Institutional investors that put money into Energy Future Holdings debt are finding those investments could help dull the pain of their substantial private equity losses in the failed energy company.
When Energy Future Holdings Corp., Dallas, filed for bankruptcy April 29 after almost a year of negotiations with debtholders, it was already clear that the private equity firms leading the deal — KKR, TPG and Goldman Sachs — would be the biggest losers. The firms and many of their investors already have written down their roughly $8 billion investment in the company.
Christopher J. Ailman, chief investment officer of the $183.3 billion California State Teachers' Retirement System, West Sacramento, said the pension fund has been writing down its private equity investment in Energy Future Holdings over the seven years that it has been an investor to less than 5% of its original value.
The pension fund has exposure to Energy Future Holdings primarily through its commitments to three private equity funds TPG Partners IV, TPG Partners V and KKR 2006 Fund. It also co-invested with TPG on the deal.
Still, Mr. Ailman acknowledged the pension fund's exposure to Energy Future Holdings through its distressed debt investments will be “an opportunity to make money.”
CalSTRS is an investor in Energy Future Holdings debt through investments in Oaktree Capital Group LLC and Apollo Global Management LLC distressed debt funds.
The size of CalSTRS' total investment in Energy Future Holdings could not be learned.
CalSTRS is not alone. Other institutional investors in the private equity funds that invested in Energy Future Holdings also invested in its distressed debt portfolios as a hedge against their private equity investments.
Jonathan Grabel, former CIO of the $1.2 billion retirement plan of the Montgomery County Board of Education, Rockville, Md., said the plan invested in distressed debt, in general, for just that reason. (Mr. Grabel became CIO of the $14.25 billion Public Employees Retirement Association of New Mexico, Santa Fe, in December. New Mexico does not have exposure to EFH through private equity, but does to its debt through investments in Oaktree funds.)