$2-Billion Private Equity Fund Collapses to almost Zero
$2-Billion Private Equity Fund Collapses to almost Zero by Wolf Richter – Wolf Street
Worst PE-fund collapse ever. The oil bust just keeps on giving.
Investors who’d plowed $2 billion four years ago into a private equity fund that had also borrowed $1.3 billion to lever up may receive “at most, pennies for every dollar they invested,” people familiar with the matter told the Wall Street Journal.
Fund raising and investing started in 2013. Houston-based EnerVest manages the fund. This could be the first time ever that a PE fund larger than $1 billion lost nearly all of its value.
The lenders to the fund are now negotiating to take control of the fund’s assets, these “people familiar with the matter” told the Journal. Wells Fargo is leading the negotiations.
Investors span the spectrum of institutions managing other people’s money. Some of them might have sold their stakes to cut their losses. Among these investors are: the Orange County Employees Retirement System; Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund; Florida’s largest pension fund manager; the Western Conference of Teamsters Pension Plan, covering union members in nearly 30 states; the J. Paul Getty Trust; the John D. and Catherine T. MacArthur Foundation; the Fletcher Jones Foundation; the Michigan State University; and a foundation supporting Arizona State University.
But it sounded good at the time…
EnerVest, which was started in 1992 and focuses on energy investments, kicked off the fund in 2013, raising $2 billion in equity from institutional investors and borrowing $1.3 billion. According to the Journal, it specializes in acquiring oil and gas fields with producing wells that are neglected by larger oil companies. It then makes improvements and drills additional wells to raise production.
The fund was started at the peak of the fracking boom, when West Texas Intermediate traded between $91 and $109 per barrel. Another fund EnerVest started in 2010 by raising $1.5 billion and borrowing $800 million is also in trouble. In the past, EnerVest’s funds had stellar returns and it had no trouble raising the funds.
These “resource funds” appeal to institutional investors due to the steady cash flow they normally generate starting with their first investments.