How hurricane Harvey is impacting private equity

Hurricane Harvey has forced several private equity firms focused on energy in the US to shut down their Houston offices.

Firms with offices in Houston, including First Reserve, the Carlyle Group and Kayne Anderson, most of which are based in downtown Houston, had closed their offices on Monday, with employees working remotely, according to several people familiar with the matter. The firms declined to comment.

One person noted that downtown Houston is “hardly accessible”. It is unclear how long the offices will remain closed.

The Teacher Retirement System of Texas said last week that it would postpone its 25 August board meeting to 1 September in anticipation of the hurricane.

The hurricane, which has been downgraded to a tropical storm, ravaged the Houston area over the weekend, causing heavy flooding and at least eight deaths.

Meanwhile, Texas-based energy assets seemed to have been spared for the most part, as of Monday.

Two energy-focused firms said there had not been any significant damage to their portfolio assets. A managing partner at an energy-focused fund said that would likely be the case for most private equity firms as they have shied away from owning assets in the Gulf Coast in recent years, preferring to focus oil and gas exploration work in other parts of Texas, such as the Permian Basin in Western Texas due to a shift toward fracking.

“The Gulf Coast has been out of favour with private equity,” the person said. “Private equity has been much more exploratory.”

However, the managing partner noted that energy-focused funds may be impacted from shut down refineries, which could prompt delays in processing oil and as a result increase storage cost.

“The real issue is going to be how the refineries along the Gulf Coast fare,” he said. “They've all shut themselves down during all this. The question is, 'Is there sustained damage?' We'll see that in a week or two. That's going to be the issue. It can reduce the refining capacity and then it can lead to some spikes in oil and gas prices.”