“The things best to know are first principles and causes, but these are perhaps the most difficult…to grasp, for they are the farthest removed from the senses.” - Aristotle
Swapping Eeyore (3Q23 letter) with Aristotle isn’t easy, especially since we have far more in common with the former than the latter. However, the Energy Transition is extraordinarily complex and capital-intensive, and the implications of recent regulatory and capital allocations decisions are manifesting themselves in real-time. Thus, it seems appropriate to turn to a first principle assessment of the fundamental assumptions underpinning consensus views of the path to net zero.
One of the benefits of being sector agnostic is that we aren’t beholden to a predefined set of expected or acceptable results. Instead, we rely on basic economic, engineering, and mathematical analysis to determine a range of possible future outcomes.
This approach is useful when attempting to disaggregate the Energy Transition into analytically manageable components. Few topics are as intertwined, nuanced, and prone to circular references as the push to decarbonize global energy systems. Adding to the complexity is the fact that discussions about climate change have become so fraught with emotion - they are so close to “the senses” - that attempts to balance benefit with cost or to differentiate between what can be done today with what may or may not be scalable and economic in the future are often met with a mix of curiosity and animosity.
Investors don’t get the benefit of emotion, however. Allocating capital to both generate a reasonable return and to facilitate efforts to expand and decarbonize global energy supplies is far from straightforward. Out of necessity, we revert to first principles to understand what the future may hold and to identify investment opportunities within.
The above information does not constitute investment advice. Please note that these unaudited estimates have been prepared in accordance with our typical procedures for estimates and as such, final month-end prices may not have been received for all positions. Performance for all strategies is net of fees. Returns have been adjusted where applicable to reflect the highest level of fees available. The PEP Energy Equity Opportunities strategy performance is that of an investor invested in the USD share class of the one-year tranche. The performance calculation assumes that the investor’s account participated fully, on an applicable pro forma basis, in all investments, and was assessed a 1% management fee and 10% incentive fee. Additionally, the performance calculation assumes that all investors were given the same economic terms with respect to their investment. From Inception (May 1, 2022) the performance of the PEP TE&M Opportunities Fund is calculated pro forma to represent the highest fee level offered for the strategy. The performance calculation assumes that the investor’s account participated fully, on an applicable pro forma basis, in all investments, and was assessed a 1.5% management fee and 20% incentive fee subject to high water mark. Additionally, the performance calculation assumes that all investors were given the same economic terms with respect to their investment. Individual investors’ returns will vary from the strategy returns due to the timing of subscriptions and redemptions. Indexes are unmanaged and have no fees or expenses. An investment cannot be made directly in an index. The strategies represented consist of securities which may vary significantly from those in the indices listed in the Estimated Net Performance Benchmark chart, and performance calculation methods may not be entirely comparable. Accordingly, comparing results shown to those of the aforementioned indices may be of limited use. Please refer to fund documents for terms and appropriate risk disclosures. As a reminder, please note that the information provided is confidential and should not be forwarded or distributed by any recipient. If you would like to add someone to the distribution list or have any questions, please feel free to contact us at ClientServices@PickeringEnergyPartners.com.
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