Balancing Portfolio Risk
Summer and fall of 2022 have both come with great uncertainties in the market, among other things. Everyone had some hopes pinned on clarity after election day, but I also don’t think it surprises anyone that Election Day has come and gone, and that clarity is still a bit elusive. We consider many types of investments and structures at Saber Equity, but all with one purpose, to invest in the development of projects that S&B will engineer and build. There are great projects that just need a little help to get the funding lined up to build the project, and there aren’t many development capital investors to lend a hand. Saber Equity is proud to be one of the few providers of that development capital.
One of the things that goes along with development capital is risk. It’s just a fact that early investment is more risk intensive than later investment. We’ve factored that into our business plan and we’re ready to take some bigger risks for the right projects.
In this uncertain market though, we’re paying close attention to what I like to call the risk stack. There are many risks in project development, and those can include process technology risk, commodity pricing risks for both feed and offtake, project execution risks, geopolitical risks, and market risks. In our business, an uncertain market can mean that it’s more difficult to place the equity or the debt if the returns are too tight or the capital required to build is too high. A good understanding of a tolerable risk stack is imperative to choosing the right projects to invest in.
What we’ve chosen to do is to double down on what we know are long term good investments, even if we also know they’ll take a little longer to close. We’ve also backed out of some investments that we really loved but had a stack of risks that we just couldn’t tolerate in our portfolio, in this market. We hope to be able to revisit some of those exciting projects in the future as capex normalizes and the commodities markets get clearer. We’re always looking for a balanced portfolio with risks in different areas, such that we’re able to tolerate the uncertain times with more ease. This is how we’ve always run our business at S&B as well…balance the workload such that the tough times aren’t so tough. We’re really just taking the same business skills we’ve always used for engineering and construction and using the same balanced approach to risk in our investment business. We are using all of our business lines together to not just survive the uncertainty, but thrive through it.