The State Board of Administration of Florida sees interesting investment opportunities in the energy market, even as that asset class underperforms, according to documents released this week by the pension plan.
Trent Webster, the senior investment officer for the retirement system’s strategic investments team, has been making the case for tilting the fund he manages toward commodities, the documents show. The strategic investments group managed 8.4 percent of Florida SBA’s $162.5 billion of assets at the end of September.
Webster has seen a “wide dispersion of attractive opportunities” in commodities, including shale oil and gas production, according to the documents, which show a presentation he made this month and minutes of the pension's meeting in September. He said at the September meeting that the market was “vastly overestimating” the coming pain in the energy sector.
“Energy is just a hated group,” he said at the time. “I was looking at something over the weekend which, for hedge funds, they're the single lowest net exposure on record.”
Increasing the strategic fund's investment weight in commodities to five percent, from three percent, is a “high” priority, according to Webster’s presentation this month. The retirement system is stepping up its exposure to energy after being hurt by its exposure to the sector.
Florida SBA’s allocation to commodities tied to energy lost 21.6 percent over the 12 months through September, according to the documents.
“Just a massive amount of capital has come out of the energy markets,” Webster said at the meeting in September. “And we’re finding interesting things to do in energy.”
While he noted in his presentation this month that not many commodities fund offerings exist, the SBA’s strategic team has found one fund in which it plans to invest.
Separately, Webster's group is not actively looking to make new private equity investments or “general partnership” investments in equity, the presentation shows. A spokesperson did not immediately respond to an email seeking clarification on the general partnership investments being avoided by his group.
In September, SBA’s strategic investments team saw a coming shortage in copper that it believed would take place in the middle of the next decade, according to Webster. “So we’re going to see if there [are] ways to play that,” he said at the time. At present, the SBA has no capital invested in metals, according to Webster’s December presentation.
The Florida retirement system gained 13.5 percent in the year through September, compared to a 13.2 percent return for its benchmark, according to the documents. Over the ten years through September, SBA is up 7.4 percent.
“Oddly enough, you know, with the high stock valuations in the United States, the loan markets and the bond markets acting very late-cycle, we're finding a lot of things to do,” Webster said at the pension’s meeting in September. “If you had told me that a couple of years ago, I probably wouldn't have believed it.”