Deep Commitment to Fundamental Research and Long-Term Growth
Our investment decisions are driven by the search for yield, quality, and growth. We conduct comprehensive energy value chain analysis, with a high-quality focus based on bottom-up, fundamental analysis. Our credit-driven analysis seeks to identify both the downside and potential upside opportunities. As long-only investors, our preferred holding period is forever. We stress primary research over secondary and pride ourselves on having a deep knowledge of and relationships with our portfolio companies.
Security Selection: Screening for Stability and Strategic Advantage
Our security selection screening process includes several factors.
- Assess investment opportunities across energy value chain
- Analyze supply and demand dynamics
- Evaluate company’s assets and competitive position
- Understand commodity price risk
- Consider regulatory environment
- Model stability and growth of company’s cash flows
- Appraise management track record
Our research includes site visits to energy assets such as pipeline, storage, processing plants, refining assets, and drilling operations.
Portfolio Construction: Three-Pronged Approach
We use a three-prong approach to portfolio construction consisting of qualitative analysis, quantitative analysis, and relative value that relies primarily on internal research.
Qualitative Analysis
Our proprietary risk models assess a company’s asset quality, management, stability of cash flows, and stakeholder alignment profile.
Quantitative Analysis
We employ proprietary financial models to understand growth prospects, liquidity position, and sensitivities to key drivers.
Relative Value
We use proprietary valuation models to determine portfolio weightings.
Our qualitative risk models categorize each potential investment into one of four tiers. Our tier rankings drive maximum portfolio weights for each company with the overall single single-company concentration limited to 10%.
We continuously compare the value of portfolio holdings against each other and the investment universe. If a company’s stock price is viewed as fully or overpriced, we typically reduce the position to invest in better return opportunities.
Proprietary risk models
- Management strength rating
- Quality of cash flows
- Asset footprint
- Stakeholder alignment
Proprietary financial models
- Historical and projected operational and financial data
- Organic project/acquisition profile
- Liquidity analysis and credit sensitivities
- Sensitivity analysis to various key drivers
Proprietary valuation models
- Discounted cash flow model
- Comparable company multiples
- Relative value
- Other considerations (e.g. unit coverage, subordination, parent/sponsor relationship, etc.)
Results Expectations: Outperforming Through Market Cycles with Quality
and Stability
We expect to outperform over the full business cycle, specifically outperforming during down and stable markets due to our focus on higher-quality companies that earn revenue predominately from fee-based sources. We expect to outperform in periods of recovery but underperform during periods of strong commodity performance as investors are likely to seek more risk and invest in companies with more speculative cash flows.
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