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INVESTING/PORTFOLIO STRATEGIES

Managers plug into energy investments

Updated with correction.

After a two-year hiatus, some alternative investment managers are increasing their energy investments.

The list includes generalist private equity funds managed by The Blackstone Group LP, The Carlyle Group LP and KKR & Co. LP. What's more, a number of players are investing in energy infrastructure. BlackRock (BLK) Inc. (BLK) just acquired two of First Reserve Corp.'s energy infrastructure funds.

For example, in its May 4 earnings call, William J. Janetschek, KKR & Co. member and chief financial officer, noted that of the nearly $1 billion invested by KKR's real assets business in the first quarter, most of its investment in Calvin Capital, a provider of gas and electricity meters to energy suppliers in the U.K., used capital from KKR's second infrastructure fund, while Silverthorne, an investment in producing oil and gas assets in the Eagle Ford Shale in South Texas, invested out of KKR's energy income growth fund. In May, Goldman Sachs Asset Management's Petershill program bought a 12% stake in energy firm Riverstone Holdings, which suffered when oil prices collapsed in late 2014.

In April, Blackstone Group for $2 billion acquired EagleClaw Midstream Ventures LLC from EnCap Flatrock Midstream. The investment was made on a 50-50 basis by Blackstone's energy business and its private equity unit, said David I. Foley, senior managing director in the private equity group and CEO of Blackstone Energy Partners, Blackstone's energy unit. EagleClaw is a large midstream operator in the Permian's Delaware Basin in West Texas. The company's assets are located in Reeves, Ward and Culberson counties and include more than 375 miles of natural gas gathering pipelines and 320 million cubic feet per day of processing capacity with an additional 400 miles of processing capacity under construction. EagleClaw serves many of the region's leading oil and gas producers.

In 2015, Blackstone effectively closed the latest of its energy funds, the $4.5 billion Blackstone Energy Fund II LP.

The fund was oversubscribed, closing at its hard cap, Mr. Foley said. The fund invests on a 50-50 basis alongside one of Blackstone's diversified private equity funds, Blackstone Capital Partners VI.

Mr. Foley attributed the successful fund raise to “part good luck.”

Blackstone hadn't made an oil investment over the prior two years. But he added, “We sold a lot ... $2.8 billion of assets with an average multiple over three times. In hindsight, it turned out to be a pretty good thing.”

Fluctuations in commodity prices killed many energy investments during the two-year period.

At the same time, Blackstone reduced the oil exposure of its current energy fund to 25%, Mr. Foley said.

Some observers say money managers' renewed interest in energy is due to the $842 billion in dry powder across private equity sectors burning holes in their pockets.

Private equity firms have been very aggressive in their energy investments, said Upacala Mapatuna, chief investment officer of private equity firm Victory Park Capital Advisors LLC, Chicago. This extends to their portfolio companies, which are using the capital to grow through acquisition.

“In the energy sector, we've seen private equity-backed companies being aggressive in trying to deploy capital,” she said.