Energy LP Focus: Playing the waiting game

Back in January, when Private Equity International talked to the Public Employees Retirement Association of New Mexico (PERA), its real assets portfolio carrying most of its energy investments was down 20 percent for the year.

As a result, PERA didn’t make any commitments to 2015-vintage energy vehicles, according to its chief investment officer Jon Grabel. But nor did it sell any positions when oil prices were plummeting. Why bother when, as Grabel asserts, timing the market in private equity is not reliable.

“Nobody can see the future but it’s really hard to be dispassionate and remove the emotions at the loss aversion,” he tells PEI. “We [at PERA] had a great discussion about it and the outcome was to hold. There was no rush to rebalance back to target.”

By June the oil price had nearly doubled and PERA’s investment portfolio valuation has moved along with it. “Obviously it’s beneficial when the price of the underlying commodity has gone up,” says Grabel.

PERA has been an investor of energy, both private and public, for some time. It committed $30 million to EnCap Flatrock Midstream Fund III in 2014, $30 million to EnCap Energy Capital Fund IX in 2013 and another $30 million to Riverstone Global Energy & Power Fund V in 2011, among others, according to PEI Research & Analytics.

Its allocation to the sector is mostly through its real assets portfolio, which had a market value of $455 million in April. This was a 3 percent increase on a month earlier and more than 6 percent higher than April 2015.

As of April this year, its real assets strategy was significantly underweight, at 3.2 percent. Its target is 7 percent, at the same level as its private equity target allocation.

For now, though, PERA is happy to ride out the cycles as, Grabel hopes, are the GPs it commits to.

“We have existing commitments to oil and gas partnerships,” he says. “We will continue to fund those as long as they call capital.”

He adds that PERA will evaluate the managers looking for re-ups, but they have been slow to deploy capital due to the performance of the asset.

“That patience is welcomed.”