Guinness Asset Management is gearing up to launch an oil and gas exploration fund with the addition of two senior energy analysts, Sachin Oza and Stephen Williams to its existing energy team of Tim Guinness, Will Riley and Jonathan Waghorn.
Private equity in nature, the high return closed ended fund will invest in quoted companies in emerging market exploration basins. The team are targeting an annualised fund return of 20‐25% per annum over five years. The fund will be accessible to professional investors with a minimum investment of over EUR100,000.
Oil and gas prices seem to be at or near cyclical lows due to the recent oil glut caused by US fracking. As a result of these depressed oil prices, the valuations of companies in emerging basins are particularly low and their sell‐off has been fairly indiscriminate. This has caused a substantial price gap between current equity market valuations and potential market value to emerge. The Guinness team, led by Sachin and Stephen, believe it offers a great opportunity to launch a constructive activist approach, maximising the likely success for an investor in these companies.
Their ‘constructive activist’ approach will be key to unlocking potential value. The team anticipate using various forms of asset aggregation between junior companies within a region to drive a strategy which greatly enhances the value of those assets. The aggregated asset positions would create scale that will be far more attractive to potential industry partners and therefore ultimately attract a rerating.
Oza and WIlliams have engaged and built relationships with management teams over a number of years. As a result, aggregation deals between the most promising junior companies are lined up and ready to go. The propensity to co‐operate has been enhanced by the current distressed environment and a reduction in farm‐in financing availability.
The industry back drop is also improving. Due to the subdued oil price, big oil companies will be forced to look for high quality global opportunities to refill their exploration hopper. Sachin and Stephen’s good longstanding relationships with the large companies will help to bring them in as partners.
Investing in this strategy in today’s extremely stressed environment makes this a particularly viable proposition. Guinness Asset Management is talking to potential investors to develop the most appropriate fund structure for such a new investment concept. One of the options being considered the newly developed Dublin AIFM QIAIF ICAV structure.
Past performance should not be taken as an indicator of future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations; you may not get back the amount originally invested.
The Fund is likely to be of particular interest to larger institutional investors wanting to play the energy theme through a hybrid private equity /listed investment fund offering significant potential upside.
Oza says: “I left M&G several months ago to try and develop this idea and I am really pleased that Guinness Asset Management are backing Stephen and me to make it happen. We would expect the portfolio to have limited short‐term correlation to the oil price and the broader equities market due to the event‐driven nature of the investments.”
Tim Guinness, founder of Guinness Asset Management, says: “This new fund idea would complement our existing energy fund range very well as it focuses on smaller oil and gas exploration companies while we have historically focussed on medium to large oil & gas companies.
“The wealth of pre‐existing detailed research of opportunities in exploration basins; the 30 position portfolio; and the specific constructive activism approach; coupled with the depth of energy sector experience across the team all adds up to a unique and timely proposition”.
“Sachin and Stephen’s arrival is also consistent with my philosophy of continuing to expand our specialist energy competence with high quality investment professionals. They will be joining myself; Will Riley (who joined in 2007 after Cambridge and PWC); and Jonathan Waghorn (who joined in 2013 – having previously succeeded me as manager of the Investec Global Energy Fund in 2008). We will be a team of five and aspire to be the go‐to firm for long only listed energy company investment management”.