Amid the sublime subprime gloom and doom in mortgages and the systemic failures threatening the credit markets, green energy investments may be a the lone bright spot for Wall Street firms. Goldman Sachs ( GS) and Credit Suisse ( CS) appear to believe so. The two firms could look to plow hundreds of millions into newly-launched, renewable energy private equity fund Hudson Capital Management. Kicked off by Goldman alum Neal Auerbach late last year, the Teaneck, N.J.-based fund could look to raise as much as $2.5 billion. It will target late-stage, environmentally-friendly energy generation projects such as wind farms, solar panels and biomass and biofuel projects in the U.S., as well as Latin America, Europe and Asia. Its initial investments will be made via limited partnership vehicle Hudson Clean Energy Partners. On Thursday, Credit Suisse announced that it would look to invest about $300 million into Hudson. As a part of Hudson Capital's initiative, Auerbach also has recruited energy banking honcho John Cavalier to come in as a partner from Credit Suisse in New York, where he is currently vice chairman, corporate and investment banking and chairman of the firm's global energy group. Officials at Hudson Capital and Credit Suisse did not return calls for comment. Goldman's precise involvement at this point could not be determined, but many partners of the firm have individually invested capital in the Hudson venture. A spokesman at Goldman declined to comment. High-profile investment banks such as Citigroup ( C), Merrill Lynch ( MER) and Morgan Stanley ( MS) have been pouring prodigious sums, by way of principal investments of their capital, into green energy over the past year and a half. Driving the big energy push for some of the larger institutions is the increasing prices of commodities such as oil and natural gas. Contracts for crude oil hit a record $100.09 a barrel on Jan. 3 and have continued to climb since with prices for May delivery at $106.47 a barrel, according to Bloomberg. High prices of coal-fired generation plants and their lack of appeal among environmentalists, as well as the high costs of nuclear projects, are serving as major drivers for green, clean energy. Moreover, the U.S. and other nations over the past few years have been promoting energy independence and offering more economic incentives to invest in so-called green projects and clean technology efforts. Industry group New Energy Finance reports that clean tech investments tripled between 2002 and 2006 to about $63 billion and that number over the course of the next few years is expected to ratchet up, observers say. Credit Suisse's Cavalier also has said publicly that he expects green energy companies to tap the public markets in greater numbers, noting that the market value of the world's publicly-listed solar companies stood at about $1 billion in 2004 and is more than $71 billion presently, with pending regulation that could further fire up fresh offerings from green companies aiming to grow. Cavalier has coordinated some big energy initial public offerings, including the IPO of Chinese solar firms SunPower ( SPWR) and Suntech Holdings ( STP). Last summer, he helped lead the IPO of Boston-based EnerNOC ( ENOC).
To be sure, generating large payoffs is a big part of the story supporting these initiatives, since private equity firms and banks stand to see boffo profits from attractive renewable plays -- with an IPO among the possible strategies for these firms to cash out. Green energy asset sales have also proved a worthy exit. Last year, Goldman scored a $900 million gross profit in its investment in privately-held wind farm project, Horizon Wind Energy. Goldman acquired a large majority stake in the 11-plant wind farm operation in 2005, then known as Zilkha Renewable Energy, from private investor Michael Zilkha and sold the operation to EDP Energias de Portugal for $2.15 billion. The wind deal, which had been originally sourced by Auerbach and then-Goldman executive Joe Slamm, helped to bolster Goldman's third-quarter 2007 earnings as its banking peers racked up huge writedowns in mortgage-related securities such as collateralized debt obligations and asset-backed securities. Slamm also departed Goldman about a year ago to team up with Auerbach at Hudson Capital. Big energy returns aren't lost on other private-equity firms either. Riverstone Capital, whose partners include the Carlyle Group, is said to be in the midst of raising some $4 billion targeting among other investments green energy, according to media reports. The Auerbach and Cavalier venture is gunning for 30% internal rates of return -- a measure of an investment's annualized compounded return in excess of its original cost -- with a management fee of 2%. Cavalier has spent the bulk of his career at Credit Suisse by virtue of the Swiss bank's 2000 acquisition of Donaldson, Lufkin & Jenrette, where he led DLJ's power and energy mergers and acquisition practice. Prior to that, he cut his teeth at storied capital markets firm Drexel Burnham Lambert. Negotiations for the Credit Suisse/Hudson partnership have been tense over the past several months and have largely been hung up on ownership and terms. Sources tell TheStreet.com that Credit Suisse balked on committing capital to the deal because it had hoped to take more control of the Auerbach-run fund vehicle. Credit Suisse also intended on taking more control of the budget and how funds were deployed. Hudson's Auerbach co-founded Goldman's U.S. alternative energy with Slamm. Veteran banker and former Goldman exec Daniel Gross also is a part of the Hudson Capital team.