First Reserve seeks $300 mln to support investments in 2008 fund

  • Annex targets $300 mln to support Fund XII portfolio
  • Existing LPs can commit on no-fee, no-carry basis
  • Expected to close this month

First Reserve is targeting $300 million for an annex fund to support portfolio companies in its 12th fund, which has struggled through the downturn in oil and gas, according to a limited partner with knowledge of the situation.

The firm is hoping to wrap up fundraising on the annex vehicle this month, the LP said. Fund XII, a 2008 vintage pool, closed on $9 billion in 2009.

Julie Oakes, a spokeswoman for First Reserve, declined to comment.

The Greenwich, Connecticut, firm offered existing limited partners in Fund XII the chance to commit to the annex fund on a no-fee, no-carried-interest basis, First Reserve said in a letter to LPs in April. The firm hoped to round up existing LP investments by the end of September, the LP said.

“[It’s] fee-free for investors, so the real question is ‘how do you feel about the portfolio companies they plan [to] invest in and do you have confidence in the team to be successful?’” the LP said about the annex fund.

The annex fund is meant to help support Fund XII through what First Reserve believes will be an extended downturn in the energy sector. “In this fund, we are focused on the balance sheets of several portfolio companies to better position these holdings to survive through the downturn and ultimately take advantage of a market recovery,” the firm said in the April LP letter.

Fund XII was generating a negative 7.7 percent net internal rate of return and a 0.8x multiple as of March 31, 2016, according to performance information from California Public Employees’ Retirement System.

As of April, the 2008 vintage fund still had about $400 million for follow-on investments, the LP letter said. The follow-on investment period was set to expire in August and First Reserve was seeking LP approval to extend the follow-on investment period for another year. It’s not clear whether that approval was granted.

Earlier this year in a separate process, First Reserve tried to restructure its 11th fund, which closed on $7.8 billion in 2006. Intermediate Capital Group and Pantheon were set to buy LP stakes from Fund XI, and to capitalize a new vehicle that would hold existing Fund XI portfolio companies.

But not enough Fund XI LPs wanted to sell their interests in the fund, which caused the lead buyers to back out of the transaction. Instead, First Reserve decided to ask for a one-year fund-life extension for Fund XI. It’s unclear whether that extension has yet been granted by the fund’s limited-partner advisory committee.

Action Item: Reach First Reserve IR Chief Cathleen Ellsworth:

A pump jack operates at a well site near Guthrie, Oklahoma, in September 2015. Photo courtesy Reuters/Nick Oxford