest rate debt facilities), would not have occurred.

• The half dozen Indonesian and Australian coal producers in Farallon’s investment stable produced about 80 mtpa of coal collectively prior to Farallon’s involvement. By 2012 these companies produced 150 mtpa (see table below). In other words, the capital provided by Mr. Steyer’s Farallon group was pivotal in enabling incremental coal production of about 70 million tonnes of thermal coal production per year.

• Looked at another way, the coal mines that Mr. Steyer has funded through Farallon produce an amount of CO2 each year that which is equivalent to about 28% of the amount of CO2 produced in the US each year by coal burned for electricity generation.8

• As above, the companies in which Farallon has made these huge strategic investments produced about 150 mt of coal in 2012. On a combined basis this would make them one of the largest private coal sector companies in the world9 (by comparison the “famously evil” Koch brothers appear to own a grand total of … wait for it ….one coal mine which, at its peak, produced 6 mtpa and is no longer in operation).10

• The quantum of Farallon’s profits on these investments over the past 10 years is not publicly available. Based on the estimated investment quantums6, typical hedge fund returns of 20% and an assumed average holding period of two years per investment, total profit to Farallon from coal investments of $400 million is a reasonable estimate. As the founding and senior partner of Farallon, Mr. Steyer would have received a sizeable share of this profit personally.

Partial History of Farallon’s Overseas Coal & Related Investments:11

This data is based on public information and in a few instances information available from professional sources. All of these investments took place during the period of Mr. Steyer’s tenure as senior partner of Farallon.

2003 – PT Kaltim Prima Coal

In October 2003 Indonesia’s Bakrie Group, through listed vehicle PT Bumi Resources, purchased PT Kaltim Prima Coal from Rio and BP in a transaction valued at $500 million. Around $200 mn of the financing was technically underwritten by an investment bank but Farallon is understood to have been the actual provider of funds. At the time of the transaction Kaltim Prima Coal produced 18 mtpa. As a result of the buyout the mine has been able to lift production of to 41 mtpa by 2012.

This transaction initiated a long standing relationship between Farallon and the Bakrie group, one of Indonesia’s leading business groups and largest coal mine owners. This relationship led to a series of refinancings of their coal operations including the PT Arutmin coal mine.

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Farallon has also been a substantial lender to other Bakrie Group assets. They have recently been identified in the press as a leading member of a consortium which lent $1.4 billion to Long Haul Holdings12, which owns various Bakrie-linked investments including stakes in listed PT Berau Coal (subsequently sold) and the Bakrie’s stake in PT Bumi Resources (which in turn controls the PT Kaltim Prima Coal and PT Arutmin coal mines).

2004 – PT Berau Coal

Farallon provided significant financial backing to the Indonesia buyout consortium for their ~$279 m

buyout of a 90% stake in Berau Coal (conducted in two stages in 2004 and 2006).13

PT Berau Coal was subsequently sold to another Indonesian investor which was then sued by Farallon in 2010 in order to obtain a 3% equity stake in PT Berau Coal that Farallon said they were entitled to (these were most likely “equity kickers” which Farallon was given for providing debt financing for the buyout).14

PT Berau Coal is an Indonesian thermal coal producer which mines and sells around 21 mtpa today.

2005 – PT Adaro Coal

Farallon played a leading role in an investment consortium which purchased the 41% equity stake in Indonesian coal producer PT Adaro Coal from New Hope Corporation of Australia for $378 million.15 PT Adaro is one of the world’s largest thermal coal producers with annual production of 50 mtpa.

2010 – Maules Creek Acquisition

In a transaction initiated personally by Steyer16, Farallon took the lead in providing $455 m of debt and equity linked acquisition financing to back Australian entrepreneur Nathan Tinkler in his A$480 m acquisition from Rio of the Maules Creek coal mine in Australia’s Hunter Valley. Maules Creek was not in production at the time of the acquisition, but with Farallon’s support it was able to complete an initial public offering on the ASX (as Aston Resources) with a completed feasibility study to reach 10 mtpa of annual coal sales.

2011 – Aston Resources – Whitehaven Coal Merger and Restructuring

Aston Resources and ASX listed coal producer Whitehaven Coal merged in March 2012. Mr. Tinkler emerged as the largest single shareholder of the combined entity. It is widely reported16 that Farallon is one of Mr. Tinkler’s leading financiers (with the lion’s share of a reported A$600 m financing facility to Mr. Tinkler backed by his shares in, among other entities, Whitehaven Coal). Pursuant to a restructuring of the facility to Mr. Tinkler, Farallon acquired a direct stake in Whitehaven in June 2013, buying 9.9% for A$300 million. At that time a representative from Farallon took a position on Whitehaven Coal’s Board of Directors. Farallon is now listed as one of Whitehaven’s single largest shareholders with 16.6%.17

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Data on growth in coal production from Farallon-invested coal companies is provided below:17

￼￼￼Farallon’s Strategic Investments in Coal Fired Power Plants

In addition to strategic investments in major coal producers, under Mr. Steyer’s direction Farallon became a major investor in coal fired power plants, all made offshore and with barely a ripple of publicity.

In late 2012 Mr. Steyer said: “We immediately get off coal. We move to something …where we are not causing massive destruction.”18 More recently his NexGen Climate Action group was stirring up concern about sinister Chinese investment in Canadian tar sands.19

Shortly before these statements Mr. Steyer’s fund was, in fact, banking the check from the sale of their investment in a major Chinese coal fired power producer, Meiya Power, to China Guangdong Nuclear Power Company. Farallon and another fund had purchased Meiya Power a few years earlier. Meiya Power is one of the leading foreign invested independent power producers in China (founded by PSEG), with ownership stakes in six major coal fired power stations in China which provide more than 2,400 MW of electricity per year.20

In 2008 Farallon purchased an 18% stake in India Bulls Power, one of India’s top power developers, for approximately $158 m.21 At the time of the investment India Bulls Power had 11,400 MW of power developments underway in India – the two most active are 2,700 MW of coal fired power at the Amravati and Nasik projects.

The foregoing suggests that there is a significant gap between Mr. Steyer’s words and deeds with respect to carbon based energy. Since he has chosen to inject himself into the national dialogue in such a high profile fashion it is reasonable for the public to ask Mr. Steyer to clarify his personal history regarding fossil fuel investments.

Whatever the merits of his message, it would be unfortunate if it was clouded by the perception that he might be saying one thing (offering unsolicited investment advice to major educational foundations urging them to sell coal investments) while at the same time doing another (profiting massively from coal investments).

A complete declaration by Mr. Steyer of the following items might clear the air:

i) information on all of coal-related investments made by Farallon during Mr. Steyer’s tenure as senior partner (amount, date made, date sold, return);

ii) if he was on the Investment Committee when these investments were made, a record of whether he for or against the investment;

iii) a list of Farallon’s current holdings of coal investments (to the extent that Mr. Steyer has an ongoing financial interest in them);

iv) to the extent he does, a commitment on an absolute date by which they will be sold;

v) information on how much of his personal fortune comes from these coal investments (and out

of curiosity, is it more than the $50 million he intends to invest in the anti-coal message?)

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Notes:

1. Regulatory Assets Under Management US Securities & Exchange Commission website, ADV filings, April 2014

2. Forbes on-line, April 19th, 2014

3. LA Times, December 21, 2013

4. Message to Middlebury College’s Board of Trustees, January 22nd 2013

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￼5. Men’s Journal, March 2013

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6. Estimated as follows:

￼￼7. Statistics from Barlow Jonker and the Indonesian Government suggest that Indonesian coal production rose from ￼about 175 mtpa in 2004 to over 400 mt in 2013, an average growth rate of about 9% pa over ten years.

8. ￼150 mtpa x ~2.86 tonnes of CO2 from one tonne of coal / 1,514 mtpa CO2 from coal burned in US to produce electricity. Data for 2012. Source http://www.eia.gov/tools/faqs/faq.cfm?id=77&t=11

9. As reference, Peabody Energy, the largest coal producers in the US, mined 184 mt of coal in the US in 2013. The next largest was Arch Coal which produced 137 mt of coal in the US in the same year.

10. A brief, good faith scan of the internet to understand the Koch brothers’ coal mining interests suggests that the only coal mine they own is through William Koch’s company Oxbow Mining LLC which operated the Elk Creek underground coal mine in Colorado. Elk Creek reached peak production of 6 mtpa in 2008 and subsequently closed due to seismic issues.

11. Farallon’s investment activities in Asia were completed under the “Farallon” name until about 2004. At that time the Asian activities of Farallon were restyled as Noonday Asset Management (“Farallon” and “Noonday” are the names of a group of rocks about 30 km off the coast of San Francisco). In 2013 Noonday Asset Management announced that it would once again use the name Farallon. In this note “Farallon” and “Noonday” are used interchangeably.

12. Financial Times, Oct. 4th, 2012. “Bakries Under Pressure Over Bumi Resources” ” …￼￼For example, a $1.4bn financing in February 2011 to Bakrie and Brothers and another affiliate, Long Haul ￼Holdings, was ultimately placed with several hedge funds including affiliates of San Francisco-based Farallon, DE Shaw and an Austrian bank, according to one hedge fund manager who was part of the lending group…”

￼13. Reuters, June29th, 2010. “Ownership Claim Casts Pall on Berau’s IPO.”

￼14. Euroweek, June 16, 2006. “…Merrill Lynch had been marketing a refinancing and recapitalisation that would allow￼investors in the mine–which include Farallon Capital, the US fund–to recoup some of their investment in Berau by ￼adding more leverage to the company…”

￼￼15. New York Times, April 5th, 2005.

16. Sydney Morning Herald, October 30, 2011 “How Singo Made Tinkler Rich”

17. Listed company public filings.

￼18. CleanTechnica and Reuters, October 10, 2012.

￼19. See National Journal, Feb 20th, 2014, “Tom Steyer’s China Syndrome” and, in view of Farallon’s investments in coal￼fired power plants, view the link to the Youtube video from Mr. Steyer’s NGO which attempts to malign Chinese ￼investment in North American hydrocarbon resources.

20. Meiya Power website (www.meiya.com);”Electricity privatisation and restructuring in Asia-Pacific” by Steve Thomas, David Hall and Violeta Corral, December 2004; and Enipedia.tudeflt.nl.

21. The Financial Express, Feb 15, 2008.

Hypocrisy is not in short supply in the political world, but Tom Steyer is in a class by himself. Now that he is enriching himself through “green” cronyism, coal is evil. Sure: like all hydrocarbons, it competes with the solar energy boondoggles on which he is making millions, with the aid of the Obama administration. But where was Steyer’s alleged social conscience when he was one of the world’s biggest investors in coal? And how substantial are his current holdings in coal projects? Is Steyer financing his anti-fossil fuel campaign on profits from past or, perhaps, ongoing investments in Asian and Australian coal? Inquiring minds want to know! Tom Steyer appears to have elevated political hypocrisy to an entirely new level.