DALLAS – The collapse of a $2 billion EnerVest private equity fund will affect earnings of several public pension funds, according to reports.
Among those affected are public pension funds in Texas, Colorado, Illinois, New Mexico, California and Florida.
The Orange County Employee Retirement System has written down its $40 million investment in Fund XIII to zero, according to the Wall Street Journal, which first reported the fund's collapse.
The Houston Municipal Employees Pension, which lists EnerVest as a financial adviser, has about $10 million invested in Fund XII, according to the Houston Chronicle.
Michigan State University and a foundation that supports Arizona State University also have disclosed investments in the fund, according to the Journal.
In 2015, the $11.4 billion New Mexico Educational Retirement Board announced it was shifting $37.5 million to EnerVest Fund XIV, one of three private equity funds that would manage $107.5 million of pension investments.
Houston-based EnerVest Ltd. Launched Fund XIV in 2015 with a goal of raising $2.5 billion in equity, capped at $3 billion.
"Investors understand this is a great period in which to invest in oil and gas, and gas liquids because the prices have fallen so much," EnerVest chief executive John Walker told the Houston Business Journal at the time.
Calling Fund XIV its largest ever, EnerVest’s website says its primary objective was “to generate consistent returns for its institutional investors by making prudent investments in the upstream sector of the oil and gas industry in North America, leveraging the company’s existing basin positions.”
The fund planned a "disciplined and opportunistic" acquisition of oil and gas, aggressive property development and management, cost reductions and strategic asset divestitures, its website says.
The firm raised and started investing money in 2013, when oil was trading at more than double the current price of about $45 a barrel. The fund borrowed $1.3 billion of to boost its buying power, according to the Journal. In mid-2014, oil prices began to tumble, falling to as low as $26 per barrel.
The fund’s lenders, led by Wells Fargo & Co., are negotiating to take control of the fund’s assets to satisfy its debt, according to the Journal.
“We are not proud of the result,” Walker wrote in an email to the Journal.
"The lesson for everyone is that excessive (borrowing) in a commodity down-cycle can be lethal," said Pavel Molchanov, an energy analyst at Raymond James in Houston told the Chronicle. "That's what led to EnerVest's meltdown. No big surprise there."