Energy Fund Eyes $1.5B First Close

Firm: EnCap Investments LP

Fund: EnCap Energy Capital Fund VIII

Target: $2.5 billion

Placement Agent: Park Hill Group

EnCap Investments LP is expecting to hold a first close of $1.5 billion for its eighth fund by the end of this month, a source familiar with fundraising effort told Buyouts.

Executives also expect to surpass the target of $2.5 billion in commitments, our source said. The hard cap for the fund, which targets upstream oil and gas investments, is $3.5 billion. 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, EnCap Energy Capital Fund VIII. Previous investors include the University of Texas Investment Management Co., the University of Virginia Investment Management Co. and the California State Teachers Retirement System.

EnCap has a distinctive investment model. Rather than investing in a target company all at once, the firm provides its equity capital to portfolio companies incrementally, typically over three to five years, like an equity line of credit. Pine Brook Road Partners, a New York-based firm that targets energy and financial services, employs a similar strategy.

In March, EnCap wrapped fundraising for another fund, 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 UTIMCO performance data as of May 2010. EnCap Energy Capital Fund III-B LP, a $492 million fund raised in 1997, posted a 2.19x investment multiple and a 21.53 percent internal rate of return, while EnCap Energy Capital Fund IV-B LP, a $613 million fund raised in 2001, has delivered a 1.69x investment multiple and a 50.62 percent IRR.