NGP nears $3.5bn close

The energy-focused firm is set to close its Fund X by the end of the month, having aborted attempts to raise a separate vehicle for a water resources and agriculture-focused strategy.

Natural Gas Partners is set to hold a $3.5 billion final close this month, shy of its $4 billion target but still a strong haul in today’s muted fundraising environment.

The firm, formed in 1988, launched the fund last year. The marketing was not without its challenges. NGP had tried to raise a fund called Adaptation Partners in 2010 that would have focused on investments on water resources and services and food and agriculture, two areas affected by major global changes, including population growth, climate change and economic development, according to the firm’s web site.

NGP didn’t get much support from potential investors for the strategy, according to an existing NGP LP. The firm decided to roll the strategy into Fund X, where it would have accounted for 25 percent of the fund’s focus, according to prior interviews with an LP and a market source.

That percentage was eventually reduced to just 10 percent of Fund X's focus.

“It was an interesting concept … people didn’t know what to make of it,” said the NGP existing LP. “A lot of potential LPs were resistant to it.” A market source with knowledge of the fundraising said that water and agriculture-focused investments are “not what investors think of when they think of Natural Gas Partners”.

Still, despite the challenges around the new strategy, LPs flocked back into Fund X for its more traditional investment focus, which includes oil and gas production, oil field services and power companies. The firm raised $4 billion for its ninth fund in 2008, which was producing a negative 13 percent internal rate of return as of May 2010, according to information from the University of Texas Investment Management Company. While no updated performance information was available, one market source said Fund IX is performing well.

NGP declined to comment.

The firm has raised Fund X amid a wave of marketing of other energy funds, including: EnCap Investments, which last year closed its largest-ever fund on $3.5 billion; Energy Investors Fund, which raised $1 billion last year; and Riverstone Holdings, which launched its fifth global energy and power late last year targeting $6 billion.

There has been some debate among energy market professionals about whether the private equity energy fundraising market has become too crowded. The belief is that energy-focused firms launching funds this year will have a tough time attracting capital as LPs have been over-saturated with energy funds. However, others believe managers who employ niche strategies within the energy sector – focusing on oil field services, for example – will be able to raise funds, as long as their track records are strong.