Energy & Minerals Group explores potential biggest-ever secondary deal

There’s a whale moving through the private equity secondary market.

Energy & Minerals Group is working on a secondary process that could be valued between $4 billion and $5 billion, multiple sources told Buyouts.

If completed at that valuation, the deal would be the largest ever in the secondary market.

One of the largest so far, though involving private real estate, was the 2015 sale of about $3 billion of real estate holdings by CalPERS to Blackstone Group’s secondary team, Strategic Partners.

Another big deal was the $2.5 billion spinout of Abu Dhabi state fund Mubadala’s PE team into a new fund, which was financed by Ardian.

EMG, formed in 2006, would target several midstream assets from older funds and move them into a new fund. This would enable EMG to continue managing the assets beyond the contractual lives of the older funds, sources said.

In such deals, existing investors in the older funds usually have the option to cash out of their interests in the assets or roll their stakes with the manager into the new vehicle. The exact structure of what EMG is contemplating is not clear.

Also unclear is which assets would be included in the deal. Sources said they are midstream assets, which is energy-industry parlance for services including processing, storage and transportation of oil and gas.

Park Hill Group is working with EMG on the process. Several secondary-market buyers said they didn’t think the process was officially on the market yet.

A spokeswoman for EMG did not return a request for comment, while a spokeswoman for Park Hill declined to comment.

A deal of this size would likely require a group of buyers and might also include non-traditional investors, meaning large pensions or other institutions outside the secondary market, sources said.

EMG is led by Founder, Managing Partner and Chief Executive John Raymond and Founder and Managing Partner John Gregory Calvert.

The firm closed its third fund in 2014 on $3 billion. Fund III had a gross asset value of just over $3 billion as of July 17 2018, according to EMG’s Form ADV.

Fund IV was targeting $4 billion in 2015; it’s not clear how much the pool closed on. As of July 17, 2018, Fund IV had about $2.8 billion of gross asset value, the Form ADV said.

EMG raised $1.4 billion for its debut fund and $2.25 billion for Fund II, a presentation for San Diego County Employees Retirement Association shows.

Performance information for the funds could not be found.

The firm in 2016 informed limited partners that it was breaking ties with Aubrey McClendon, founder and ex-CEO of Chesapeake Energy. McClendon died in a car accident the day after the U.S. government charged him with breaking antitrust laws, Reuters reported.

EMG invested $3 billion in ventures with McClendon, and at the time the firm told investors the allegations would not affect portfolio companies, Reuters said. Those charges had nothing to do with EMG portfolio companies, Reuters said.

EMG is one of numerous GPs exploring the secondary market to deliver liquidity to investors in older funds, and find ways to hold assets longer. Accel-KKR is considering bringing a process to market in the spring on its third fund, Buyouts previously reported.

Update: This story has been updated to include that a Park Hill spokeswoman declined to comment. 

Action Item: Check out EMG’s Form ADV here: https://bit.ly/2Bpe140