EnCap Eyes $3.5B Close For Fund VIII

EnCap Investments LP expects to close its eighth fund by the end of the month at $3.5 billion, $1 billion more than its target, according to a source close to the fundraising effort.

The fund, EnCap Energy Capital Fund VIII, targets upstream oil and gas investments. Park Hill Group, the placement agency owned by The Blackstone Group, is helping the Houston-based firm collect commitments from new investors.

Likely new investors include the New Mexico Public Employees Retirement Association, which in August approved a $25 million commitment to the fund. Previous investors with EnCap include the University of Texas Investment Management Co. (UTIMCO), the University of Virginia Investment Management Co. and the California State Teachers’ Retirement System.

EnCap’s investment model differs from that of most buyout shops. Rather than investing in a target company all at once, the firm provides equity capital to portfolio companies incrementally, typically over three to five years, almost like an equity line of credit. Pine Brook Road Partners, a New York-based firm uses a similar strategy.

The fund marks the second fundraising success for EnCap in less than a year. In March of last year, the firm finished raising EnCap Energy Infrastructure Fund at $791.6 million. That fund is earmarked to provide growth capital to companies involved with oil and natural gas gathering and processing, water handling and disposal, and carbon dioxide gathering and transportation.

EnCap’s early funds have fared well, according to performance data from UTIMCO as of May 2010. EnCap Energy Capital Fund III-B LP, a $492 million fund raised in 1997, posted a 2.23x investment multiple and a 21.53 percent internal rate of return for UTIMCO, while EnCap Energy Capital Fund IV-B LP, a $613 million fund raised in 2001, has delivered a 1.71x investment multiple and a 50.62 percent IRR.