Meet The Only Private Equity Fund In History To Raise $2 Billion From Investors And Return $0

Sir Richard Branson once said that the quickest way to become a millionaire was to take a billion dollars and buy an airline. But, as EnerVest Ltd, a Houston-based private equity firm that focuses on energy investments, recently found out, there's more than one way to go broke investing in extremely volatile sectors. 

As the Wall Street Journal points out today, EnerVest is a $2 billion private-equity fund that borrowed heavily at the height of the oil boom to scoop up oil and gas wells.  Unfortunately, shortly after those purchases were made, energy prices plunged leaving the fund's equity, supplied primarily by pensions, endowments and charitable foundations, worth essentially nothing. 

The outcome will leave investors in the 2013 fund with, at most, pennies for every dollar they invested, the people said. At least one investor, the Orange County Employees Retirement System, already has marked its investment down to zero, according to a pension document.

 

Though private-equity investments regularly flop, industry consultants and fund investors say this situation could mark the first time that a fund larger than $1 billion has lost essentially all of its value.

 

EnerVest’s collapse shows how debt taken on during the drilling boom continues to haunt energy investors three years after a glut of fuel sent prices spiraling down.

But, at least John Walker, EnerVest’s co-founder and chief executive, expressed some remorse for investors by confirming to the WSJ that they “are not proud of the result.”

Enervest

 

All of which leaves EnerVest with the rather unflattering honor of being perhaps the only private equity fund in history to ever raise over $1 billion in capital from investors and subsequently lose pretty much 100% of it. 

Only seven private-equity funds larger than $1 billion have ever lost money for investors, according to investment firm Cambridge Associates LLC. Among those of any size to end in the red, losses greater than 25% or so are almost unheard of, though there are several energy-focused funds in danger of doing so, according to public pension records.

 

EnerVest has attempted to restructure the fund, as well as another raised in 2010 that has struggled with losses, to meet repayment demands from lenders who were themselves writing down the value of assets used as collateral, according to public pension documents and people familiar with the efforts.

So, who's getting wiped out?  Oh, the usual list of pension funds, charities and university endowments.

A number of prominent institutional investors are at risk of having their investments wiped out, including Caisse de dépôt et placement du Québec, Canada’s second-largest pension, which invested more than $100 million. Florida’s largest pension fund manager and the Western Conference of Teamsters Pension Plan, a manager of retirement savings for union members in nearly 30 states, each invested $100 million, according to public records.

 

The fund was popular among charitable organizations as well. The J. Paul Getty Trust, John D. and Catherine T. MacArthur and Fletcher Jones foundations each invested millions in the fund, according to their tax filings.

 

Michigan State University and a foundation that supports Arizona State University also have disclosed investments in the fund.

Luckily, we're somewhat confident that at least the losses accrued by U.S.-based pension funds will be ultimately be backstopped by taxpayers...so no harm no foul.

Comments

evoila armageddon addahere Tue, 07/18/2017 - 00:04 Permalink

yeah... "Only seven private-equity funds larger than $1 billion have ever lost money for investors" That is nonsense. Go look at the real estate funds that returned pennies on the dollar after the commercial market collapsed. And these were funds investing in "core" real estate -- you know the "bi-coastal" cities that are less-risky than anything else out there.

In reply to by armageddon addahere

jcaz William Finn Mon, 07/17/2017 - 20:27 Permalink

Impressive list of investors-  NONE of which should have ventured anywhere near this thing-I'd get my ass fired if I guilded funds into this turd and rode it to zero- let's see what happens to the principals involved in these pensions who made the call.WTF- so you were down 90% and thought "they're  gonna turn this around any minute....."?    Fucktards......

In reply to by William Finn

Yen Cross Mon, 07/17/2017 - 19:53 Permalink

  lol-- " Fun With Dick And Jane", comes to mind. I wonder if that blowhard Alec Baldwin was vested?   I'll gladly pay you next Tuesday with Nigerian $'s,  personally delivered to your private e-mail account.

Mrcool Mon, 07/17/2017 - 20:02 Permalink

Texas seems to have a very special seat on the money train???? Live in iowa, pay utility bill to texas company? The state college pays a accounting firm to do all there accountaing , recievables, payables , in texas ? A dam college mind you!Me thinks there is some kind of hand twisting going on with anything that is semi public money?

khakuda Mon, 07/17/2017 - 20:13 Permalink

They are the first one.  There will be more.  Central banks have underwritten speculation and leverage in the extreme since 2008.  Just surprised it took this long.

GRDguy Mon, 07/17/2017 - 20:46 Permalink

Follow the losses.Someone got the investors' money.Just like banking.  Physically deposit your money;and poof; it's gone before you reach the door.All you've got is a promise that may or may not be kept.

azusgm touchdown Tue, 07/18/2017 - 01:17 Permalink

Well okay. I'll bite. Here's what I see in a very cursory looksee in the Harrison County, Texas records, augmented by a web search.It appears that Enervest in its various iterations engaged in oil and gas leasing, formed gas units, and acquired easements for pipelines.They sold pipeline easements and leases and meter runs to Prism Gas Systems 1 LP.They sold their other assets (units/leases) to QRE Operating LLC.QRE entered Chapter 11 in May 2016, as did Breitburn, as did Transpetco Pipeline. They seem to all be associated with the assets in those gas units formed by Enervest. I'm not going to bother to look to establish chain of title.US Bank NA was the creditor but transferred its associated "assets" to Delaware Trust Company (the old CSC Trust Company of Delaware), the "bad bank" in this bankruptcy saga.

In reply to by touchdown

adr Mon, 07/17/2017 - 21:33 Permalink

Well Cryptocoin ICOs have made creators billions and left investors with only the promise of future value. At some point that bill comes due. Yes we want $13 million to make some sort of Cryptocoin portfolio managing software. It doesn't exist yet, and we don't know what it will actually do, but give us $13 million anyway. We promise it will be awesome. And Kickstarter looked like a den of fraud.