First Reserve quietly closes Fund XIII well below target

Veteran energy firm First Reserve has closed its 13th flagship fund on $3.4 billion, well below its original target of $6 billion and its reduced $5 billion goal, sister website peHUB reported. This is smaller than Fund XII, which closed on $9 billion in 2009, also below its original $12 billion target.

The firm held the final close on Sept. 29, according to Caroline Harris-Gibson, a spokeswoman for the firm.

First Reserve has been marketing First Reserve Fund XIII LP since at least 2012, when it discussed a $6 billion target with potential investors, according to one limited partner who heard the fundraising pitch. The first official filing with the SEC on the fund came in April 2013, indicating a $5 billion target.

So what happened? “Performance has been unimpressive and I think there has been enough changes on the leadership side that also gave people pause,” said the LP.

The firm’s recent performance has been shaky. Fund XII was generating a net 4 percent internal rate of return and a 1.1x multiple as of March 31, 2014, according to performance information from the California Public Employees’ Retirement System.

Fund XI, which closed on $7.8 billion in 2006, was producing a net 2 percent IRR and a 1.1x multiple as of March 31, 2014, according to CalPERS.

Fund X, however, a $2.3 billion vehicle raised in 2004, was producing a net 31.2 percent IRR and a 1.8x multiple, according to CalPERS.

The recent track record likely didn’t help First Reserve in a crowded energy private equity fundraising market, in which managers raised about $17 billion across 15 funds as of June, according to private equity data provider Preqin.

Quantum Energy Partners, for example, has been targeting $2.5 billion for its sixth fund, which launched in May, and has already hit its target and is heading for its $3.25 billion hard cap, a person with knowledge of the firm told peHUB in a prior interview. Energy Capital Partners closed in April on more than $5 billion for its third fund, beating its $3.5 billion target.

Mega-firms including The Carlyle Group and Warburg Pincus also have been in the market raising energy vehicles.

Add to this, some LPs believed First Reserve brought Fund XIII to the market too early, before they could get a good sense of the prior fund’s performance.

First Reserve also has had some high-level turnover in its ranks. Mark McComiskey, former head of a buyout group within First Reserve, left in 2012, Bloomberg reported at the time. Joe Bob Edwards and Hardy Murchison, two other managing directors at the firm, left at the end of 2011, Bloomberg reported.

All these factors created a challenging fundraising environment this time for First Reserve, which says it has been around since 1983 and manages more than $26 billion, according to its website. Still, even as the firm struggled to hit targets on the flagship vehicle, it was having an easier time raising its second energy infrastructure fund, which closed in June on its hard cap of $2.5 billion.

Chris Witkowsky is editor of peHUB.