First Reserve Corp., one of the first private-equity firms to focus on energy investments, is scaling back its latest fundraising goal for the second time after lackluster performance on deals made before the 2008 financial crisis.
Led by William Macaulay, First Reserve has raised $2.7 billion for its 13th fund and plans to close it at $3 billion to $4 billion by September, said three people with knowledge of the situation, who asked not to be identified because the information is private. When the Greenwich, Connecticut-based firm started marketing the pool almost two years ago, it sought as much as $6 billion then cut the cap in 2013 to $5 billion.
The firm has struggled to attract capital in a competitive market as rivals including Warburg Pincus LLC and KKR & Co. gather billions of dollars to take advantage of growth in the energy sector. With U.S. oil production at a 26-year high driven by a shale-drilling boom some private-equity funds that have demonstrated strong performance are being offered so much capital they’re turning it away.
“High conviction managers are seeing existing investors coming back with bigger numbers and oversubscribing quickly,” said Bob Mast, a managing director at Monument Group Inc., a firm that helps private-equity funds raise money. “The funds not in that category have to backfill holes left by prior investors who did not return.”
Julie Hamilton Oakes, a spokeswoman at Prosek Partners, declined to comment on behalf of First Reserve.
Warburg Pincus, the firm where former Treasury Secretary Tim Geithner is president, in May gathered more than $3 billion in its first round of fundraising for its debut energy fund after starting to gather capital in November, according to a person with knowledge of the matter. EIG Global Energy Partners LLC, the asset manager spun off from TCW Group Inc. in January 2011, last year cut back commitments from investors due to excess demand for a $6 billion fund.
First Reserve’s latest fund will invest in companies focused on oil and gas; equipment and services providers; and midstream and downstream businesses with assets such as terminals, pipelines and refineries.
Its 2006 and 2008 vintage funds have a 1.8 percent net internal rate of return and a 4.8 percent IRR, respectively at year-end, according to data compiled by Bloomberg. That compares with 9 percent and 6.1 percent for energy-focused funds of those vintage years, respectively, according to data from London-based Preqin Ltd.
Performance has suffered after a $934.8 million investment in global drilling contractor KCA Deutag at the height of the buyout boom in 2007, according to a marketing document, a copy of which was obtained by Bloomberg News. KCA’s sales took a hit when oil companies renegotiated lower rates on offshore drilling equipment when the price of crude tumbled to as low as $33.9 per barrel in December 2008. First Reserve sold its stake to Pamplona Capital in 2010, wiping out most of its investment.
First Reserve has also seen departures of senior investment managers in recent years. Mark McComiskey, co-head of the buyout group at the firm, left in 2012 amid management changes that saw the promotion of buyout co-head Alex Krueger to president. Two other First Reserve managing directors, Joe Bob Edwards and Hardy Murchison, left at the end of January 2011.