Energy Specialist Nears Close On First Infrastructure Fund

Firm: EnCap Investments LP

Fund: EnCap Energy Infrastructure Fund LP

Target: $750 million

Placement Agent: None

Energy specialist EnCap Investments LP expects to close its first infrastructure fund near its $750 million target by Jan. 15, sources familiar with the firm’s plans told Buyouts.

The Houston-based firm has so far raised $450 million for EnCap Energy Infrastructure Fund, a solid tick upward from the $340 million it had raised in the first quarter, as previously reported in Buyouts.

Managers of the fund want to provide growth capital to companies in North America involved with oil and natural gas gathering and processing, water handling and disposal, and carbon dioxide gathering and transportation. They expect 60 percent to 70 percent of the fund to be invested in new projects and businesses, while acquisitions of existing entities will make up the balance. The firm will typically commit $50 million to $75 million per investment, which is then drawn down by the target company over a three- to five-year period.

Sources declined to name specific limited partners in the infrastructure pool, though past supporters of EnCap Investments funds have included California State Teachers’ Retirement System, the University of Texas Investment Management Company, and the University of Virginia Investment Management Company.

While EnCap Investments has made several midstream investments through its previous funds, this is the firm’s first fund dedicated solely to midstream infrastructure investments. The firm is partnering on the fund with 12 professionals from San Antonio-based Flatrock Energy Advisors who in 2008 exited their advisory practice to focus exclusively on managing EnCap Investments’s infrastructure fund. The firms jointly own and manage the fund.

EnCap Investments is also planning to raise its eighth fund targeting upstream oil and gas investments and may need placement agents to help attract international investors, as previously reported in Buyouts. Executives expect to target $3 billion to $3.5 billion for that fund.

The Houston firm’s sixth and seventh funds have yet to yield notable returns for its investors, although they are still in the early part of their investment periods. Its early funds have fared well, according to UTIMCO data as of May 31, 2009. EnCap Energy Capital Fund III-B LP, a $492 million fund raised in 1997, has returned 1.87x the capital invested by the Texas pension, generating a 21.23 percent internal rate of return. Meanwhile, EnCap Energy Capital Fund IV-B LP, a $613 million fund raised in 2001, has returned 1.65x UTIMCO’s invested capital, generating a 51.16 percent IRR.