The $77.8 billion Alaska Permanent Fund Corporation is particularly bullish on investment opportunities relating to fossil fuels. This is perhaps unsurprising given the role that oil revenues have played in its funding.
APFC’s director of private equity Allen Waldrop outlined the fund’s approach to energy investments as part of a wide-ranging interview (registration required) with affiliate title Private Equity International.
“We think over the next 10-15 years there’s good opportunities, in large part because other people are not investing in the space. Not for economic reasons – they’re not investing there out of principle,” said Waldrop.
“Any time you can tilt the supply-demand equation in your favour, there’s a supply of deals and there’s less demand on the capital side. If you can find things for 2.5x to 4.5x cashflow, that’s a pretty interesting deal.”
At an October board meeting, John Skjervem, a member of APFC’s board of advisers, had advocated for a ‘both/and’ position when it comes to the energy transition. The economy, he argued, needs both fossil fuels and clean energy; with so much capital flowing towards clean energy, Skjervem recommended that APFC raise its investments into traditional energy.
“The retreat of many of our peers and the retreat of private equity en masse has created huge opportunities,” Skjervem said at the time. “Asset owners can now go direct. That sector was up 50 percent last year.”
APFC is an active investor in energy-focused private funds. Its commitments since December 2022 have included $65 million to EnCap Energy Capital Fund XII, $50 million to EnCap Flatrock Midstream Fund V and $50 million to EnCap Energy Transition Fund II, according to PEI data.
“You can have your views on climate change and all that. I don’t think anybody disagrees with the stuff that’s happening.”
APFC’s appetite for oil and gas is somewhat at odds with the broader direction of travel, with many institutions leaning away from traditional energy sources in favour of climate-related investments and the energy transition. Some have chosen to exclude oil and gas altogether as part of their ESG policies.
Meanwhile, some US politicians have pushed back on efforts to reduce fossil fuel investments. In 2022, West Virginia’s state treasurer, Riley Moore, wrote to six financial institutions, including Goldman Sachs and BlackRock, to inform them that, unless they can prove they are not boycotting the fossil fuel industry, they will in effect be outlawed from doing business with the state. Similar laws centred on fossil fuels have been enacted in Texas and Oklahoma, and at least 15 US states in total have said they intend to put institutions ‘on notice’ if they boycott fossil fuels.
“You can have your views on climate change and all that,” said Waldrop. “I don’t think anybody disagrees with the stuff that’s happening. I think where the disagreement lies is how you solve the problem and how quickly it can be solved.
“It’s going to take a lot longer than people think. We wouldn’t be diving into coal – that would probably not be, in our mind, a good long-term bet – but oil and gas are going to be with us for a long time because it’s going to be a transition.”
Head over to Private Equity International to read the full interview with Waldrop, in which he discusses the task of reducing the fund’s massive private equity exposure amid a challenging backdrop.