The energy transition raises a lot of questions. One of these is how oil- and gas-focused investment firms position themselves for a net zero world.
We’ve seen different answers emerge. Kimmeridge, for example, was once a conventional upstream oil and gas investor. Now the firm is making the case to invest to make the sector carbon neutral on a Scope 1 and 2 emissions basis. Then there is Carbon Infrastructure Partners – a Canadian energy investor formerly known as JOG Capital – which is in the process of raising its first fund to invest in carbon capture and storage.
HitecVision, a Norwegian firm with more than 30 years of history in oil and gas industry investments, this summer raised more than €1 billion in LP capital for its energy transition strategy. The HitecVision New Energy Fund hit its €875 million hard-cap, surpassing its €500 million target. An additional €175 million was raised in co-investment capital for Vårgrønn, the fund’s first offshore wind investment.
The New Energy Fund is the firm’s first “non-oil and gas” fund and from now on all new portfolio companies will be “companies that contribute to the energy transition”, HitecVision said in its August statement announcing the close. “We are however also immensely proud of our legacy from the oil and gas industry, and we intend to remain a good owner for our existing portfolio companies in that industry and their thousands of employees, as we transition to a low carbon economy.”
At €875 million, NEF is not the largest fund the firm has ever raised – its 2014-vintage seventh fund closed on $1.9 billion – but it is still a substantial pool of capital for a strategy that has shifted decisively away from the firm’s historical focus.
LPs in the new fund are a mixture of returning and new. Among the new are Goldman Sachs Asset Management’s sustainable investment unit, AIMS Imprint, and the $75 billion Los Angeles County Employees Retirement Association.
Erlend Basmo Ellingsen, senior partner at HitecVision and head of its investment team, told affiliate title New Private Markets that limited partners liked the firm’s history of building businesses in the energy sector; they recognised the team’s experience with managing large and complex businesses, including capital intensive projects, and its ability to deploy its M&A “toolkit”.
The firm also hired in some of the expertise it would need: Jon Vatnaland – former executive vice-president at Statkraft, the Norwegian state-owned company and Europe’s largest producer of renewable energy – joined as a senior partner in 2020. Ove Gusevik, an investment banker with a long track record in energy and utilities deals, joined in 2021, also as senior partner. And further investment team hires with renewables experience have joined the ranks.
One of the questions raised by the energy transition is whether investors would welcome newly ‘greened’ propositions from teams that have been deeply embedded in the oil and gas sector.
The answer – based on HitecVision’s experience – seems to be yes. Canadian firm Longbow Capital provides another data point here. But it’s not a universal yes. As multiple sources told Infrastructure Investor earlier this year, a considerable bucket of LPs, primarily in Europe, will shun managers whose past lies significantly in the fossil fuel space, with the investors keen not to have any association with such names, despite the offering of a cleaner energy future.
Nevertheless, there is a deep well of expertise across the energy sector that needs to be tapped if we are to progress towards net zero. If done right, investors appear to be on board with that.
Toby Mitchenall is PEI’s senior editor, ESG and Sustainability and manages New Private Markets