Capitalists outline investment options for 'catch shares'

Investment capital is almost certain to find a role in the conversion of America's fisheries from essentially common resources to privately managed fishermen's cooperatives through a system known as catch shares.

Just ask Michael Van Patten, a Greenwich, Conn.-based entrepreneur — or Ed Backus, vice president for fisheries at Ecotrust, the Oregon non-profit that seeks community solutions to social and environmental problems.

Van Patten and Backus have followed carefully the long unwrapping of the Obama administration's policy for carrying the nation's fisheries down the home stretch and back to sustainability from the dire straits they faced in the 1970s, after decades of rapacious fishing by foreign factory trawlers and smaller American boats.

They both see enormous opportunities for the infusion of investment capital to strengthen the fisheries, and a great danger of unsettling communities and indenturing small boat businessmen and women, the backbone of America's fisheries and the people who could find themselves at the mercy of speculators.

Those opportunities are expected to zoom into focus today with the long-awaited release of the Obama administration's plan for using catch shares as the nation's prime fishery management policy.

The announcement from Jane Lubchenco, head of the National Oceanic and Atmospheric Administration, is expected in an afternoon, nationwide teleconference.

There has never any doubt about her intentions to convert to the catch-share regulatory scheme, however, and scheduling of the announcement did not strive for drama.

The "draft national policy" is "encouraging the use of catch shares," said the statement, which went on to laud catch shares as a "management tool that can help end overfishing to sustain the economies of fishing communities."

There remains significant debate about the qualities of catch shares.

Lubchenco helped write a position paper for Environmental Defense Fund, catch shares' loudest backer, just before President-elect Obama named her to serve as chief administrator of oceans and atmosphere.

Since then, many perspectives ¬¬— including that of Backus' Ecotrust — have cautioned that catch shares can also produce dire social dislocations, unwieldy concentrations of fishing capacity and capital equity.

The encouragement of essentially trading in fish futures through fishermen's catch shares — or Individual Trading Quotas — can throw stable old fishing communities into chaos, these critics have argued.

Last month, the Pew Environment Group held two national teleconferences to urge Lubchenco to "go slow" in rolling out the catch share concept to the majority of fisheries that still operate under regulatory schemes based on the traditional understanding of fish as a common wealth.

There are 12 catch share programs in U.S. waters now and four in various stages of organization.

But three of them — general category scallops, groundfish in New England and Gulf of Mexico grouper — have been met with fierce opposition.

The fourth catch share program in construction, for West Coast trawl groundfish, has been developed slowly and relatively meticulously over more than six years, and involves a buyout to cushion the pain of consolidation's losers.

No such buyout has been proposed by Lubchenco to power the fleet consolidation that she has asserted to be a goal of the administration.

Van Patten next year intends to open a brokerage in New York specializing in finding environmentally or socially ethical purposes in fisheries and other fields — and targeting the portion of large portfolios institutional investors want to put to higher uses, rather than producing higher rates of return.

Van Patten's Mission Markets Inc. acknowledges it is not for everyone. On its Web site, the company, in bold type, explicitly repudiates "investment speculation in catch shares."

There is talk now of speculation in catch shares in Greenwich, the hedge fund capital of the financial markets, Van Patten told the Times in a phone interview. But he advises that "speculation hurts (the fisheries)."

He said his advice is, "Guys, this is not your market."

Van Patten, however, also said he sees the opportunity for modest returns and real social value in more creative and blander applications of capital, through large funds with complex aims.

His nascent company is advised by Paul Parker, who is director of the Cape Cod Fisheries Trust, a division of the Cape Cod Commercial Hook Fishermen's Association. That's a group managed by the Community Development Partnership, a local community development corporation.

The Conservation Law Foundation Ventures and Environmental Defense Fund will assist with program development and oversight for the partnership.

The association has been heavily subsidized by environmental philanthropies. In a confidential 2005 grant proposal, EDF noted its intent to invest to the "maximum allowed" in the association.

The Cape Cod hook fishermen created prototype sectors — or voluntary fishing cooperatives — that are now being organized to launch the New England fisheries into the catch share era next May 1, when the fishing season begins.

Fishermen who choose to remain outside the sectors will be able fish in a common pool, but under stricter effort controls — controls that manage the fishery by regulating fishermen's "days at sea" and access to specific grounds.

The epicenter of the New England sectors and catch shares is Gloucester's offices of the Northeast Seafood Coalition.

The coalition has formed 13 cooperatives organized around gear types and port bases up and down the coast.

In all, New England will have 17 sectors including the two heavily subsidized groups on Cape Cod.

But coalition leaders Jackie Odell and Vito Giacalone have expressed anxiety that the conservative levels of the catch limits for key fish in the groundfish complex will translate into catch shares so small that the sectors might be doomed from the get-go.

Such catch shares would have low value in the start of trading.

But the commodities market in fish is unique from others in that the government — through its regulatory limits — controls the size of the allowable catch and therefore holds vast influence over price dynamics.

Backus, of EcoTrust, said he was not one of those who feared that investment capital inevitably contaminates.

"Keeping investors out could be a gross mistake," he said in a telephone interview. "Investment is good."

He gave the Times permission to write about an internal draft of ideas for putting investment capital to good use.

"The trusts could be part of a municipal bond or 'local shares' fund that offers sustainable interest dividends from community-based fisheries operations."

These could support "local fishing businesses, keep fisheries owned in the community, provide for low/no debt transitions for intergenerational transfers of fishing businesses etc."

According to the paper, "The shares would provide annual dividends at a 2 to 4 percent rate to shareholders, but not generate big capital gains from 'liquidity events' and similar selloffs. Shares could be sold, but they would have a constant price as in a "money-market" fund which seeks to preserve share value/capital and a modest return."

A second idea in discussion by Ecotrust is whether it is possible to construct and issue "normal" and tax-exempt municipal bonds backed by tax revenues —"such as are issued by port authorities to rebuild infrastructure.

"In this case however, bonds are issued and levies support the purchase and leasing of fisheries quota into a community trust.

"In the end," Backus' memo explained, the community holds the quota in public trust, the purchaser of the bonds gets the tax exempt revenues per the standard approach to these issuances. He described the instrument as "very normalized."

Finally, Backus proposed an investor instrument be developed "whereby investors are purchasing shares in a mutual fund invested in community fisheries quota programs.

"The investments are backed by the established value and collateral of the fisheries quota, perhaps like mortgage-backed securities," and "the time frames are like mortgages."

"The collateral value is there, albeit with normal market fluctuations," he wrote in the memo. "This instrument could be used to capitalize lending and leasing operations at the community trust level that would generate long-term equity for the community and 5 to 8 percent returns for the investor."

Richard Gaines can be reached at 978-283-7000, x3464, or via e-mail at rgaines@gloucestertimes.com.

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