Altana Wealth scores outsized gains in distressed energy assets

Oil pipeline

Altana Wealth, the credit, currency and special situations-focused hedge fund led by former Trafalgar Asset Managers co-founder Lee Robinson, is making bumper returns from distressed opportunities within the global oil services sector, where companies have been clobbered by Covid-19. 

The Altana Distressed Opportunities Fund, which seeks out investment ideas in neglected corners of capital markets, has soared some 115 per cent since its late October lows by targeting certain energy assets which tumbled in value in the early stages of the coronavirus crisis, the firm said on Wednesday. 

Since the start of 2021, the fund is up more than 64 per cent. 

The ongoing recovery from Covid-19 has underlined the importance of oil and gas, Altana said, adding that offshore oil services – which have been pummeled by the pandemic – remain “vitally important” to energy supplies. 

Successful bets on offshore drilling and services firms have powered the eye-catching performance. Key bets include Valaris, a restructuring situation, which has risen 63 per cent since October; Tidewater, an equity positions up 135 per cent over the same period; and a distressed credit play in Seadrill which has gained 40 per cent. 

“The first doubling of the fund is merely the unwinding of the incredibly negative sentiment that prevailed in the fall of last year,” Steffen Dietel and George Yacoub Nadda, co-managers of the Altana Distressed Opportunities Fund, said in an investor letter. The pair continue to see “substantial further upside” going forward. 

Despite the expansion of the renewables industry, the sector is not set to replace key components of oil and gas demand, Altana observed, noting major infrastructure programmes to expand renewables will provide an “additional boost” to oil demand amid tighter supplies. 

The energy rebound amid the economic reopening is likely to be characterised by cyclical recovery and consolidation over the next 12-18 months, and Dietel and Nadda expect a “wave of M&A” among many of the portfolio’s target companies. 

“Fleet sizes have been dramatically reduced and are now aligned with an industry gearing up for the energy transition,” they explained, adding that current asset valuations and multiples of normalised earnings for the fund’s target companies remain “extremely low”. 

“Early signs of consolidation and increasingly rational behaviour by industry participants leaves open the possibility of materially exceeding a 3 x return on invested capital.” 

Launched in 2010 by Lee Robinson – the well-known veteran co-founder of event driven hedge fund Trafalgar Asset Managers, who earlier helped build Tudor Investment Corp’s risk arbitrage business – London – and Monaco-headquartered Altana Wealth has built a formidable presence in what Robinson describes as “niche alpha” strategies. With some USD700 million in assets, the firm’s focus includes credit, special situations, currencies, crypto assets and SPACs.