The mid-morning session on Monday's Energy & Natural Resources Summit at SuperReturn International in Berlin, delved into the question of energy investing – from the perspective of LPs. Where were the opportunities, and what were the challenges?
Renewable energy
Paul Manias, Managing Director at OMERS Strategic Investments, felt that the trend on renewable development would continue despite its challenges: "The fact is that the whole utility sector needs to figure out how to integrate renewables onto the grid," he said.
Maurice Gordon, Head of Private Equity at The Guardian Life Insurance Company of America said that, in spite of its challenges, Microsoft and Google were writing 20-year power contracts for energy in solar, which would buoy the market:
"Even though there is a lot of talk that it is really not economical to do renewables, there are certain groups that will make it so, because they want to be seen as green companies," he said. "And you will see more of that," he added.
Verena Kempe, Director at Feri Trust, said that they would continue to invest in renewables.
ESG
How much of a consideration was ESG on investment decisions, the panel was asked.
Paul had the view that ESG had an increasingly important part to play. Regarding the private side of OMERS' business, his personal opinion was that they did a good job of integrating ESG concepts into their ability to underwrite and asset-manage deals.
"It's important to separate out the branding of ESG with the impact on specific assets and the broader portfolio," he explained. "When we try to attach too strong a label, it becomes a box-ticking exercise, which I think is counter-productive."
You need to be careful about how you go about it, added Maurice.
"The trend is there, but the offset is, from a fiduciary standpoint, do you restrict yourself from doing business in large segments of the economy? We can be supportive, but what's the right way to do it?" he asked.
Paul added that prudent asset management was where you would get most bang for your buck in terms of addressing ESG, as opposed to following an ESG checklist.
The impact of technology
How were the panellists navigating the pace of technological development within energy?
By understanding which technology will arrive and understanding how it will work going forward, answered Verena.
One of the biggest risks concerned stranded assets, she explained:
"When the assets enter the end of their PPA, the problem we face is a situation where technological development has been so fast that we can't re-contract certain assets."
Paul said that the whole shale revolution was essentially a technological revolution, adding that there were some positives to be had:
"The nice thing about the energy sector, at least on the E&P side, is that there is a lot of public data," he explained.
"You know what the person three miles down from you did in their well and their performance. People forget, but energy is a highly technical industry, with one of the highest percentages of engineers, geologists and other science-based fields in it. While technology is a risk, it's also an opportunity," he asserted.
Due diligence and selection criteria for energy managers
The panels' concluding comments touched on their criteria for selecting managers.
Verena explained that her firm always looked for engineers and, in the case of oil and gas, geologists among the management team.
"We can't see that a purely financial player would be successful in this market," she stated.
Maurice added contacts and relationships were very important:
"You need to make sure teams are going to be able to find the deals," he concluded.
