The energy industry is large, complex, capital intensive, global and growing — all important characteristics that have captured the attention and, more importantly, the capital of private equity investors worldwide.
In 2012, the aggregate amount raised by energy-focused funds came close to surpassing the highs achieved in 2006 and 2009. Funds now in the market are targeting more than $30 billion in commitments, and that number does not even include generalist private equity firms with an allocation to energy, according to Preqin. This shift has limited partners wondering if there is too much private equity capital chasing the energy sector. The simple answer is: No.
The size of the market, the long-term growth prospects and the complex nature of the energy value chain will continue to present investment opportunity. The massive capital spending requirements to meet expected global demand dwarf the amount of private equity capital available today. The challenge for LPs will be to determine which private equity firms will be most successful in capturing this opportunity.