This Hedge Fund Manager Believes Oil Companies Are ‘Part Of The Solution’

By: Jayson Derrick
Jayson Derrick
Jayson lives in Montreal with his wife and daughter, loves watching hockey, and is on a lifelong quest to… read more.
on Mar 5, 2020
  • ESG investing is becoming a bigger trend among hedge funds and money managers.
  • But notable activist investor Jeffrey Ubben thinks companies like BP belong in the list.
  • BP is investing to "become a company of the future," he told CNBC.

The case for divesting big oil companies in favor of green technologies met resistance after notable hedge fund ValueAct made the case for BP, noting the global oil giant can be “part of the solution,” according to CNBC.

ValueAct is a San Francisco-based hedge fund with more than $15 billion in assets under management. One of the products in the fund is called the ValueAct Spring Fund which was formed in 2018. The purpose of the fund is to invest exclusively in companies with environmental and social goals in mind. 

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The hedge fund is now dominating headlines after founder Jeffrey Ubben told CNBC oil and gas companies should be included in the list of sustainable companies. He is putting his money where his mouth is through an investment in oil giant BP.

Ubben said that BP is active in investing in carbon-capturing technology and other green initiatives to “become a company of the future.”

Oil Isn’t Going Anywhere

In the meantime, the world simply can’t transition away from oil overnight and BP’s stock at three times EBITDA is a good price. The oil company deserves credit for doing a “great job” over the past three years from a financial perspective and for operating with a “fine” balance sheet.

Ubben is looking to take advantage of BP’s cheap valuation and he may be forced to hold on to shares for a while. After all, few if any other investors would be interested in buying his stake should the stock’s valuation rise to five times EBITDA in the near-term.

He is in it for the long-term.

Credit To Oil

Oil has proven to be an important commodity to humanity as it lifted entire populations “out of poverty,” he said. Oil also made globalization possible and the result has been the creation of “a lot of value.”

However, the time for oil dependency may have passed although BP as a company will not only survive but potentially thrive, Ubben said. BP has the necessary infrastructure, resources, workforce, geologists, and expertise to “move to the cleaner solution.”

Activist Push

Ubben is at his core an activist investor and one thing he learned best over the years is when a company’s stock drops to such a low point, it usually implies the existing strategy “isn’t working.” As an activist investor in the environmental and social universe isn’t to push for BP to find a new CEO, rather encourage change.

Ubben wants to make companies like BP “more investable… that’s all.”

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