EnCap raises $5bn in five months

The energy investor exceeded its $4.25bn target for Fund IX and has deployed about $350m in three investments.

EnCap Investments has closed Fund IX on its $5 billion hard-cap, making it the firm’s largest-ever fund.

EnCap came to market with Fund IX, which had a $4.25 billion target, last September, and raised roughly 85 percent of the capital from existing investors. Fund IX will invest using the same strategy as EnCap’s $3.5 billion Fund VIII, backing management teams of oil and gas exploration and production companies in the US and Canada, but with slightly larger investment sizes. Fund VIII targeted investments of between $100 million and $300 million, while Fund IX will invest between $250 million and $350 million per deal.

“The average ticket size needs to be bigger because these companies have larger capital requirements,” EnCap managing partner Robert Zorich told Private Equity International. “We’ve had a lot of growth in fund sizes over the last decade, but it's related more to the cost of doing business than anything else. Our model has stayed fairly consistent throughout our 25 year history.”

Our goal is to invest consistently over time and never have more than 20 percent of our fund invested in any one calendar year

Robert Zorich
Managing partner, EnCap Investments

Fund IX received commitments from several large US pensions, such as the Florida State Board of Administration, the Teacher Retirement System of Texas and the Los Angeles City Employees’ Retirement System, according to data provider PrivateEquityConnect. Roughly 20 percent of the capital raised for Fund IX came from international investors.

Fund IX has deployed about $350 million to three portfolio companies, two of which are Houston-based oil and gas businesses Common Resources III and Paloma Partners III, management teams EnCap has previously backed. The third investment was Oklahoma-based PayRock Energy, an exploration and production company EnCap has not backed before.

“When you’re in a commodity-driven business, you are constantly looking for situations where the commodity price could change, and you’re trying to see precursors of that in the market,” Zorich said. “Our goal is to invest consistently over time and never have more than 20 percent of our fund invested in any one calendar year.”

EnCap has raised 17 oil and gas investment funds worth a combined $18 billion, and manages capital on behalf of more than 250 US and international investors. The firm’s Fund VIII was generating a 53 percent IRR as of late 2012, according to a report from Hamilton Lane prepared for the Los Angeles City Employees’ Retirement System.

The energy, mining and utilities sector was the second most active industry for private equity investments in North America in 2012 after industrials and chemicals, according to Mergermarket. Private equity funds completed 87 energy investments last year, worth a combined $37.9 billion.