Alma Recurrent Energy Infrastructure Income Fund

Market Review and Outlook

During the month of September 2025, the Recurrent MLP & Infrastructure Strategy generated net returns of +2.96%.

Comparing Midstream’s stellar 2024 and tougher 2025 YTD – both years were built on similar fundamental growth
What’s the difference between 7% and 8% EBITDA growth?

The 2024 midstream market took 8% growth and turned it into a 34% increase in sector market cap, while the 2025 midstream market has taken 7% growth and turned it into flat YTD market cap as of October 15, 2025. But just as investors last year took a “glass half full” view of last year’s 8% growth, we would argue that investors today are being overly pessimistic on this year’s very healthy 7% growth, as we discuss below.

Midstream fundamentals keep defying pessimistic forecasts – and other pessimistic narratives have been debunked in previous Recurrent Research

Even if EBITDA and cash flow growth has been solid, sentiment in YTD 2025 has clearly shifted from Trump-related excitement to concerns about declining drilling activity in the US and lower commodity prices. We have spent previous monthlies and white papers addressing and debunking some of the pessimistic narratives prevalent today:

• In our recent white paper, we explained how Shale, far from dying, has become an essential stabilizing mechanism in the global oil market. The world market needs Shale rig count to move up and down dynamically to keep markets balanced – a sustained decline in Shale production is not in the cards.
• Investors have expressed concern that lower gas prices will lead to slowing volume growth, putting future Midstream EBITDA at risk. In our December 2024 monthly, we show that low gas prices have historically coincided with higher volume growth –as gas demand is stimulated by affordability.
• Finally, we detailed in our May 2025 monthly how concerns about future midstream volume declines are overblown, because even as some Shale oil fields plateau, associated natural gas production from these mature fields continues to grow, requiring increased midstream services over time even in areas no longer growing.

Investors have punished midstream for potential operating risk (i.e. potentially lower volumes), opting instead for the perceived lower operating risks of utilities
What’s the difference between 7% and 10% EBITDA growth?

With midstream EBITDA expected to grow 7% and utility EBITDA expected to grow 10% in the next year, markets today have continued to push utility valuations higher, viewing utilities as an attractive combination of limited operational risk + limited tariff risk + upside from AI-related power demand.

Perhaps understandably, given the frothy environment in broad markets today, today’s investors are largely unconcerned about external financing needs. Accordingly, companies who are able to self-fund capital expenditures and dividends (like midstream) have seen valuations fall this year, while cash-strapped companies (like utilities) have done well, as the market seems happy to fund any AI-related capital expenditure, at least for now. But it may not always be so.

Is the fixation on sectors with lower operating and tariff-related risks causing investors to overlook Utilities’ greater capital market risks?
As midstream and energy investors know, external markets’ willingness to finance growth can change quickly, and the market can impose higher costs on capital at inconvenient times. When markets experience turbulence, operating risks – such as single-digit declines in volumes or cash flows – can pale in comparison to financing risks, such as borrowing to pay a dividend or assuming that the market will fund a multi-year outspend as capital expenditures exceed cash flow. Today, while midstream generates FCF after dividends, utilities’ annual funding needs are approaching $100bn, or >50% of total sector cash from operations (CFFO).

To be fair to utility bulls, they have been right in YTD 2025. We have previously noted that during periods of time when inflation expectations and interest rates are rising, midstream performance tends to be more resilient (and on balance stronger), especially compared to a rate-sensitive and inflation-exposed sector like utilities.

So far in 2025, conditions have been favorable for utilities: investors have shunned operating volatility, but embraced financing risks; the direction of travel for inflation expectations has been volatile but relatively stable; interest rates have fallen as expectations of rate cuts have taken hold.

Accordingly, perhaps the self-funding business models and inflation protections of midstream are viewed as less valuable today. But in a world where inflation is very much still alive, albeit muted, we view the midstream sector’s ability to pass through inflation, fund capex and dividends, all while avoiding external capital markets dependence, as an undervalued option.

Fund

During the month of August 2025, the Fund generated net returns of +3.01%.