North American PE Energy Funds Hit Peak in 2014

So far this year, there have been the most North American private equity energy funds in the market since 2005, though the amount of capital raised did not hit the 2013 peak.

According to data from PitchBook, there was $28.3B of capital raised as of Dec. 16, in 33 funds, compared to $30B in 27 funds in 2013. While it’s anyone’s guess how robust fundraising will be in 2015, as oil prices continue to drop, there seems to be a consensus that the energy sector still needs a lot of capital. And private equity is ready to fuel to those needs.

Jeff Eaton, of placement agent Eaton Partners, tells Privcap that while it’s become more challenging to raise capital for energy due to a crowded market and increasingly discerning limited partners, there are opportunities in the coming year.

Eaton presented about PE energy fundraising at Privcap’s Energy Game Change 2014 conference on Dec. 11 in Houston.

According to data from Preqin presented during that session, year-over-year energy fundraising was up 240 percent between 2009 and 2013. Preqin’s data includes all funds raised that are dedicated to invest in energy, utilities, power, natural resources, and infrastructure.

There was $17B in energy and infrastructure fundraising as of November 2014 in 65 funds, compared to $24B raised in 53 funds in 2013, according to the Preqin data.

PitchBook’s data differs, but the general trend lines up with Preqin’s that the number of funds was at a peak in the past year.

“The fundraising market in 2014, particularly for energy funds, was very active for managers who have demonstrated a strong track record through various commodities cycles and know how to convey their investment thesis to different audiences,” Eaton tells Privcap.

“For those who struggle doing this, it has been challenging to raise capital because limited partners are more discerning than ever and the market has been very crowded.”

While falling oil prices are on everyone’s mind, large amounts of capital are still needed for things like revamping U.S. energy infrastructure. There just may not be as many funds in the market.

Eaton says that in 2015, he expects LPs to continue to allocate to energy funds despite the decline in oil prices, but the pace of fundraising will likely slow.

“A number of exits that managers had targeted for the fourth quarter of 2014 didn’t materialize, as a result of wider bid/ask spreads on valuations,” he says. This has led to slower distributions back to LPs, resulting in LPs having less capital to reinvest in the energy space.

But there is at least one bright spot when looking at the fundraising environment for 2015,” Eaton says.

“On the other hand, the investment environment will be one ripe with attractive entry valuations and experienced LPs might increase their commitment pace to capitalize on the opportunity.”