Countries, non-profit organizations, indigenous peoples, and natural resource companies are all interested in obtaining a part of the Arctic. Now, we can add a hedge fund to the list. Guggenheim Partners, the financial services company which manages over $125 billion in assets, has confirmed that it is looking into establishing an investment fund in the Arctic, perhaps with a focus on Alaska. Alice Rogoff, publisher of the online newspaper Alaska Dispatch and wife of the co-founder of the Carlyle Group, David Rubenstein, first announced the news at the World Affairs Council’s “Politics of Global Climate Change” conference at University of Alaska Southeast in Juneau earlier last week. Rogoff also suggested that one investment possibility for Guggenheim would be to privately fund the construction of an icebreaker, which it could then lease out to the U.S. Coast Guard. However, Lawson Brigham, a professor and retired Coast Guard captain, observed that this would likely not be practical, given that the Coast Guard would need full and unrestricted access to a federally-funded ship during war, should it ever break out in the Arctic.

Rogoff added, “The single biggest source of investment dollars in Guggenheim’s or probably anybody’s fund will be China.” This would be an indirect way for China to invest in and potentially profit from the Arctic even though it does not have any territory there. This would not be the first instance of private Chinese investment in the Arctic: Businessman Huang Nubo is planning to buy a swath of land equal to one percent of Iceland to turn into an ecoresort.

Guggenheim spokesman Jeffrey Kelley remarked, “We are in the very early planning stages for an Arctic investment fund. At this point in time it would be premature to comment further about potential structure or investment parameters.” Guggenheim reportedly posted a link to the article in Alaska Dispatch about the fund, but they seem to have removed it from their website, as I am unable to locate it.

However, a speech given by Guggenheim’s CEO and CIO, Scott Minerd, in June 2011 at the Arctic Imperative Summit in Girdwood, Alaska might shed some light on the hedge fund’s interests in the region. Minerd started his speech by giving an overview of the history of mercantilism. Some countries, such as the U.S. and Canada, got their start by trading their natural resources. They were then were able to develop other industries that did not depend on finite resources, allowing them to advance their economies beyond the mercantilist stage. Others, however, “mistook the proceeds received from the sale of their natural resources as revenues, when in reality they should have been accounted for as the proceeds received in exchange for the disposition of assets,” in the words of Minerd. They have relied on oil, gas, coal, or other resources which are decreasing overtime. Alaska, which is heavily dependent on natural resource extraction, therefore “stands at a crossroads,” along with the rest of the Arctic.

Minerd compares Alaska to an emerging market. He claims, “Alaska today could be referred to as America’s crown jewel. Within our lifetime, Alaska has the potential to become the most dynamic growth engine among all the states of the Union.” This would be a huge turnaround, since Alaska is currently the number one recipient of federal stimulus aid per capita – by far.  One researcher, David Barker at the University of Iowa, has also determined that it has cost the federal government more money to develop Alaska than it has received.

Minerd closes his speech by giving the state advice on how to locate good investors. Minerd emphasizes that the ideal capital partner will shares their talents and their money with Alaska. The state’s residents need to learn the “human capital skills” from hedge funds in order to be able to properly manage the state’s assets going forward. Minerd concludes, “Their money will help, but their human capital skills are the real resources that are to be traded for the rich natural resources of Alaska.” Whether the ideal capital partner will be Guggenheim has yet to be seen.

News Links

Guggenheim confirms interest in Arctic fund,” Juneau Empire

“Guggenheim partners announces Arctic investment fund,” The Guardian

mistook the proceeds received from the sale of their natural resources as revenues, when in reality they should have been accounted for as the proceeds received in exchange for the disposition of assets.

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