Energy-focused stock picker Electron Capital is raising funds while 'waiting in the bush' for the right market moment
After tackling succession, one of the biggest hurdles in the $4.5 trillion hedge fund industry, Electron Capital is on to its next challenge: raising money in the current, chaotic environment.
Electron, which invests in infrastructure, utilities, and companies powering the "energy transition," believes its strategy will succeed regardless of who is in the White House, according to current CIO and managing partner Ran Zhou, who noted it began managing money when George W. Bush was president.
The firm declined to specify a specific figure it hopes to raise, but the manager believes it has a strong pipeline of potential backers even as the industry has moved away from single-manager funds and toward multistrategy behemoths.
Zhou, speaking with Business Insider during a recent interview in New York, stressed that the firm's long-term focus, in particular on companies' rising energy demands and the need to provide this power cheaply and sustainably, is still viable.
For example, infrastructure for artificial intelligence's power needs has become a hot topic for big-name investors to talk about, but Electron has been thinking about the burgeoning field's energy needs for years. Regulatory filings show the manager first invested in Quanta Services, an electricity infrastructure company, in 2019 when the stock, now trading at nearly $300 a share, could be bought for less than $50.
"The power thesis is not changing," said Zhou, who joined Electron in 2005 from a Columbia grad program and never left.
Even clean energy, which is "facing a lot of headwinds," Zhou said, could be attractive soon as capital leaves the sector and valuations drop. The Trump adminstration has pledged to support the oil-and-gas industry and cut support to cleaner intiatives.
The firm is "like hunters waiting in the bush, waiting for the right moment," Zhou said.
One of those moments may be happening now: An investor document states that the firm is up more than 3% in its long-short strategy in April through the 25th, cutting losses this year to 1.8%. The S&P 500 is down more than 6% on the year as of press time. Last year, the manager made more than 21%.
Shaver departs, but capital stays
The $2.8 billion asset manager was started by Jos Shaver, who first ran the strategy as a standalone fund from 2005 to 2008 before joining Steve Cohen's now-shuttered hedge fund, SAC Advisors. Shaver then relaunched the manager in 2013.
He passed the reins to his longtime lieutenant Zhou in October 2023, although he remains a senior advisor to the firm and has a majority of his net worth still invested in the manager.
Unlike many single-manager funds, which are often molded by and marketed around their founders, Electron was able to successfully transition to the next generation, in part thanks to a global roadshow Shaver and Zhou embarked on in 2023 to explain the change to existing LPs.
The result: Net inflows in 2023 despite the leadership change. The manager has enjoyed long-lasting relationships with many backers — more than half of Electron's top 10 investors have been with the manager for more than a decade.
Zhou said the firm's message during the roadshow was that there was no star at Electron but instead an investing team that "hunts as a pack," which resonated with LPs. The connection with its backers has allowed Electron think beyond the next quarter or year, and the manager has built out its team to handle more capital and more work.
The field since Electron's strategy started trading nearly 20 years ago has grown significantly, and Zhou said there are now 700 stocks in the firm's investible universe. Given the expansion, the manager has slowly built out its investing team over recent years, hiring five analysts since 2019 to support Zhou, utilities-focused portfolio manager Neil Choi, and Shaver.
"The majority of gains come from long-term holdings and identifying the structural changes coming early," Zhou said, and the firm plans to keep to that script.
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Ukraine's defense industry says the fight against Russia has shown it that the West's approach to weapons is all wrong
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He said that the expensive weapons like the US military's M982 Excalibur guided munition (each shell costs $100,000) "don't work" when the other side has electronic warfare systems and the kind of traditional artillery rounds that are 30 times cheaper. Goncharov pointed to the M107, a self-propelled gun that was first fielded by the US in the 1960s, as an example of inexpensive firepower that can be effective in large numbers. "You don't need 10 Archers from the Swedish that are probably one of the best artillery systems in the world," he said, referring to the artillery system made by BAE Systems that was given to Ukraine by Sweden. Instead, you need 200 cheap howitzers like the Bohdana one that Ukraine makes. The "enormous rate of damage," the significant rate of ammo and equipment attrition, in a fight like this means you need a constant supply of weaponry to keep fighting, especially when there isn't any guarantee the high-end weapons will be the game changers promised. Russia's grinding attritional warfare Russia's invasion of Ukraine has been one marked by extensive use of artillery and tremendous ammunition expenditure. The war in some ways resembes the huge, destructive battles of World War I and World War II, with high casualties and substantial equipment losses. Russia has one of the world's largest militaries backed by a large population. The country has repeatedly demonstrated a willingness to pursue an attritional style of warfare, committing a lot of troops and weaponry to a fight to slowly wear down its foe. Russia's invasion has chewed through equipment. The UK Ministry of Defense said in December that Russia had lost over 3,600 main battle tanks and almost 8,000 armored vehicles since the full-scale invasion began in February 2022. The Russians have the mass to absorb those losses. Ukraine has struggled with weapon and ammo shortages, as well as deficiencies in manpower. Ukraine turned to small, cheap drones as an asymmetric warfare alternative; Russia has employed uncrewed systems in battle as well. China, another concern in the West, has built a similar kind of force, one with the mass to take losses. The West, on the other hand, has spent the last two decades and change fighting lower-level adversaries where its forces can win the day with superior capabilities. European and NATO are waking up Goncharov's warning is one that has been echoed by other Western defense officials and companies. Countries have been keen to learn lessons about fighting Russia from the conflict in Ukraine, particularly in Europe, where many countries warn Russia could pursue further aggression in the future and defense spending is growing rapidly. Gabrielius Landsbergis, the former defense minister of Lithuania, a NATO ally bordering Russia, previously described the war to Business Insider as one of "high quantities." He said that while the West has largely focused on new and expensive weaponry that takes a long time to manufacture, Russia has been "building something that's cheap, that's expendable, that's fast." He said the West has "been preparing for a different kind of war" than what it would face in one against Russia, focusing on impressive equipment that is "very expensive." Troels Lund Poulsen, the Danish defense minister, previously told BI that "one of the lessons" from Ukraine is that the West needs far greater quantities of inexpensive weaponry to meet the threats posed by Russia and China. The head of NATO, Mark Rutte, urged countries to take similar learnings earlier this year, saying the alliance is too slow at developing weapons. He said the alliance works toward perfect, "but it doesn't have to be perfect." He said that Ukraine will go ahead with equipment that is a "six to seven" out of 10, while NATO militaries insist on reaching "nine or 10." He said it wasn't about getting rid of the expensive weaponry completely, but about finding a balance. It's about "getting speed and enough quality done in the right conjunction." That's something warfare experts have also told BI. Michael O'Hanlon, a senior fellow and the director of research in the foreign-policy program at the Brookings Institution, said the West's approach needs to change. The American military, for instance, is far more used to wars where "the whole point is you're not going to be slogging it out for months and years on end." But he also said that doesn't mean the West needs to completely abandon the development of advanced systems. "Those things have not become unimportant just because we realized that other things are also important," he said. The UK's armed forces minister also warned last month that the war showed the West needs to change how it procures weaponry. Luke Pollard said Ukraine's fight showed NATO "the way we have run our militaries, the way we have run our defense, is outdated." He said NATO militaries "build and procure really expensive high-end bits of kit. And it will take you five, 10 years: five years to run a procurement challenge, another 10 years to build it." Industry has taken note, too. Kuldar Väärsi, the CEO of Milrem Robotics, an autonomous unmanned ground vehicle company in NATO ally Estonia, told BI in May that "we need to learn from Ukraine, and we need to get more pragmatic about what kind of equipment we buy." He said Europe needs to learn that "having a hundred more simple pieces of equipment is better than having 10 very sophisticated pieces of equipment." He said countries need to start buying less-sophisticated pieces of weaponry en masse so industry can adjust. "Industry has to manufacture what the customer is buying. And if the customer is still buying only a few very sophisticated items, then the industry just aligns with that." And the reality is that may not work.
