Carbon markets, emissions, sustainability, cap-and-trade. These are not the buzzwords that would seem to be part of a winning strategy for a hedge fund these days, given the Trump administration’s war on alternative energy and denial of climate change.
But Molecule Ventures, a climate-based asset management firm, is generating strong returns, despite the headwind. The firm oversees MV Global Carbon Fund, which was up 49.2 percent in 2025, the first year of the Trump administration. Since its late-2021 inception, it has compounded at nearly 17 percent per year.
Molecule Ventures is led by Nik Mittal, a former partner at JANA Partners. He co-founded the firm with Gary Claar (who previously co-founded JANA with Barry Rosenstein), and Nicholas Kracov, who is not a hedge fund or financial industry person but has a background in renewable energy and carbon markets.
At year-end, the fund managed $125 million and the firm a total of $430 million. The fund focuses exclusively on compliance-based carbon and environmental markets.
Molecule’s actively managed strategy invests and trades in what a client document describes as “the steadily expanding universe of liquid compliance carbon and adjacent environmental markets” and in tradable government-run emissions permits issued under emissions trading systems, also known as cap-and-trade. “These markets set declining annual caps on emissions from energy-intensive sectors,” the firm explains in an offering document obtained by Institutional Investor.
Allowances are sold via auction, with each representing the right to emit one ton of CO2. “Covered entities must buy and turn in allowances to account for their annual emissions, with fewer allowances issued every year,” the document says, stressing that cap and-trade maximizes cost-effectiveness by targeting the lowest-cost marginal ton of abatement.
Molecule claims to deliver attractive risk-adjusted, uncorrelated returns by “selectively allocating to markets where embedded supply scarcity and mandated demand will drive structural repricing, capturing additional value by identifying and dynamically trading around fundamental/regulatory catalysts.”
The fund points out in the document that carbon pricing is expanding as a proven, revenue-generating, and cost-effective tool for cutting emissions, adding that jurisdictions with carbon pricing are rapidly driving toward their climate targets. Every market, whether the U.K., Europe, or California, covers some industries but not all. However, more and more industries are being subjected to emissions standards or rules.
Molecule notes that more countries are adopting carbon systems for more industries, benefiting its strategy. Governments are using carbon pricing to reduce emissions and as a big revenue source. So the total addressable market for cap-and-trade is growing.
Not surprisingly, California is the largest cap-and-trade market in the U.S. Continental Europe is the largest internationally. The U.K.’s fast-growing cap-and-trade market, which developed after Brexit, is similar to the European Union’s.
Molecule deems California, the U.K., and the EU as the most attractive opportunities.
The fund likes California because its auction reserve price rises annually based on the consumer price index plus an escalator, which Molecule sees as providing a structural support level. Most important, the program has been legislatively extended through 2045.
Amid regulatory delays and political uncertainty, the price of carbon is currently trading near reserve support levels. But, Molecule says, the real driver is supply: The cap by law is reduced annually through 2045, aligned with net-zero targets.
Molecule notes that the European Union Emissions Trading System remains the world’s largest carbon market. Its Market Stability Reserve withdraws surplus allowances, leading to further scarcity.
After Brexit, the U.K. ETS was designed to mirror the EU ETS. But so far, the price of U.K. allowances is trading below that of European allowances — so there is an arbitrage opportunity. The price in the U.K. is expected to rise as there is a good chance the U.K. and EU will relink and the arbitrage gap will close.
Meanwhile, in the U.K., the disincentive to pollute is expanding, reducing the amount of credit the market is allowed to trade.
In markets like the EU and the U.K., there is a legislative mechanism to drive up the price of carbon because supply is being driven down. In California, on the other hand, there is a clear-cut price increase owing to the CPI and an escalator.
The market is also getting a kind of boost from the Trump administration as it causes uncertainty. And as manufacturing returns to the U.S., the number and size of data centers increase, and utilities build more gas plants, pollution will increase. Still, the federal government can’t roll back the cap in California because it is state law.
“The U.S. Constitution reserves powers to the states, particularly citizen health and safety,” Molecule says in its offering document. “In Trump’s first term, the DOJ attacked California’s cap-and-invest market linkage with Quebec. All claims failed. Cap-and-invest provides crucial state revenues amid budget deficits, and the state is committed to protecting it.”
