Family offices see gains after making opportunistic bets on oil

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.

The Iran war has propelled oil prices to above $94 a barrel, up about 30% since the conflict began in late February. That rally has been a boon for investment firms of ultra-wealthy families who made opportunistic bets on oil in recent years. 

Since the pandemic, private equity funds and other institutional investors have backed away from oil and gas in part due to pressure from environmentally conscious stakeholders. Family offices have stepped in to fill some of that void, investors and advisors told CNBC.

While many family offices are environmentally minded — with a September survey by Citi Private Bank showing more than half of respondents reporting they were likely to make sustainable investments in the next five years — they’re not subject to the same ESG mandates as private equity firms or endowments, which have faced pressure to divest from oil and gas.

“Family offices are contrarian players. A lot of investors left the sector for non-fundamental reasons, like endowment funds, who had students protesting,” said Keith Behrens, head of energy and clean energy investment banking at Stephens. “Family offices saw that flight of capital, and it created really good investment opportunities for them. They were able to come in and invest with pretty reasonable cash flow multiples.”

Family offices also have an edge on private equity players as they generally hold investments for longer periods, meaning they can weather oil price fluctuations and dealmaking downturns, according to Gillon Capital’s Jeff Peterson.

“We back teams who are looking to build businesses over the long term, because that’s where we really differentiate ourselves. A fund can only really hold a business for their fund life,” he said. “We invest for generations in mind so we can look through current cycles.”

Peterson has managed investments for the descendants of oil tycoon H.L. Hunt for 14 years. About five years ago, A.G. Hill Partners, one of the family’s personal investment firms, doubled down on oil and gas to take advantage of attractive valuations. 

Multiples for the sector typically range between two to three times cash flow, according to Peterson, who is now chief investment officer for Gillon Capital, a family office spun out of A.G. Hill Partners a year ago.

Peterson said the family has taken the lead on major deals in the sector, such as forming a consortium of family offices and a few PE funds for the $2 billion acquisition of natural gas producer PureWest Energy. The family is also an anchor investor in a minerals and royalty fund that has raised about $500 million in capital and has a substantial position in the Permian Basin, which is the highest-producing oil field in…