Firm: Riverstone Holdings LLC
Fund: Riverstone Global Energy and Power Fund V
Target: $6 billion
Amount Raised: $7.7 billion
Fundraising: Led internally by Partner Elizabeth Weymouth
Investors in Riverstone’s new fund include the New Mexico Public Employees Retirement Association, which plans to pledge $30 million. California Public Employees’ Retirement System committed $400 million to Riverstone Global Energy and Power V last year. Other LP commitments include $250 million from the Illinois Teachers’ Retirement System, $200 million from the Delaware Public Employees Retirement System and $100 million from the State of Wisconsin Investment Board.
It is the first fund for the firm since leaving former partner The Carlyle Group. Riverstone’s buyout fund seeks to build energy and power businesses around the world and has already lined up $2.3 billion in investments in 19 companies. “Our model has always been to partner with proven management teams to jointly build companies from the ground up while focusing selectively on buyouts that offer great organic growth potential,” Riverstone said in a prepared statement.
Newly on board to help accomplish that is Partner James Hackett, a former chief executive of Anadarko Petroleum Corp. Hackett is known in the oil patch for finding big oil and gas resources in places such as Mozambique and the Gulf of Mexico and then deploying joint ventures to raise capital for additional development of the resource. Hackett is now co-head of the firm’s Houston office, where he will help build and manage new investment opportunities while identifying operating teams.
“Anadarko does a lot of deals—it’s very, very active in the M&A market and [Hackett] would be a great addition to any private equity firm,” said Hassan Eltorie, principal analyst at IHS, an energy research firm. “Instead of selling the assets and paying taxes on the gain, they have the partner come in and pay for capital expenditures via carried interest deals.“
Hackett, who stepped down from Anadarko one year ago, said in a prepared statement he will work to “fulfill the tremendous capital and management needs of the global energy business” and to help Riverstone “continue to build upon its successful investment track record.” He said the firm is accommodating his plan to attend Harvard Divinity School.
It is possible Riverstone could come in as a joint venture partner with Anadarko or another firm as private equity continues to invest in energy projects around the world, Eltorie said.
Executives at Riverstone declined to comment beyond the firm’s announcement. Founded in 2000, Riverstone has raised $25 billion in equity capital across seven funds including Riverstone/Carlyle Global Energy and Power Fund IV, Riverstone/Carlyle Renewable and Alternative Energy Fund II, Carlyle/Riverstone Global Energy and Power Funds I, II, and III, and the Carlyle/Riverstone Renewable Energy Infrastructure Fund I LP.
It has invested in about 90 portfolio companies and lists two founders, eight partners and 10 managing directors on its website, as well as 21 principals, vice presidents and associates. Its offices are in New York, London and Houston. In two recent deals, Riverstone set plans to invest up to $200 million in Ridgebury Tankers LLC, and paid an undisclosed sum to acquire Utex Industries Inc., a manufacturer of sealing and other specialty products, from Rhone Capital.
Launched in November, 2011, The Riverstone Global Energy and Power Fund V ranks as the third-largest energy fund ever after the $8.8 billion First Reserve XII Fund in 2008 and the $7.8 billion First Reserve XI fund in 2006. But it may remain the largest after the financial crisis, after reports First Reserve has cut its maximum target for its latest fund to $5 billion from $6 billion.
Riverstone has also been outshining First Reserve in performance of late.
The 2008 vintage Riverstone/Carlyle Global Energy and Power IV generated a net internal rate of return of 17 percent as of Dec. 31, 2012, for CalPERS, according to the pension fund. The Carlyle/Riverstone Global Energy & Power III Fund from 2005 chalked up a net IRR of 12.3 percent, while Carlyle/Riverstone Global Energy & Power II from 2003 produced a net IRR of 54.1 percent for CalPERS.
By contrast, the 2008 vintage First Reserve Fund XII LP earned a 3.3 percent net IRR for CalPERS, and the 2006 vintage First Reserve Fund XI turned in a 3.1 percent net IRR, and the First Reserve Fund X LP from 2004 turned in a net IRR of 31.6 percent.
Riverstone Global Energy and Power Fund V marks the first fund by Riverstone without Carlyle Group, the Washington, D.C.-based buyout shop that helped Goldman Sachs veterans David Leuschen and Pierre Lapeyre Jr. set up the firm in 2000. The agreement allowed either firm to end the partnership at the start of a fundraising cycle, according to a person familiar with the firms. The two firms went their separate ways in 2011.
With its latest fund surpassing its target by $1.7 billion, Riverstone apparently overcame any adverse effects from its $30 million payment back in 2009 in the wake of a pay-to-play scandal involving the New York State Common Retirement Fund. Riverstone founder Leuschen also paid $20 million after he invested in a film produced by a relative of the chief investment officer for the fund. New York opted out of Riverstone’s latest fund, according to reports.
Despite the influx of cash in the U.S. energy patch and rising valuations of energy firms, plenty of good deals remain, said Mark Travis, president of Intrepid Capital Advisors, a mutual fund manager that owns small-cap energy names.
“There are a lot of undervalued assets that could, with a little bit of leverage, provide a good return,” Travis said. “They’d be bite-size acquisitions for a private equity firm or even Exxon Mobil for that matter.”
Among some bigger deals now cooking in the energy sector, sister news service Reuters reported Newfield Exploration Co plans to auction off a stake in Asian resource fields worth about $1 billion and Hess Corp plans to raise $2 billion from sales in Indonesia and Thailand.
(Correction: Riverstone Global Energy and Power Fund V has made $2.3 billion in investments in 19 companies. An earlier version of this story misstated this fact.)