EnCap closes in on $3.5bn hard-cap for Fund VIII

The Texas energy investor has swept past its $2.5bn target, even after losing a $40m commitment from a pension after a disagreement over a placement agent policy.

EnCap Investments is set to hit its $3.5 billion hard cap on its eighth energy fund, beating its target of $2.5 billion after a year-end flood of commitments.

The firm, with offices in Houston and Dallas, Texas, has been in fundraising for about nine months, a person with knowledge of the situation told PEO. A final close could come by the end of January, the person said.

The firm has received commitments from a slew of US public pensions, including the New Mexico Educational Retirement System, the Texas County & District Retirement System and the Minnesota State Board of Investments.

A load of commitments was finalised in the last months of 2010. The firm had raised $1.2 billion by last fall, according to a filing with the US Securities and Exchange Commission.

EnCap had been negotiating with a potential limited partner, the Orange County Employees’ Retirement System, for a $40 million commitment. OCERS had approved the commitment in November, but final negotiations became bogged down over language in the pension’s placement agent disclosure policy. The firm, according to OCERS’ documents, had concerns about some penalties in the disclosure policy.

EnCap also told OCERS to finalise the commitment by a certain deadline, which, if not met, the pension would either not be able to commit as much capital to the fund, or lose its place completely in Fund VIII. OCERS eventually chose to not follow through with the commitment.

The firm has built a solid track record over the past years in earlier funds. EnCap’s sixth energy capital fund, which collected $1.5 billion in 2006, was generating a 15.54 percent IRR as of 31 March, 2010, according to public documents from the California State Teachers’ Retirement System.

The $525 million EnCap Energy Capital Fund IV-B was producing a 50.62 percent internal rate of return and a 1.69x cash-on-cash return as of 31 May 2010, according to performance documents from the University of Texas Investment Management Company.

The firm’s third energy capital fund, which raised $480 million in 1997, was producing a 21.53 percent IRR with a 2.19x cash-on-cash multiple, according to UTIMCO’s performance numbers as of 31 May 2010.

EnCap raised $2.5 billion for its seventh energy capital fund in 2007. EnCap Energy Capital Fund VII was producing a negative 1.66 percent internal rate of return and a .10x cash on cash return as of 31 May, 2010, according to performance documents from the University of Texas Investment Management Company.

EnCap raised its first private equity fund in 1994. Before, from 1988 when the firm was founded until 1993, EnCap raised three mezzanine debt funds and three property acquisition funds.

Last year, the firm closed EnCap Energy Infrastructure Fund on $791.6 million.

Energy funds in general have been garnering a lot of attention from limited partners over the past year. Energy Capital Partners, founded by Goldman Sachs alumni Doug Kimmelman, Scott Helm and Thomas Lane, closed its second fund on $3.5 billion last year. Energy Investors Fund, focused exclusively on power investments in the US, has collected at least $1 billion on its way to a $1.7 billion target, and Rockland Capital closed its debut institutional fund on $333 million this month.