Foundation & Endowment Money Management - NonProfits Keep Up Oil/Gas Drive

NonProfits Keep Up Oil/Gas Drive

With lower oil prices and the Obama Administration's anticipated push for energy alternatives, investing in oil and natural gas may seem nonsensical, but many nonprofits, especially those in Texas and Oklahoma, are sticking with their allocations. FEMM Contributing Reporter Joseph D'Allegro spoke with Tom Cowhey, chief investment strategist at Hirtle, Callaghan & Co.; Scott Soler, managing director of Quantum Energy Partners; Gary Ratliff, cio of Texas Tech University; Michael Forestner, director of private markets for Hammond Associates; and Alan Kosan, managing director of investment research at Rogerscasey, about why fossil fuels are still a good bet.

FEMM: Why should an endowment of foundation invest in oil/natural gas?

Tom Cowhey Cowhey: Despite recent results, a broadly diversified portfolio provides higher returns and lower volatility over longer periods of time. Oil/natural gas investments can contribute to that diversification. One of the reasons that inflation assets like REITs and oil/natural gas did not provide as much diversification protection in the current downturn is that they were not priced to do so. A lot of money went into these assets over the past few years because of their "lack of correlation" to other financial assets and because of their historical performance, but valuation is just as important. What you pay for something impacts how good a diversifier it is. Today, these assets have been re-priced and offer more attractive rates of return and inflation protecting benefits.

Soler: Oil and natural gas investment cycles are very long term in nature. We believe that we are in year six to year seven of a 15- to 20-year secularly strong investment cycle for the industry, which has had a pause stemming from the current global recession.

Michael Forestner Forestner: Natural resources tend to increase in price along with inflation, and during certain periods have been a meaningful source of inflation. We advise endowment or foundation clients to include a healthy dose of such assets in their asset allocations. It is likely that although the current recession has been creating deflationary pressures, the economic stimulus efforts are almost certain to be inflationary in the long run. Buying long-lived hard assets, especially oil and gas, should help cushion investors' portfolios from the effects of inflation.

FEMM: How should an endowment or foundation approach an oil/natural gas investment?

Soler: Through a very experienced, very sector-focused energy private equity firm that ...

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NonProfits Keep Up Oil/Gas Drive

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