First Reserve to seek $6bn for 13th fund

The Greenwich, Connecticut-based energy giant will pursue a more modest target from what it had been seeking in its prior fund – a move that many firms have used in the tough fundraising environment.

First Reserve Corporation is launching its 13th fund seeking $6 billion, an amount that is reduced in half from the target of its prior investment vehicle, according to two people who heard the fund launch announcement last week.

The firm, based in Greenwich, Connecticut, declined to comment.

Fund XIII’s target is lower than the total amount raised in the prior fund, which closed on $9 billion in 2009. That fund came in under the target of $12 billion.

In reducing its target, First Reserve is following a trend of many firms asking for less capital than their past funds, an acknowledgement of the more subdued fundraising environment. Some firms have also lowered targets as a way to appease limited partners who have been underwhelmed by recent performance.

“Almost every big fund is dealing with or will have to deal with the underperformance of their more recent, largest funds compared to prior, smaller funds,” said one institutional investor consultant. “We hear it all the time [from fundraising GPs]: ‘we’ve learned our lesson and we won’t do huge deals’.”

First Reserve’s more recent funds’ performance has been underwhelming, according to an LP. The $9 billion Fund XII was generating negative 1.8 percent internal rate of return and a 1x multiple as of 30 September, according to the California Public Employees’ Retirement System, though as a 2009 vintage, that fund is still fairly young to accurately gauge performance.

Fund XI, which collected $7.8 billion in 2006, was generating a negative .1 percent IRR and a 1x multiple, according to CalPERS. Fund X, a $2.3 billion 2004 vintage, has been a great performer, producing a 34.5 percent IRR and a 1.9x multiple, CalPERS documents said.

The firm had to resolve a recent key-man event when Mark McComiskey, one of the heads of the firm’s buyout group, decided to leave the firm earlier this year.

McComiskey apparently decided to leave as the result of management changes that saw Alex Krueger promoted to president. Krueger’s appointment followed the expansion of the firm’s senior management team, which included the appointment of Claudi Santiago as chief operating officer. The firm also made at least nine senior promotions at the managing director and director levels, according to a statement from the firm. Chief executive officer William Macaulay’s role did not change with the promotion.

First Reserve was founded in 1983 and has raised about $23.1 billion since inception. The firm last year closed its debut infrastructure fund on $1.2 billion.