Equally significantly, sponsors specialising in energy investments are confident that they will be able to continue to deploy capital at pace. Delegates at
Opportunities abound not just in oil and gas, but across the entire spectrum of the energy business – including biofuels, wind power, solar power, waste-to-energy, fuel cells and, possibly increasingly given the way the political winds are blowing, nuclear energy. On top of that, there is the array of industries affiliated with energy: manufacturing and services, finance and insurance.
Bill Macaulay, chairman and CEO of First Reserve, the world's largest private equity firm with an exclusive focus on energy, told the
Make no mistake: this is a truly vast playing field. Energy is the largest industry sector of them all, with an estimated annual output worth $6
“Of course we're not buying a lot of oil at $130 a barrel,” Macaulay says. However, investing in makers of the proverbial picks and shovels so desperately needed to provide all the energy that the world so desperately needs right now is obviously a compelling proposition – in part
Add in the enormous pressures on this – as well as pretty much every other – industry on account of climate change and environmental concerns, and it is easy to see why energy investors today are quite a cheerful bunch. (It is hardly surprising that some of the finest minds in global business and finance, including Silicon Valley venture capital veterans John Doerr and Vinod Khosla, as well as Britain's
For private equity as an asset class, however, the energy story has only just begun. Like real estate, it is a sector with considerable barriers to entry for investors lacking specialist knowledge, regardless of how sophisticated they might otherwise be.
However, with such a dizzying array of opportunities up for grabs, energy is unlikely to remain on the fringes of private equity for very long. Expect, first of all, more limited partner capital looking for a way in. Expect also the generalist private equity funds out there to take a long, hard look at the energy-focused investment models that have already proven their ability to deliver the goods. Among the most interesting role models, apart from First Reserve, are The Carlyle Group's joint venture partner Riverstone Holdings, 3i with its long-established oil and gas sector team, and, way up north in sunny Stavanger, Norwegian buyout firm, HitecVision Private Equity.
For the generalists, replicating the requisite know-how at their own firms will not be easy. But that's hardly a reason for them not to give it a serious try. For those who get it right, the rewards could be enormous.