Alaska Permanent Fund seeking new oil and gas investments

JUNEAU -- Calls for big investors to stop investing in companies that produce fossil fuels are picking up steam but the Alaska Permanent Fund has been doubling down on its investments in the oil and gas industry.

The $51 billion fund has long bought stocks of companies involved in the oil and gas industries but it is now making direct investments in oil and gas companies, hoping to capture even more of the big profits others have been earning.

An activist campaign hoping to shift investments away from fossil fuels in order to limit carbon emissions and climate change has had some notable successes in persuading some big investors to steer away from the dirtiest fuels. Stanford University's $18 billion endowment earlier this year decided to stop investing in coal.

And of all things, a week ago, the Rockefeller family announced its charitable foundation would divest itself of fossil fuel investments. The Rockefeller family, of course, earned its fabulous wealth in the oil industry, with John D. Rockefeller's Standard Oil being the parent of today's Exxon Mobil Corp., Chevron and numerous other big oil companies.

With the Alaska Permanent Fund already having purchased more than a billion dollars in stocks in publicly traded oil and gas companies, it asked highly regarded private equity firm The Carlyle Group to come up with new investment ideas. Carlyle suggested more oil and gas but this time in direct investments called "private equity" in which investment funds buy stakes in individual companies.

"We came up with our single best investment idea, and it is an investment in carbon-related energy in the United States and outside the United States," said David Rubenstein, co-founder of The Carlyle Group, who addressed the board at the Permanent Fund Corp.'s annual meeting in Juneau Friday. Rubenstein is the husband of Alaska Dispatch News publisher and owner Alice Rogoff.

"Growth in both populations and standards of living in emerging market countries will mean oil and natural gas consumption in India, China and elsewhere will increase fairly significantly," Rubenstein said.

While the investor activists have called for more focus on non-polluting renewable energy sources, Rubenstein was dismissive of their effort changing the overall demand for fossil fuels -- or of renewable energy even being a viable investment.

"While renewable has a lot of virtues to it, it is not likely to replace carbon energy anytime in the near future," he said.

Alaska began making its new investments in oil and gas a year ago, and events since then bolster the case for more energy investments, according to Rubenstein.

"There's been more turmoil in the Middle East than we ever anticipated, and more and more countries around the world don't want to be dependent on Middle East oil, and therefore they're looking for alternative sources," Rubenstein said.

For European countries, which are also worried about the dependability of Russia, that means new attention to the North Sea. That could mean Europe importing American natural gas, or perhaps even oil if laws banning oil exports are changed.

Another of the Permanent Fund's energy managers, Riverstone Holdings, focuses exclusively on energy investments, including exploration, production, transportation and refining.

That will continue to be a good business, even if it may not currently be fashionable, said Riverstone founder David Leuschen, who also attended Friday's meeting.

He predicted that demand for oil and gas, along with new technologies to produce it, means that the world will still be 80 percent to 90 percent reliant on fossil fuels 30 years from now.

"The fossil fuel business is gong to be around for a long time," he said.

While Riverstone is considered a private equity investment firm, Leuschen said the only thing the company does is operate energy companies, and it should be considered an energy company and not a buyout firm.

"All we do is build up companies, find oil, find gas and try to make money," he said.

Riverstone companies are involved in almost every place in the United States with shale, as well as being active offshore, which Leuschen said was being overshadowed by interest in shale but which still holds great promise, possibly more than shale production. It's also one of the most active companies in Canada, was the first U.S. energy firm to open a Mexico City office to take advantage of opportunities in that newly deregulated market, and is reaping Norwegian tax credits to support its exploration activities there.

"We have found billions and billions and billions of barrels of new resource," in the company's history, he said.

The Permanent Fund last year committed $750 million to The Carlyle Group for investments, of which more than half has already been invested, Rubenstein said. The Alaska Permanent Fund Corp. has also invested $338 million in Riverstone's Riverstone Energy Partners Fund, Leuschen said, with more to come.

None of the Permanent Fund's investments with Carlyle or Riverstone has yet been made in Alaska.

Carlyle Group currently has more than $200 billion in assets under management, while Riverstone has $70 billion, the companies said last week as the Permanent Fund's Board of Trustees heard reports from both companies.

The Alaska Permanent Fund was built with a share of Alaska's oil royalties allocated under the Alaska Constitution. Profits from investing that revenue have helped to grow the fund as well as to pay yearly dividends to most Alaska residents.

The Permanent Fund currently holds publicly traded oil and gas company stocks that it purchased for $1.15 billion but that have risen in value by $300 million since purchase.