The ongoing conflict in Iran has triggered a significant surge in oil prices, now exceeding $94 a barrel—a notable 30% increase since the onset of the war in late February. This rise in oil costs is creating lucrative opportunities for investment firms representing ultra-wealthy families, many of which have strategically positioned themselves to benefit from the escalating prices.
As global investment trends have shifted, private equity funds and institutional investors have distanced themselves from the oil and gas sectors, largely due to external pressures from environmentally-conscious advocates. In this evolving landscape, family offices have begun to fill the gap, stepping into investment opportunities that larger entities have abandoned. A survey from Citi Private Bank indicates a complex relationship with sustainability; over half of the respondents expressed intentions to engage in sustainable investments within the next five years, yet family offices remain less beholden to stringent environmental, social, and governance (ESG) mandates that restrict other types of investors.
Keith Behrens, head of energy and clean energy investment banking at Stephens, noted the counter-cyclical nature of family offices. “A lot of investors left the sector for non-fundamental reasons, like endowment funds, who had students protesting,” he explained. This exodus presented excellent opportunities for family offices to enter at advantageous cash flow multiples.
Family offices generally possess a competitive edge over private equity firms, primarily because they tend to maintain their investments over longer horizons. This flexibility allows them to better absorb market fluctuations and periods of diminished deal activity. Jeff Peterson of Gillon Capital emphasized this long-term perspective: “We invest for generations in mind, so we can look through current cycles,” he stated. His firm, which emerged from A.G. Hill Partners—associated with oil tycoon H.L. Hunt—has sharply increased its investment in oil and gas in recent years, capitalizing on favorable valuations.
Investment initiatives by family offices have recently included leading major acquisitions, such as the $2 billion purchase of PureWest Energy, involving a consortium of family offices and select private equity funds. Furthermore, Peterson indicated that the family office is also a significant backer of a minerals and royalty fund focused on the high-yield Permian Basin.
Interestingly, family offices without prior experience in the energy sector are increasingly showing interest, looking for ways to diversify their portfolios with assets less affected by stock and bond market fluctuations. Doug Prieto from Tailwater Capital reported notable fundraising success in this arena, drawing commitments amounting to approximately $500 million from non-energy-focused family offices.
The political climate has further emboldened investors, particularly following policies from the Trump administration that favored oil, gas, and nuclear energy over renewable options. Ellen Conley, a lawyer specializing in energy finance, noted that family offices perceive these assets as dependable, cash-flowing investments rather than speculative risks.
While interest in the energy sector was already rising before the recent escalation in oil prices connected to the Iran conflict, inquiries from family offices looking to invest have multiplied in response to the heightened costs. Vicki Odette from Haynes Boone highlighted this trend, noting an uptick in engagement from family offices eager to participate in energy investments.
However, newcomers in the oil space are advised to hedge their investments cautiously, according to Peterson. The timeline from investment to production can span beyond a year, complicating entry strategies for fresh investors. Analysts suggest that the current spike in prices may be temporary, leading to challenges in executing transactions. Behrens articulated this concern, explaining the difficulty sellers face in aligning valuation expectations when market prices fluctuate dramatically.
Prieto echoed these sentiments, cautioning that sustained high oil prices could inadvertently trigger broader economic downturns. “High prices for a prolonged period pose a recession risk,” he warned. A balanced price point, around $75 to $85 a barrel, would be preferable for maintaining economic health, while prices above $100 could lead to adverse outcomes for consumers and investors alike.
