Giant private-equity funds almost never lose money. According to Cambridge Associates, only seven billion-dollar-plus funds have ever ended in the red, and most of those have been in the manageable, survivable “we lost a quarter of your money or less” range, rather than in the “how much can we get for this half-full box of pens?” range.
It now seems a certainty that EnerVest’s 2013 p.e. fund will become number eight, what with its creditors currently debating how best to divvy up its assets to pay off what they’re owed. Unfortunately for EnerVest’s investors, including lots of public pension funds, philanthropic organizations and university endowments, that won’t be leaving much for them.
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.
The thing about 2013 is, oil prices were much higher than they are today—roughly twice as high. And the thing about the 2013 fund is, EnerVest borrowed two-thirds of the $2 billion it raised to juice returns a bit. And that combined to ensure that the $85 million founder John Walker and his partners put up to satisfy the creditors they borrowed $1.3 billion from wasn’t going to be nearly enough.
In the 25 years John Walker’s been running EnerVest, he’s had some pretty proud moments, like winning the Chief Roughneck Award back in ’07 and the Silver Beaver Award in ’01, and when the current U.S. energy secretary named him to the Texas Tech Board of Regents. The current situation is not one of them.
“We are not proud of the result,” John Walker, EnerVest’s co-founder and chief executive, wrote in an email to The Wall Street Journal….
In the earlier interview, Mr. Walker said the struggles of EnerVest’s 2013 and 2010 funds had sparked ire among his investors: “We’ve had some chew us out and hang up on us….”
“It shouldn’t be something where you can be wiped out. But you are exposed to commodity prices,” said Mr. Busken, who hasn’t worked directly with EnerVest.