Energy prices (USO) have gone below $50 per barrel in 1Q17, as OPEC (Organization of the Petroleum Exporting Countries) and Russia pushed for higher prices through an output freeze rendered partially ineffective by a rise in the US oil rig count. The rebound in oil prices in 2H16 helped in a reversal of unrealized losses for alternative asset managers.
Brent crude oil is currently trading around $51 per barrel and is expected to hover around $45–$55 per barrel in 2017.
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Alternative fund managers are not exiting from their investments and are expecting a reversal of unrealized losses. Blackstone’s (BX) credit division deployed funds in the distressed credit of energy companies, and the company has seen a strong performance in the division.
Carlyle Group (CG) has seen some recovery in its energy holdings and net accrued performance fees. However, the recovery stalled in 4Q16 with natural resources seeing flat valuations. The company’s legacy energy portfolio saw a strong rebound of 9% in 4Q16 as compared to 1%–3% growth in the previous quarters.
US shale plays are adding rigs amid falling output from the Middle East and Russia, which could be beneficial for alternative funds with exposure, especially in the US.
KKR’s (KKR) energy portfolio formed 8% of its total investments on December 31, 2016, compared to 7% in the previous quarter. Apollo Global Management (APO) also deploys funds in energy-related investments, mainly in certain distressed investments.
Next, let’s look at alternative asset managers’ credit divisions.