1 Pentti, you work for an energy-focused private equity firm based in Calgary, Alberta. How long has Kern been around and where is it headed?
As far as our focus, we’re about 70 percent invested in Canada and 30 percent in the United States and internationally. We focus on three main areas: conventional oil and gas exploration, unconventional investments, as well as services and energy technology. While we still do infrastructure, the company now has to be something new or broken. As for our limited partners, they are the largest pension funds in Canada, and three of the top five U.S. endowments.
2 How does Kern see the energy space?
When you look at the investment cycle and energy projects, two things are true. First, it takes a long time and, second, it takes a lot of money. And the more successful you are in the energy business, the more capital you need.
Energy is a five commodity business but everyone just thinks it’s two: oil and gas. But the other three commodities are even more important. The third commodity is capital, which comes and goes just like any other. When capital is coming or going, it can create huge dislocation, usually negative. The fourth commodity is time. The less time you have to execute a business strategy, the riskier the decisions you’re going to make. But if we can manage our time profile, we can also manage our risk profile. And the fifth commodity is people. We have been able to draw on top-decile management teams, who are really good at what they do. These are people who know how to find oil and gas, exploit it and run a business around it.
3 Tell us about some of your favorite portfolio companies.
One company in our portfolio we’re proud of is
Another business we’re pleased with is Cobalt International Energy, which is now a publicly listed, $6 billion deep-water exploration company. It’s run by a guy named Joe Bryant. We went to visit him and he put together a spectacular Gulf of Mexico and West African exploration company that has the best ‘explorationists’ and the best technology.
4 Besides returns, what is the biggest reason why an LP will invest with you?
My job is to make our LPs’ jobs easier and make them look good. I never want to be a headache. I never want to be a question mark. I do, however, want to be a good partner. So if someone is sitting in Boston or New York or Montreal, and they want exposure to energy, I want to be their strategic partner. And I want to deliver them the alpha returns that they want, but I also want to have a relationship that is really, really solid.
5 How would you differentiate yourself from a huge energy private equity firm like EnCap?
You already gave one answer:
Edited for clarity