David Foley, the CEO of Blackstone Energy Partners, has said that private equity investments in energy offer much better opportunities for investors willing to take a long term view of the markets and capitalise on general global trends, rather than focussing on short term volatility.
“Some of the volatility, what's going on with Iran, what's going with Greece, these things create a lot of volatility on the demand side, up and down.”
Investors get worried that low demand for oil, the current economic climate, record low natural gas prices in the US, and other factors affecting the market in the short term, but fail to realise that in the future the markets will recover again.
“Public equity markets alternatively love and hate energy. We like the regulatory changes that the government makes, technological innovations, high operating leverage - all those things cause assets to be mispriced,” he said. From mispriced assets arises the opportunity to make clever investments at low prices, and over five, 10, 15 years earn large rates of return as the prices return to their natural level.
Rapidly growing economies such as China, Brazil, and India, along with the thirst for development and investment in the Middle East and Africa, suggest that the energy sector is only going to grow and become more popular in the future; especially given the long-term population growth.
Foley said that private equity investments in energy have historically outperformed the general US stock market index, as well as strategies for investing in commodities such as following the Goldman Sachs Commodity Index.
“The consistency of the returns is pretty good too. If you look at five, 10, 15 years, it's kind of mid-teen (percentage) returns net of fees, pretty consistent,“ he said.
By. James Burgess of Oilprice.com