Private Equity News & Analysis

First Reserve closes $7.8bn energy fund

First Reserve, which recently opened offices in Asia, has announced the closing of the largest energy-specific global fund ever raised, at $7.8bn. CEO Bill Macaulay told PEO that investor demand could have made the fund "much larger."

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Private equity firm First Reserve, the leading private equity firm specializing in the energy industry, has closed its eleventh fund with commitments of $7.8 billion (€6 billion), the largest energy-focused global fund ever.

First Reserve’s last fund closed in 2004 on just $2.3 billion—less than one-third of the value of the current fund. But some 75 percent of the investors from the previous fund also put money in the eleventh, and so many prospective LPs were eager to invest that the process was uncharacteristically brisk.

“The investment rate has picked as the opportunities have picked up, and we’ve been able to go after larger and larger deals,” First Reserve CEO Bill Macaulay told PEO. “This thing, start to finish, from pre-marketing through to closing, was about three months, a little bit over. So there’s a lot of demand, no question. We could have raised a much larger fund. We actually limited it to what we thought we could invest. It was gloriously short.”

High investor demand has been seen throughout the private equity energy market. New York-based LS Power Group and New Jersey-based Energy Capital Partners have been on track to raise energy funds roughly in the $2 billion range.

First Reserve has significantly expanded its focus globally since it opened its London office in 2004. More recently, the firm opened associated offices in Shanghai and Tokyo earlier this year. That worldwide presence has further globalised the new fund’s strategy to invest in equipment, manufacturing and service companies that would benefit from increased energy infrastructure spending.

“There’s a lot out there,” said Macaulay. “We’ve underspent on infrastructure in the US and Europe since the last boom, which ended in 1982—a lot of years that have to be made up for—and then we’ve got all the new demand for infrastructure in places like China and Brazil, where the infrastructure just doesn’t exist. So there’s a lot of opportunity, and the energy business takes very big dollars. It’s a very capital-intensive business.”

Since 2004, First Reserve has backed successful IPOs via exits from energy assets such as Dresser-Rand Group, Alpha Natural Resources, Foundation Coal Holdings and Caledonia Oil & Gas. Current investments include Asian Energy Holdings, Southern Cross and Berco Resources.