Highland’s Falcon closes on $163.2m

The firm has already invested around $60m across five investments in the continental US, targeting smaller wells that are unlikely to be on the radars of larger energy funds.

Falcon E&P Opportunities has closed its debut investment vehicle at $163.2 million, the firm announced in a statement. The firm, a joint venture between Highland Capital Management and oil and gas investment firm PetroCap, was targeting $200 million for the fund, which launched in 2009.

Falcon typically focuses on direct investments in onshore oil and gas assets in the continental US, and has already invested around $60 million in capital across five investments in Texas, Kansas and Wyoming. According to managing director Alec Neville, the firm specialises in targeting smaller clusters of already productive wells, where it would be difficult for larger firms to obtain economies of scale.

“We look for assets that larger players shed as they search for scale,” Neville told Private Equity International. “Ours is a niche strategy, focused on smaller projects. We couldn’t put a billion dollars to work in this space.”

In addition to Texas, Kansas and Wyoming, the firm is also considering investments in the Gulf Coast region and Appalachia, Neville said. Falcon will complete between eight and 12 investments of around $20 million each by the end of its investment period, and has already returned approximately 10 percent of its capital calls to LPs, according to the announcement.

Falcon’s first limited partner, The San Diego County Employees Retirement Association, was able to negotiate the firm’s carry down to 15 percent from the usual 20 percent in exchange for a $75 million commitment in 2010.

Other investors in the fund include AT&T’s pension, municipal pensions and high net worth individuals. The firm operates with a 1.25 percent management fee and a 20 percent carry.

Highland Capital Management was founded in 1993 by James Dondero and Mark Okada. The Dallas-based firm has around $23 billion in assets under management.