Excerpts from the article:
The tilt toward specialization is coming as more institutions are carving out an allocation dedicated to energy – or at least to a real assets bucket with a significant energy component – amid the larger natural resources industry boom, says Jeff Eaton, partner at Eaton Partners, a placement agent for private fund managers.
“It used to be that limited partners would invest in energy out of a generalist private equity allocation,” he says. “Limited partners increasingly want to make their own allocation decisions. With energy [as a large chunk] of our GDP, it makes sense in theory to have a significant portion of someone’s investment portfolio going into it as a separate [category].”
Eaton says there is a broader theme of limited partners wanting to make their own allocation decisions within their private equity bucket, picking the industries to which their capital will flow. Energy is a prime example, where investors are becoming more sophisticated and feel comfortable making their own calls on segments to target, then seeking help to find managers that fit the bill, he says.
“Limited partners want to get closer to the assets, as close as they can,” says Eaton.
One recent example of this narrower approach is a $400 million fund investing in mid-sized companies providing services and products to the energy markets from Turnbridge Capital Partners, which closed over the summer, says Eaton, whose firm worked on the effort. Another manager Eaton worked with is Ridgewood Energy, which closed a $1.1 billion fund in January that is investing primarily in deepwater exploration in the Gulf of Mexico.
“Five years ago, an investor would never say they wanted that concentration,” he says. “But the market was ready for it last year, and the fund was oversubscribed. That’s a sign that limited partners are making more specialized bets.”
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