Why The Best-Performing Industry Is Struggling The Most With Fundraising

It’s kind of like a model exclaiming “Don’t hate me because I’m beautiful.” Thanks to strong performances, energy-focused buyout funds are meeting LP’s allocation caps. How can that be possible, you ask? It’s all about percentages.

An LP told me there are a number of strong energy-focused firms in the market “that are working harder than usual to get commitments” because they’re on the losing side of the numbers game. (List of firms below.) Thanks to horrific drops in investors’ public equities investments, that 5% energy allotment is looking a lot smaller.  And  since most energy investments have actually grown when others shrank, that 5% could now account for something like 8% of the portfolio. Some LPs might be over their allocation without even investing what they’d planned.

Energy firms in the market include First Reserve, raising its twelfth fund. The firm, which has had no problem doing relatively large deals this year, is seeking $12 billion with a $16 billion hard cap. In August peHUB reported the firm had $4.5 billion in commitments. That’s a long way to go, especially when even generalist mega-funds like Blackstone and Madison Dearborn are being asked to lower their target sizes.

Then there’s EnCap Investments. The firm is raising a new fund, which I heard is totally different than past funds. It’s a midstream infrastructure fund targeting approximately $1 billion. The new focus, in addition to the fact that the firm is fresh off its largest fund raise as recent as December, has raised questions with LPs, a source said.

Next we have Quantum Energy Management. The firm is targeting up to $2.75 billion for its fifth fund, peHUB reported in late July. The firm is closer to its target than First Reserve, with $920 million in commitments. Champlain Advisors is its placement agent. UPDATE: Quantum Energy V Has Closed on $2 Billion.

Lastly, according to a source, Kayne Anderson has entered the market raising somewhere between $1 billion and $1.6 billion for its fifth effort. The Houston-based firm raised $950 million for its last vehicle, which closed in December 2006. UPDATE: Kayne Anderson V Aiming For Nov. 20 Close.