$2-Billion Private Equity Fund Collapses to almost Zero

Worst PE-fund collapse ever. The oil bust just keeps on giving.

Investors who’d plowed $2 billion four years ago into a private equity fund that had also borrowed $1.3 billion to lever up may receive “at most, pennies for every dollar they invested,” people familiar with the matter told the Wall Street Journal.

Fund raising and investing started in 2013. Houston-based EnerVest manages the fund. This could be the first time ever that a PE fund larger than $1 billion lost nearly all of its value.

The lenders to the fund are now negotiating to take control of the fund’s assets, these “people familiar with the matter” told the Journal. Wells Fargo is leading the negotiations.

Investors span the spectrum of institutions managing other people’s money. Some of them might have sold their stakes to cut their losses. Among these investors are: the Orange County Employees Retirement System; Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund; Florida’s largest pension fund manager; the Western Conference of Teamsters Pension Plan, covering union members in nearly 30 states; the J. Paul Getty Trust; the John D. and Catherine T. MacArthur Foundation; the Fletcher Jones Foundation; the Michigan State University; and a foundation supporting Arizona State University.

But it sounded good at the time…

EnerVest, which was started in 1992 and focuses on energy investments, kicked off the fund in 2013, raising $2 billion in equity from institutional investors and borrowing $1.3 billion. According to the Journal, it specializes in acquiring oil and gas fields with producing wells that are neglected by larger oil companies. It then makes improvements and drills additional wells to raise production.

The fund was started at the peak of the fracking boom, when West Texas Intermediate traded between $91 and $109 per barrel. Another fund EnerVest started in 2010 by raising $1.5 billion and borrowing $800 million is also in trouble. In the past, EnerVest’s funds had stellar returns and it had no trouble raising the funds.

These “resource funds” appeal to institutional investors due to the steady cash flow they normally generate starting with their first investments.

What the fund didn’t include in the calculus was that by early February 2016, WTI would be trading below $30 a barrel, and that it is currently trading at $46.62, less than half of where it was when the investments were being made.

And the fund added an unusual twist: it cross-collateralized the fund’s assets. Normally, PE funds debt-finance each investment separately so that if it fails, the debt will take down only the individual investment. The remaining investments in the fund would be untouched. But EnerVest’s funds encumbered all of the investments in the fund with fund-level debt, and so the fund’s good and bad assets alike are going to the lenders. Hence the total loss for investors.

EnerVest already tried to restructure the two funds – the one raised in 2010 and the one raised in 2013 – in order to meet repayment demands from the lenders. The lenders, in turn, have already written down the collateral value, according to public pension documents and people familiar with the efforts, cited by the Journal.

Until this collapse, it was “almost unheard of” for a PE fund with over $1 billion in assets to lose more than 25%, the Journal said, citing investment firm Cambridge Associates. But now, based on public pension records, several other energy-focused funds are “in danger of doing so.”

The renewed hype about shale oil – which is curiously similar to the prior hype about shale oil that ended in the oil bust – and the new drilling boom it has engendered, with tens of billions of dollars being once again thrown at it by institutional investors, has skillfully covered up the other reality: The damage from the oil bust is far from over, losses continue to percolate through portfolios and retirement savings, and in many cases – as with pensions funds – the ultimate losers, whose money this is, are blissfully unaware of it.

Are the media trying to force the Fed to change course? Read… What the Headlines Got Wrong about Friday’s Data Dump

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  68 comments for “$2-Billion Private Equity Fund Collapses to almost Zero

  1. Joe Smoe says:

    With asset prices the way they are, this is like 2 or 4 condo buildings in San Jose burning down! It’s sad but 2 billion is just play money these days.

    Best ask Yellen to keep wages down somemore so the average worker can bail this fund out before inflation hits!

    • Bruce Adlam says:

      When this market crashes we will go straight into severe deflation

      • Frederick says:

        Yup No doubt that’s what’s coming followed soon thereafter by hyperinflation and the destruction of the dollar

      • alex in san jose says:

        Damn straight. Millennials/Gen-Y/whatever they’re being called this week are turning out to be some frugal mofos.

        • TJ Martin says:

          Frugal ?

          With debt up to their snowflaked little ears , closets full of cheap goods that are hip today , gone tomorrow , over priced hipster clothing that falls apart within 12 months of normal wear .. assuming they ever wear them , more expensive electronics than NASA with equally expensive subscriptions to keep em going , $8.00 lattes , $50 a lb coffee , Zero savings and investments , less than zero common sense , skills and abilities ( other than virtual ) etc – et al – ad nauseam … all on salaries that can barely sustain a dyslexic hummingbird never mind a human being ?

          Err .. frugal … is about the last word I’d use to describe the M/G/S generations [ Millennial / GenX / GenY / Snowflake ]

          More like an impending major league disaster … of their own making ..

        • RangerOne says:

          Pretty sure the perecentage of people who sick at not wasting money have been a constant in western society accross most generations. Some people my age around 30 have fat savings and little to no debt, and others make average incomes, have student debt and are leasing Range Rovers….

          I’d say the only new factor is college debt has inflated because it is too easy to borrow loads of money to pay for senses sly overpriced educations.

          But don’t worry not the entire generation of millenials bought into the idea that having $100k plus in student loans would be okay. Or that we should hope the governmen bails us out of our loans.

        • IdahoPotato says:

          @TJ Martin, what you say is true, but only with regard to a minority of young people. The majority I know are much more frugal and sensible than I ever was.

          I am a Gen X-er who can’t point fingers ‘cos we, and the Boomers, created most of the mess the Millennials find themselves in.

        • TJ Martin says:

          Idaho Potato ;

          No good sir . Twas not us Boomers that created this mess Not hardly …. but rather the previous generation that laid the groundwork for the mess we’re finding ourselves in . All we did once the counter culture movement was laid to rest and it became obvious Jimmy’s words of wisdom back in 1980 were being ignored … was to prove we could play their game better than they can

          As for the M/G/S generation being frugal … perhaps its a case of geography … cause here in the city .. and in fact all the major US cities I’ve been to lately … frugality aint even in their vocabulary .. never mind their lifestyles and financial choices . Heck even in midwest sensibility KCMO the M/G/S generation spends money like it grows on trees racking up debt upon debt in order to live the hipster lifestyle

        • kitten lopez says:

          TJ Martin-

          “SNOWFLAKE GENERATION” FOR MILLENNIAL GENERATION… you coined that for me and i’ll never be able to say millennial AGAIN. crazy brilliant that term. thank you.

          and TJ Martin,

          re “sir” – i think Idaho Potato’s a woman. someone made a snide comment about her having family running a motel in the midwest and i smarted hard and long from THAT one even getting through. ouch.

        • Michael Fiorillo says:

          Young versus old is intentional misdirection and distraction.

          It’s the Overclass and it’s enablers versus the rest of us, plain and simple.

        • alex in san jose says:

          Do you mean perhaps an “anorexic hummingbird”?

          Well, maybe I am projecting onto them what I’ve become. A frugal mofo. I mean, growing up in the 70s, a time where the 1930s were, seemingly, alive and well. 1930s houses, 1930s busfares (10c for a kid, 25c for an adult) 1930s food programs that just kept us from starving, etc. I mended my clothes, fixed things, maybe had *one* good t-shirt etc.

          It was good to leave the 70s, man. I remember sitting in my rooming-house room with a clean floor and clean sheets and a window with a curtain, and a desk, and thinking, “I can eat a whole package of hot dogs myself and no one can keep me from doing so!”.

          Once this last recession started though, my thought was, “OK, I’ve done this before, I know how to forage and scrounge, and I know tricks now I didn’t know as a kid, I can do this, here we go”.

          But you make a real point about the kids and their auto-deducted plans for this and that and the other. My flip phone costs me $17 a month. Someone just stole my bike headlight so that’ll be $20 or so for another decent one, and that’s my last bike-connected expense for a long time; I spent almost $100 on a new set of tires’n’tubes a year or so ago.

          I keep forgetting the hip kids are not in there shopping with me at Ross (Dress For Less!) and I don’t see too many of ’em shopping with me around the periphery of the supermarket buying basic foods, although they might be in the middle buying highly processed kelp-kale chips or whatever is “in” these days. They’re scraping by (LOL) on Blue Apron and Soylent.

          BTW my low-carb diet is working out great. Not only healthier but I’m finding it a lot cheaper and easier to feed myself. No more eating a whole big bag of popcorn, no more instant ramen, no more bread, no more chips and cookies … There are people who take on the low-carb thing and get into highly processed low-carb bread and pancake mix and all that, but I’m just eating, well, whole foods. Nuts seeds beef fish chicken green veggies, cheese, eggs, etc. No more “Oh sh!t I’m hungry!”

          B’fast today was a cheddar cheese omelet, with sauteed red bell pepper on the side, lunch was a “snack bag” of oil-cured kalamata olives I got at Cost Plus Imports because I was over by that way, and dinner was 5 oz. of fatty beef and sauteed red bell pepper ‘n’ chunks of garlic. Late-nite snack will probably be a couple of small cucumbers from the Japanese market because I like ’em.

          Even though I’m buying fairly expensive meat (although the mackerel I like is really cheap) and eating veggies with every meal, it’s not proving to be an expensive diet at all.

          Although a big help is that I do my own cooking. I’ve been cooking since I was barely into my teens so this is a no-brainer for me but apparently younger generations, kids who went to McDonald’s more than maybe once a year, are conditioned such that food == “Do you want this for here or to go” instead of food == better cook something.

      • Merv says:

        We might be, but no on I know will be accepting those rapidly appreciating USD’s except the people trading them in for something with a little less “baggage.”

    • Wolf Richter says:

      It’s not play money if $100 million of it is your money


      • Steve says:

        I’m putting a fund together to purchase assets from folks like Ener Vest. Surely there is an entry point position worth having ? Jon Brumley did it when he started XTO.

        • Wolf Richter says:

          The banks that lent to EnerVest’s fund are getting the assets (collateral for their defaulted loans). You’d have to get in with the banks to buy the assets from them.

        • Janeece says:

          As an ex Brunley employee you are exactly right he made billions and continues to do so I worked for that man for years and adore him..

    • ru82 says:

      Exactly. Anybody notice that AT&T and VZ have each lost $40 billion in market cap over past few months. Those two stocks are in bear market trends this year. VZ is down 20% and AT&T is down around 18% and they are still falling while the DOW hits all time highs.



  2. Ronnie says:

    “You get that.”

  3. Mike Bauer says:

    Agreed BA. In addition to actuarial disintegration for the pensioners, it will be interesting to know how much debt destruction there was/will be on the part of the lender. Just as money creation by lending is inflationary, debt destruction is deflationary. Of course FAS157 allows the lender to hide losses until its Enron moment. Thanks Wolf. Another great article!

  4. R2D2 says:

    Let’s see how much investors will lose in FANGs once the market tanks. That will make $2 Billion look like pocket change.

    • kam says:

      “Let’s see how much investors will lose in FANGs once the market tanks.”

      But, but, but… with a 187:1 P/E what could possibly go wrong?

      • ru82 says:

        See may post above. T and VZ have lost a total of $80 Billion in market cap and they had PEs in the mid-teens when the downtrend started.

  5. Bob says:

    My guess is pension funds lost tons of money on Mortgage Backed Securities and it would have been way worse if all sorts of damage control wasn’t done to bailout investors in MBS.

  6. Kent says:

    ‘Florida’s largest pension fund manager’. Yikes! That’s my pension fund.

  7. Frogssurf says:

    Institutional….especially non-profit foundations/pensions etc, should never invest in these usually long-term/low liquidity sector plays because when they go bad, they go really bad….especially in a volatile sector like energy.

    I have been engaged in such investments from time to time and they rarely go as expected. The lure of 10%+ gains and “diversification” in your portfolio mask the associated risks and the fact that your outcome may very likely come down to nothing more than timing (as it did here) and downside structure (who is the cross collateral protecting?). Same as many non-public DBC’s etc. Although public ventures of this sort have restrictions to ensure liquidity you can choose when is the time to buy low/sell high.

  8. Gershon says:

    Looks like China will be the first of the central bankers’ Ponzi markets to implode. The rest will follow like dominoes.


    • nick kelly says:

      Holy sh%t!

      • nick kelly says:

        Just checked it. Some recovery. Big index down but no crash. Yet.

        • Wolf Richter says:

          The Chinese small-cap index, ChiNext, which includes many of the tech companies (sort of like a Chinese Nasdaq), plunged 5.1%, to the lowest level since January 2015 (the Shanghai Composite Index dropped 1.4%), after fears arose about tougher regulations, more IPOs, and a further crackdown by Chinese authorities on financial risks.

          There was a high-level conference this weekend in China that I’ll mention in my next article on Manhattan’s commercial property market. This conference was an eye-opener for how Chinese authorities are trying to tamp down on ballooning financial risks.

        • Lee says:

          Must be because they just banned Winnie the Pooh there – that subversive little bear.

          “One indicator of the party’s success was that, on the weekend, China’s web censors banned Winnie the Pooh. The name and images of the cartoon bear were being systematically removed because he had become too politically sensitive.”

          SEE: http://www.theage.com.au/comment/from-liu-xiaobo-to-winnie-the-pooh-chinas-net-censors-can-make-you-disappear-20170717-gxclrg.html

          People had better wake up to the fact that China is on the move and will do anything now to increase power.

          Here in Oz many on the left in politics are urging closer ties with China and less reliance on the USA.

          Businesses here have made their bed with China and IMO we are going to end up with fleas as a result. The RE market here is in many ways a Chinese market now.

          The universities have sold out to foreign students, yes many from China, and are now more of an industry than educational institutions. Lower standards and lack of language skills for many of them.

          And people still trust the economic and financial numbers coming out of China? You have to be crazy to believe them.

          Not happy Jan!!

        • IdahoPotato says:

          Wolf, re: Chinese authorities tamping down on financial risks, the Reserve Bank of India is trying to do the same.


          Meanwhile, the populist government is writing off billions of farmer loans.

          Time to sell Indian banking stocks and get back in after a year or so when they have been beaten down.

        • Wolf Richter says:

          You’re following the Indian investment climate and its politics and are on top of it. I’m way too uninformed about India to trade Indian stocks. I even goofed plenty of times when I thought I knew what I was doing…


  9. Anon says:

    My guess is that most of the “investors” are second string or worse e.g. a union member with no investment background sitting on the investment committee of his county’s pension fund.

    • Petunia says:

      There are a lot of financial professionals sitting on boards especially on the county level and below in Florida. I was shocked by this when I first came across it. When I lived in Palm Beach County there were Wall St. types on the water board, city board, and in almost every elected board or appointed agency.

      It was all about the bond deals and in the case of one rich guy, the utility rates. It is right in your face but people don’t realize it. The local news paper follows corruption, but even they didn’t have the financial background to understand the connections.

      • Bobby Dale says:

        The population Palm Beach County is hardly typical of the pool available to most of the country to serve on pension boards. Outside of the major financial centers, e.g. New York/Connecticut/Chicago/San Francisco, Palm Beach is probably at the top of the list for availability of financial types. If the pension board held their meeting between December 26 and January 3 they would have access to more talent than anyone.

        • Petunia says:

          While PBC is certainly blessed/cursed by its access to financial types, financial advice can be purchased or sought out anywhere these days. If pension boards managed their own money and paid solely on performance, they would all be better off. Good money managers work for the highest pay because it’s the same job anywhere.

      • Kent says:

        I think the average taxpayer has no idea how much of their taxes ends up in the pockets of Wall Street. I work for a very conservative County in Central Florida. The elected officials all come in expecting to cut waste and taxes, and find out that they can’t cut anything because so much revenue has been bonded out that what remains barely keeps the lights on.

        Where I work, one of our bond covenants requires our general fund to maintain a 20% reserve. That’s roughly $50 million of tax payer money that just sits in the bank. In the event of a downturn, it flows to wall street instead of helping locals or local businesses.

        • Petunia says:

          Those huge reserves are totally unnecessary but required by the bond issuers “to maintain the bond ratings”. These huge reserves can be found in almost every county in Florida and sit in the accounts of banks and Wall St. firms.

          Homeowners are overtaxed to maintain them and the money is not benefiting the communities. The reality is that most communities could just pay as you go and save a bundle, but they don’t know it.

    • Maximus Minimus says:

      Wrong. No union guys involved – mostly too stupid to manage anything. These were usually “investments” made by “investment professionals” with other peoples’ money. Pension funds must be particularly vulnerable for these scams since they have a long term horizon. By the time the investment blows up the “investment professional” would have moved on.

  10. Lou Mannheim says:

    Why didn’t the fund hedge their risk with futures? It’s easy to do and clearly the returns were correlated to energy prices.

    • robt says:

      You can do that for a while, but then the future price becomes the persistent low current price, and spot drives the futures. Some producers collected on futures at 100 or more for quite a while while the price was crashing, and earnings carried on as normal. The sqeeze started in 2015, even if they were sold ahead for a year when the prices crashed in 2014. Right now futures are less than 50 even out to 2019, and barely more than 50 beyond (and liquidity is low).
      They probably need 90.
      As a total crapshoot, they could go long on futures, hoping for a rise, and a double win, but of course if prices drop further, it’s a double whammy, eating the margin calls and selling at a lower spot.
      Which reminds me about the time many years ago when …. oh, never mind.

    • Maximus Minimus says:

      Futures have an expiration. How long has this oil slump been going on? Nobody can even count anymore.

  11. David Rohn says:

    Stockman predicted all this starting 3 years ago. He also predicted the retail real estate collapse..It s all taken so long to unwind ( I guess because of the FED s throwing money policies) that people forget the fundamentals that an old timer like Stockman understands.
    Is it the kind of emphasis on short term / quick buck / speculation in other words: ‘everybody s doing xyz even tho it s stupid so we ll do it too to make a few bucks quick’ mentality that s caused this looming mess?
    Looks to me like those in charge, the self proclaimed geniuses from the ivy league business schools are clueless about economic fundamentals and don t know what s going on outside their little (and not so little) bubbles.
    They clearly believe that THEY are the economy, poor souls: WE ARE THE ECONOMY, we are the consumers, we lost our homes, our savings, our jobs, we re loaded up with debt, we can t find real jobs.
    And we ve lost all confidence in them.
    Their policies (which they continue for their own enhancement (ie remove cash / force us to use criminal mega banks for everything, lend to big entities at 0-4% but small ones and individuals only via credit cards at 11-16%), are not just screwing people, they re making them angry- as people begin to wake up to the wealth transfer industry called ‘Financial Services’
    The gathering storm won t just be economic; it will be a societal firestorm as well: the disgusting and criminal marriage between govt and finance has not just destroyed the economy, but the social fabric too.
    and it s hard to doubt at this point, but they there s far worse to come.

  12. thatblackwoman says:

    the oil glut started in 2010.

    why would enervest construct a private equity fund in a market that was already flooded with oil?

    was the ultimate goal to bankrupt folks? like 2008?

    • fajensen says:

      The inverse – to not bankrupt “folks” who should be bankrupt and probably in jail too!

      If one – say – worries about sitting on a bunch of stranded assets or having made lots of loans to people long those assets pledging them as collateral, then it is very convenient if someone crazy puts together a private equity fund and makes a little private “market” which gets all those albatross assets off your book?

  13. Willy2 says:

    – Some time ago I was offered a similar PE “investment scheme”. But I had to wait a few years before I could cash out. And that was the reason I refused to invest in that fund. (No, we’re not talking millions of USD, the investment was only a few thousands of USDs).
    – and when I read how this PE fund collapsed I am glad I didn’t invest the money.

  14. Kato Nokto says:


    Ener-ON… Ener-VEST…

    This guy’s are not related are they!?
    Maybe second cousins?


  15. Kato Nokto says:


    Ener-ON… Ener-VEST…

    This sounds like a family affair !
    Maybe second cousins?


  16. qse says:

    Oil, stocks, commodities…. they all go to zero. Housing? Housing goes negative.

    Look out below.

  17. Enquiring Mind says:

    Knowing which PE funds had some degree of cross-collateralization or other such risks would be enlightening. Is there any mechanism for disclosure, or centralized data source? If not, why not? That might be a long-shot given the one-off nature, but why not ask?

  18. Ed says:

    The yield curve continues a steady downward trajectory. The party will soon be over and the hangover severe.

  19. Ed says:

    Should also note that retail investors are jumping into the financial markets. A clear signal that the end is near.

  20. Anon says:

    For another private equity disaster in the making, read here:

  21. DV says:

    It is remarkable in one aspect – we now know who absorbs all those losses the share industry generates. There are, of course, other guys such as Big Oil that ventured into shale. But mostly these are going to be PE funds.

    Overall, shale does look like an industry heavily subsidized with private money (however incredible this may sound).

  22. R Davis says:

    Some years ago, there were several article’s in the mainstream papers tell of Lucrative Oil Discoveries – one in South Australia & one up north somewhere.
    Finds that would yield billions of dollars in oil & they told us how much oil there was estimated to be.
    I can do math –
    I divided the total amount of newly discovered oil by the planets daily consumption of oil & found that this “MIRACULOUS FIND” totaled almost one years oil consumption of planet earth –
    In monetary terms it was hardly worth getting it out of the ground.

  23. Captain KurtZ says:

    Fighting Peak Oil, one investment fund at a time.

    Like most American wars now, expensive boondoggles.

  24. raxadian says:

    The Ponzi scheme seems quite live and well in 2017 it seems.

  25. Eric says:

    It is sad that more pensioner’s are going to get shafted. Investments have risk, but many years ago the Retirement Act prohibited risky investments. Now Congress has changed all the rules to allow such morbid cook book accounting to take place it is pathetic. And legislatures and governors require such rosy returns to not fund the ever increasing liabilities, pension fund managers are left with little choice but to increase the risk (erroneously) to try and get any kind of return. Congress needs to reform ERISA and require solvency, period.

  26. mean chicken says:

    “Houston-based EnerVest manages the fund.”

    Interesting roster of ownership, are all of them helping to invent global climate change so they may capitalize on carbon credits?

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