Soured oil bets turn Lasry’s Avenue fund into a dead-end
Marc Lasry’s flagship Avenue Energy Opportunities Fund has seen five years of returns virtually wiped out following the spread of coronavirus and a severe rout in oil prices.
The fund has lost roughly 10 per cent year to date, erasing positive returns coming in to 2020 and leaving investors that have been in the fund since its inception in late 2014 with almost nothing to show for it.
Bets on energy companies such as EP Energy and Pacific Drilling have soured, Mr Lasry told the Financial Times, eating in to profits made by buying up regional power companies. The fund had been up 2.6 per cent to the end of February.
“We have lost the money we had made,” he said.
Avenue Energy’s biggest equity position as of December was in the Texas-based power company Vistra Energy, according to regulatory filings. Shares in the company have dropped close to 40 per cent over the past month.
Large stock positions in energy-related companies have also tanked, with shares in Pacific Drilling, the fund’s second largest holding, down more than 80 per cent since the start of the year. Offshore drilling contractor Transocean and Amplify Energy, two other big holdings, have also seen stock price falls of more than 80 per cent since the turn of the year, as the spreading viral outbreak combined with a Saudi-Russia price war to hammer the oil market. This week Brent crude dropped below $25 a barrel for the first time in almost two decades.
Mr Lasry, who made his billions picking up assets at distressed prices, recently described the stock market rout as “a massive buying opportunity” in an interview with CNBC. Investors should be buying every time the markets go down, the co-owner of the NBA’s Milwaukee Bucks basketball team added.
But on Monday, Mr Lasry’s firm backed out of a deal led by activist Elliott Management and private equity firm Apollo Global Management to refinance the US oil and gas driller EP Energy. The group of four investors, which also included Len Blavatnik’s Access Industries, had committed $463m to fund EP Energy’s exit from Chapter 11 bankruptcy.
Other energy companies have been calling on restructuring specialists to help them stay afloat, with many shale producers on the brink of bankruptcy.
Avenue’s US-based funds managed about $5.8bn of client assets as of June last year.
The Energy Opportunities vehicle is structured like a private equity fund, locking up investors’ money for at least three years before profits begin to be repaid, said Mr Lasry.
Elsewhere, Mr Lasry has built out a platform to lease planes to airlines, which he said could come under pressure if virus-related restrictions on travel persist.
“I think we are good for three to six months because we have deposits and prepayments on our leases,” he said. “But if no one is flying in six months and airlines start defaulting then that could change.”