Sellers have rare chance to offload energy stakes

The invasion of Ukraine has driven up the price of energy stakes, creating an opportunity for LPs to sell without having to accept a big discount.

Limited partners finally have the chance to offload energy stakes without having to accept a big discount, according to M2O Private Fund Advisors.

The war in Ukraine is driving commodity price inflation, which in turn is boosting pricing for energy funds, the adviser concluded in a Secondary Market Update. Energy has long been out of favour with investors who view it as incompatible with their ESG policies.

“It’s like night and day” compared with a year ago, when the were virtually no bids for anything but the very best-performing energy funds, said M2O’s head of LP secondaries, Jake Stuiver.

Secondaries funds re-entered the energy market in the first quarter, following in the footsteps of select endowments, foundations and family offices whose weaker ESG requirements allowed them to add opportunistically to their existing holdings, Stuiver said.

Energy stakes have traded as high as the low-to-mid 80s as a percentage of net asset value in 2022, with percentages in the 70s and 60s also common, he said.

“If groups hoping to become ESG-compliant are still holding legacy energy, now is the time to divest,” the adviser concluded.

In Evercore’s full-year 2021 survey, 26 percent of respondents said they had an appetite for energy in 2022, making it the least popular asset class of the 10 surveyed.

“Returns can look fantastic in energy if you get [the movement in oil prices] right – it’s about who wants that supercharged bet,” a London-based managing director on the buy-side told Secondaries Investor in 2019.

“Q2 is an optimal time to launch a process to ensure full attention from buyers, who will be incentivised to dig in and do the work to deploy, in what many preemptively considered could be a slower quarter,” the adviser concluded.