Alma Recurrent Energy Infrastructure Income Fund
Alma Recurrent Energy Infrastructure Fund invests mainly in publicly traded equity securities of energy companies, with a focus on “midstream” energy infrastructure companies.
The fund’s management is delegated to Recurrent Investment Advisors.
Cumulative Performance (%)
Fund Inception 11 May 2023
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Strategy & Manager
The Strategy seeks total return with substantial current income from a diversified portfolio of infrastructure and energy companies specializing in transportation of oil and gas (“midstream”) and engaged in the treatment, gathering, compression, processing, transportation, transmission, fractionation, distribution, storage and terminalling of natural gas, natural gas liquids, crude oil, refined products or coal. The investment process is strongly focused on company-level valuation analysis by using detailed financial models of the companies.
Energy infrastructure assets often generate revenues with inflation and interest rate pass-throughs, making investments in these companies potentially better insulated from inflation risks over time. Further, energy infrastructure assets have long lives and low variable costs, meaning they can generate high levels of free cash flow across the full economic cycle.
Recurrent Investment Advisors is an energy specialist investment firm founded in 2017 and based in Houston, Texas. The firm is registered as an investment adviser with the U.S. Securities and Exchange Commission (SEC) and is primarily owned by its co-founders Mark Laskin and Bradley Olsen, who both have extensive experience in energy investing. Recurrent Investment Advisors focus on public investments in natural resources and energy infrastructure.
Co-founder and Portfolio Manager
Before founding Recurrent Investment Advisors, Mark was the lead energy portfolio manager and Chief Investment Officer at BP Capital Fund Advisors (BPCFA), an energy-focused long-only investment management firm. Under Mark’s leadership, BPCFA grew from $50mm to nearly $400mm in assets under management in less than 3 years. BPCFA’s energy strategy was the #1 performing energy open-end mutual fund, as ranked by Morningstar, from 2013 to 2016, and its MLP strategy was in the top decile in its Morningstar category over that same time period. Mark has 13 years of additional portfolio manager experience at Van Kampen, Morgan Stanley and Invesco. As part of a diversified large cap value strategy, Mark managed more than $10 billion and has managed energy portfolios for more than 12 years. While at Morgan Stanley Investment Management, Mark served as the internal head of equity investment research.
Mark earned an MBA/MA in Finance from the Wharton School of Business at the University of Pennsylvania and a BA in History from Swarthmore College
Co-founder and Portfolio Manager
Before founding Recurrent Investment Advisors LLC, Brad was the lead MLP portfolio manager for BP Capital Fund Advisors (BPCFA). Under Brad’s leadership, MLP AUM more than doubled (excluding the impact of appreciation). From 2011 to 2015, Brad led Midstream Research for Tudor, Pickering, Holt & Co. (TPH & Co.), where he was recognized as the top all-around stock picker in the US by the Financial Times in 2013, and the top energy stock picker in the US by Starmine in 2014. Brad also has experience as an investment analyst at Eagle Global Advisors in Houston, where he was part of a 3-person team that grew midstream/MLP AUM from $300mm to over $1bn from 2008 through 2011. He has also worked in investment roles at Millennium International and Strome Investment Management. He began his career in the UBS Investment Banking Global Energy Group in Houston. Brad earned a BA in Philosophy, Political Science, and Slavic Studies from Rice University in Houston.
Statistics & Commentary
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
Investment Manager's Commentaryas of 31/10/2023
Market Review and Outlook
Since 2018, Wall Street has modelled Midstream as a low-growth / no-growth industry – but growth has persisted
As Midstream experienced a painful multi-year downturn from 2014 through 2020, many analysts’ cash flow growth forecasts began to reflect the painful downturn in stock prices. During and even after COVID, Wall Street forecasts for Midstream EBITDA growth have been anemic – reflecting concerns about lower Shale productivity and the impact of the Energy Transition on oil and gas demand. This “lack of growth” has been reflected in valuation multiples which remain well below pre-COVID levels. Interestingly, actual financial results have dramatically exceeded expectations in the past 5 years, reflecting an industry that has achieved meaningful operating leverage and margin expansion from assets which only became recently operational.
On a cumulative basis, Midstream industry EBITDA has expanded by $31bn, or nearly 50% – approximating $100bn on an annual basis today. If we were to look at the cumulative expectations for year-over-year EBITDA growth published by Wall Street analysts over that time, we would see $9bn of cumulative EBITDA growth. In other words, actual cumulative EBITDA growth has more than tripled analyst expectations over the past 5 years.
A skeptical reader might ask, “Aren’t Wall Street estimates made to be beaten?” – but there’s more to the story
We appreciate the skepticism that comes with midstream and energy investing, especially as the sector remains largely out of favor among investors. A possible reply might be, “They beat analyst estimates – so what?” And that question is fair in anticipating the fact that growth isn’t noteworthy simply because it exceeded Wall Street’s forecast – it’s only noteworthy if the growth is generated in a capital-efficient way. And here again, we see that Midstream is outperforming expectations – while EBITDA is sometimes subject to “sandbagging,” management teams generally do not sandbag capital expenditures. And we see again that Midstream is beating Wall Street capex estimates even while growing cash flow.
Midstream was exceeding capex forecasts – effectively running over budget on growth projects – by billions of dollars annually during 2018-2020. The result was a free cash flow outlook that consistently disappointed. Since 2021, Midstream industry capex has met or fallen below forecasts, with over $2bn in excess free cash flow coming from YTD 2023 capital discipline alone.
Even with large-cap Canadian midstream names outspending, most growth is being supported by near-maintenance capex
We noted two months ago that Canadian large cap midstream companies had maintained high capex business models, and their stock performance has suffered considerably as a result. But even with significant Canadian capex burdens, the Midstream sector broadly remains highly disciplined. Below, we take Wall Street forecasts out of the equation and compare the companies to themselves. As recently as 2018, Midstream capex was 2.7x greater than book depreciation. As spending has dropped by >$20bn in the last 5 years, capex today approximates 125-135% of book depreciation, despite meaningful economy-wide cost inflation in the last 3 years.
In our recent white paper, we noted that midstream earnings yields were double-digit, and meaningfully above REIT or utility earnings yields. Importantly, with midstream capex approximating book depreciation levels, this means that Midstream free cash flow yields are also likely to be double-digit – compared to a sector-wide dividend payout that remains approximately 6% to 7% today. With double-digit free cash yields and persistent EBITDA growth (even in a lower capex environment), Midstream continues to defy forecasts of obsolescence and decline even despite valuations that reflect a thus-far illusory terminal value risk.
During the month of October 2023, the Alma Recurrent Energy Infrastructure Strategy generated net returns of -2.35%, lagging the Alerian MLP Index’s (AMNA) -0.34% return by 2.01%.
Facts & Documents
Fund Domicile: Luxembourg
Fund Type: UCITS SICAV
Fund Launch: 11 May 2023
Base Currency: USD
Depositary, Administrator, Transfert Agent: BNP Paribas SA
Dealing: Each day with a 1-day notice
Cut-off time: 12 pm CET
Management Company: Alma Capital Investment Management (LU)
Investment Manager: Recurrent Investment Advisors
Fund Managers: Mark Laskin & Bradley Olsen
Countries where the fund is registered:
Luxembourg, Austria, Germany, France, UK, Italy, Switzerland, Ireland
Founder EUR Hedged Capitalisation share class
ISIN: LU2568324458 Ticker: ALMRECK LX Launch: 11 May 2023
Institutional USD Capitalisation share class
ISIN: LU2568321942 Ticker: ALMAYUI LX Launch: 11 May 2023