Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
With LNG’s transition status confirmed, opportunities grow: Longreach Alternatives
Last week the European Commission voted to include nuclear energy and natural gas as environmentally sustainable investments in a new green taxonomy scheduled to take effect Jan. 1. Natural gas is seen as central for its role in transitioning to lower-carbon energy sources from high polluters.
The vote means that new gas projects will be able to receive funding from a fresh pool of money from ESG investors. The move will help many EU countries by supplying low-carbon energy to replace Russian fossil fuels.
One of the more unique energy-focused strategies in the market today is the Longreach Energy Income fund. The strategy seeks to “give investors exposure to a diversified portfolio of predominately US Natural Gas investments held through mineral royalties and royalty-like interests”.
With Natural Gas prices at record highs, the sector is once again the highlight as it continues to outperform other asset classes. Goldman Sachs notes that “commodity and broad physical inflation has now returned to a level not seen since the 1970s, triggering a coordinated attempt by central bankers to drain liquidity from the global economy, with consequences felt across risk assets. As central bankers can drain liquidity faster than the economy can generate new production capacity, financial assets will continue to underperform physical assets like commodities.”
With many European countries electing to not buy Natural gas from Russia, prices are likely to remain high for some time particularly as China reopens after Covid lockdowns. And that’s where most of the demand is likely to come from, Asia. This should benefit other Natural exporters such as the U.S. where its producers are able to operate at low running costs.
The Longreach strategy holds a diversified portfolio of US Natural Gas investments, representing the right to develop or lease land in the US. Investors are rewarded in the form of royalty payments and partnerships with producers. With commodities booming, the fund is targeting a 20 percent total return of which 8 percent is to be returned via income over rolling three-year periods, net of fees.
The fund joins the wider range of Longreach Alternatives’ investment funds, adding to its boutique offerings. A common theme for the Longreach funds is “sustainable income”. Energy sits alongside its private debt and sustainable wild-caught fisheries funds. The asset manager has considered having a separate Longreach strategy that combines all the income streams into a single offering suitable for the burgeoning retirement market. But, for now, at least, the team is content to maintain a silo approach for each market.
It is a unique play on predominately natural gas supported by a portfolio of US-based gas projects in Texas and Oklahoma. According to the US Energy Information Administration, the Henry Hub Natural Gas spot price (averaged $7.70 (Dollars per Million Btu) in June and the EIA expects U.S. natural gas prices to remain high through 2022 (U.S. Energy Information Administration – EIA – Independent Statistics and Analysis). It says, “We expect U.S. natural gas prices to remain relatively high in 2022 because of lower-than-average natural gas inventories resulting from factors affecting both supply and demand. Consumption of natural gas in the U.S. electric power sector has remained high despite high natural gas prices. We expect that the consumption of natural gas in the U.S. electric power sector will average 0.9 billion cubic feet per day (Bcf/d) more in 2022 than in 2021. In addition, we expect that U.S. exports of liquefied natural gas (LNG) will remain high this summer, partly as a result of Russia’s full-scale invasion of Ukraine. So far this year, 75% of total U.S. LNG cargos have gone to Europe, compared with 34% in 2021. High international natural gas prices may also lead to more U.S. LNG exports.””
For that reason, the Longreach Energy Income fund is a great way to play the natural gas market for the short to medium term.
