News feature: Stavanger investors manage billions
A feature written by Glenn Stangeland, Sandes, Norway.
This article first appeared on October 23rd, 2019 on Petro.no (Energi24.no) and is used here with permission of the publication.
EV Private Equity, headquartered in Stavanger, manages billions of kroner for its investors. The lion’s share is in oil and gas supplier companies.
Each month, they assess between 30 and 50 companies for new investments. Sustainability and low emissions have become an important criterion in the assessments, but CEO Helge Tveit has little understanding of those who claim investments in oil and gas will be unprofitable soon.
– Even in the 2-degree scenario in the Paris Agreement, there is an unmet energy requirement in 2040 that corresponds to three to five times the oil production to Saudi Arabia as of today. It is impossible to say exactly how the energy mix will be, but we are sure to need both wind, solar, natural gas and oil. I think everything is in place for good profitability in the oil and gas industry for decades to come, says Tveit.
– EV Private Equity manages projects related to heavy oil and tar sands, and Tveit also admits that the company is now thinking carefully when it comes to investments related to technology to be used in exploration.
– There we have to price the political risk, for example, to remove the exploration merger, he says.
24 companies worth more than NOK 4 billion
The company currently has a portfolio of 24 companies with a total value of more than NOK 4 billion.
The downturn in recent years has made this a little more than desired, but according to Tveit, some will soon be sold.
– At the price you want?
– Yes. The bids that have come in are very good.
Among the companies EV Private Equity now owns, we find Halfwave, Add Energy, FourPhase, Well Connection, Fotech, Geoteric and more.
– One trend is that we invest more in companies with cutting-edge expertise in digitalisation and artificial intelligence.
The requirements are that companies must have one or more patents at the bottom. They must offer exclusive products or unique solutions.
– It is a defense mechanism that is important for maintaining profitability in bad times.
The history of the investment company from Stavanger started back in 1999. Petroleum Engineer Helge Tveit thought the employer BP Amoco should invest in smaller companies that were engaged in technology development. He worked on the project for over a year, but still remembers the response when arguing for the commitment at the London headquarters:
– We don´t want to step on the toes of Schlumberger.
– But I had already fallen in love with the idea. This was something I just had to realize, says Tveit.
He brought along Ole Melberg, who was CEO of Smedvig, and together they started Energy Ventures and created the company’s first fund in 2002.
Norwegian Ferd and Umeo were heavy investors in the first fund. Together with state-owned Argentum Fund investments. Over time, foreign investors have taken over more and more.
– It was Ole’s genius. He had taken Smedvig on a New York Stock Exchange and focused on international growth from day one. Now 95 per cent of the capital comes from international investors.
In May 2015, Ole Melberg died. Two lost their business partners and the company lost its “lighthouse”.
– This was one of Ole’s many achievements in building and professionalizing this organization. And he succeeded. This professionalism made it possible for us others to continue after he dropped out, says Tveit.
Changed strategy and changed name
Their company has long been called Energy Ventures. But a reorientation of the strategy also made a name change sensible.
– It was too high a risk to invest in start-up companies. Now we demand that the companies we buy into have profitable operations. So we left the venture market, and then it was natural that the name was changed as well. It was a bit tedious to begin all meetings with a 15 minute explanation of why Energy Ventures did not invest in venture companies.
With a minimum amount of $ 10 million, there is a limited investor group the company caters to.
– American universities are actually the most common investor in our funds. Many of these institutions manage large sums, and we are responsible for the diversification of their investments, often called the spice. Insurance companies are another typical investor, says Tveit.
This is how the company makes money
EV Private Equity has started five funds. Two have ended, while three are still alive. Historically, three to four years have elapsed between the start-up of each fund. Now it’s been two years since the last launch, EV Private Equity V.
– What was the return on the funds that were closed?
– It’s not public information. But we would not have got investors into new funds if we did not deliver good results.
The income of the parent company comes from a management fee of 2 per cent of the capital and an option (carried interest) of 20 per cent of the profit after the investors have returned their paid-up amount plus an 8 per cent return.
Business address at Guernsey
EV Private Equity consists of several Norwegian limited companies, but the Norwegian accounting figures do not tell the whole story. The funds have business address at Guernsey.
And here Tveit has an ever-so-small heartbeat:
– This type of offshore accounts is often associated with hidden fortunes and money laundering. Of course, crime must be uncovered and punished, but for us it is about being able to compete for international capital. It’s not about achieving zero tax. Our customers pay taxes in their respective home countries, and if we operated everything from Norway, several of them had to pay double tax. First in Norway, then in the home country. This applies to all countries with which Norway does not have a tax treaty.
But it is not just double taxation that is the problem. Tveit believes the company would lose the battle for international investors if all of them had to familiarize themselves with and follow Norwegian tax rules.
– A tax system is subject to change. There is a political risk there. Like when getting a finance minister from SV, for example. This risk is the few international investors willing to take.
You can view the original article here.