These days, investors often discuss the possibility of a bubble forming within the tech companies that are developing artificial intelligence.
According to its CEO, Impax Asset Management Group is well-positioned to profit if worries about an AI-driven bubble lead to a dramatic move away from Big Tech.
Located in London, the $35 billion money manager focuses on sustainable, low-carbon investing techniques and is already “seeing signals that those advantages are flowing through,” according to CEO Ian Simm in an interview.
Investors often discuss the possibility of a bubble forming within the tech companies that are spearheading artificial intelligence these days, according to Simm. At the same time, hundreds of billions of dollars are being invested on technologies whose potential to provide long-term profitability has not yet been shown. However, for the time being, fear of losing out has fueled incredible value growth, leading to conjecture that Nvidia Corp. alone may achieve a $5 trillion market capitalization.
The so-called Magnificent Seven, which include Tesla Inc., Amazon.com Inc., Microsoft Corp., Apple Inc., Alphabet Inc., and Nvidia, together make up over 45% of the Nasdaq 100 Index.
Simm said that many asset owners are now concerned about the limited markets and are looking to diversify their exposure to stocks by building portfolios that are not Mag 7 in nature. “The market cannot continue to be so limited.”
Due to lost mandates after low-carbon investments that did not work out, Impax has had a difficult time lately. The asset management lost a deal with St. James’s Place Plc at the end of 2024, which resulted in Schroders Plc acquiring a portfolio worth around $6 billion. According to its half-year report, Impax also saw significant redemptions from North American customers and withdrawals of assets sub-managed for BNP Paribas Asset Management.
Simm said last year that Impax was slow to see the potential for profits in Nvidia and began accumulating shares during a brief decline in the company’s share price. However, the asset management has mostly avoided Big Tech’s rise, which Simm claims has allowed it to diversify its holdings and make it less vulnerable to a possible selloff.
“Impax is obviously biased toward defensive growth and maybe small and mid-cap firms, and it leans away from digital technology and toward industries like industrials and minerals,” he said.
Simm says the fund manager is still seeing some withdrawals from retail investors “who are not thinking mathematically or maybe even strategically” about their risk management as Impax waits to see how Big Tech values evolve.
While some European asset owners are removing mandates from US money managers that left climate coalitions, he argues there is still opportunity to attract institutional customers. In light of this, Simm, who would not identify possible new customers, said Impax has seen “some fairly substantial new mandates kicking off.”
He said, “We are thrilled about the pipeline for new business, especially in the institutional market.”
With assets of nearly $2 billion, the Impax Global Environmental Markets Fund has increased by about 13% so far this year. In addition to more conventional green equities like Schneider Electric SE, Xylem Inc., and Waste Management Inc., holdings include Microsoft and Nvidia.
Additionally, Impax provides private equity investments in the renewable energy industry, which is seeing a resurgence as AI meets the growing need for electricity production. This year, the S&P Global Clean Energy Transition Index has increased by around 40%, while the S&P 500 Index has increased by 11%. In contrast, the S&P Global Oil Index has increased by less than 5% throughout this time frame.
“The need for additional data centers is one of the main causes of the power shortage in most of the Western world, and especially in the US,” Simm said. “Given that energy costs, and electricity prices in particular, have increased significantly, there is, of course, a lot of interest in energy efficiency.”