If there was any doubt that energy is what’s hot, here’s the proof. In just over seven months, First Reserve Corp., an industry specific buyout firm focused on energy and energy-related companies, closed its ninth fund last month with $1.3 billion under its belt.
While most firms are coming out of fund raising with tears in their eyes, Cathleen Ellsworth, a managing director at First Reserve, described its fund raising as having gone “fantastically well.” As well she should. First Reserve Fund IX LP closed over its $1 billion target and even slightly beyond it original $1.2 billion cap, in less time than many firms are taking to reach a first close.
However, Ellsworth, who has been with First Reserve for 11 years, gives less credit to the fund’s energy focus for its successful fund raising than she does to the firm’s 21-year history and track record. “We’ve continued to make money and produce good returns in all kinds of varied market conditions with a team that’s been together for a long time and a strategy that hasn’t changed,” she said. “I think all of those things are important.”
The limited partners in the fund are mainly made up of large public funds, although there are also corporate pensions, endowments and foundations. Ellsworth said the firm has very little bank or finance money. This time around 70% of the fund’s commitments came from repeat investors and 30% came from new investors.
First Reserve’s preceding fund made its final commitment to the Dresser Inc. buyout, which closed last month (Buyouts Feb. 19, 2001, p. 9). The close of the Dresser deal also marked the first investment and the final close of Fund IX. So far, Fund IX has not made any other investments, but “there are certainly some interesting things in the pipeline,” said Ellsworth.
The average investment size from Fund IX will be approximately $50 million. However, Ellsworth said, with First Reserve’s genuine buy-and-build strategy, a $10 million commitment may grow to more than $100 million if a company meets certain hurdles and performance criteria. This fund, like its predecessors, will mainly focus on U.S. companies.
“It’s becoming more and more obvious that we’ve underinvested in [energy] infrastructure in this country,” said Ellsworth. “That’s been our sweet spot for a long time and we think it’s going to be a good premise going forward.”