Family offices piled into oil after capital dried up. The recent rally has made for big gains

The Iran war has propelled oil prices to above $94 a barrel, up about 30% since the conflict began in late February. That rally has been a boon for investment firms of ultra-wealthy families who made opportunistic bets on oil in recent years. Since the pandemic, private equity funds and other institutional investors have backed away from oil and gas in part due to pressure from environmentally conscious stakeholders. Family offices have stepped in to fill some of that void, investors and advisors told CNBC. While many family offices are environmentally minded — with a September survey by Citi Private Bank showing more than half of respondents reporting they were likely to make sustainable investments in the next five years — they're not subject to the same ESG mandates as private equity firms or endowments, which have faced pressure to divest from oil and gas. "Family offices are contrarian players. A lot of investors left the sector for non-fundamental reasons, like endowment funds, who had students protesting," said Keith Behrens, head of energy and clean energy investment banking at Stephens. "Family offices saw that flight of capital, and it created really good investment opportunities for them. They were able to come in and invest with pretty reasonable cash flow multiples." Family offices also have an edge on private equity players as they generally hold investments for longer periods, meaning they can weather oil price fluctuations and dealmaking downturns, according to Gillon Capital's Jeff Peterson. "We back teams who are looking to build businesses over the long term, because that's where we really differentiate ourselves. A fund can only really hold a business for their fund life," he said. "We invest for generations in mind so we can look through current cycles." Get Inside Wealth directly to your inbox The Inside Wealth newsletter by Robert Frank is your weekly guide to high-net-worth investors and the industries that serve them. Subscribe here to get a...