Warburg Pincus is telling investors it won’t make any deals linked to fossil fuels from its next flagship fund, joining other private equity firms that are reducing their investment presence in the oil and gas sector.

“Warburg Pincus will begin a transition away from investing in companies that are dependent on hydrocarbon pricing in the core global fund,” said a person familiar with the firm’s plans.

The New York firm may continue to make such investments from other funds, the person added.

Although not as drastic as moves by other private equity shops, such as New York-based GCP Capital Partners, which completely retreated from the oil and gas sector, Warburg’s turnabout comes from one of the oldest US buyout firms and one that has backed oil and gas businesses for more than 30 years.

The change also illustrates an ongoing shift in how private equity firms invest in the energy industry as low oil prices and environmental concerns drive more institutional investors away from the sector. University endowments, in particular, are under increased pressure to rid their portfolios of investments tied to fossil fuels, The Wall Street Journal has reported.

In one of its early energy deals, Warburg in 1990 invested in oil and gas producer Newfield Exploration alongside the endowments of Yale University, Duke University and Dartmouth College. Newfield went public in 1993 and last year was acquired by Encana, today known as Ovintiv.

Warburg closed its most recent flagship vehicle, Warburg Pincus Global Growth, in 2018 with $14.8bn in commitments. The firm hasn’t started fundraising for a fossil fuel-free successor fund, according to the person.

Warburg remains “very committed” to its current oil and gas investments and to the energy sector, the person added.

The firm’s recent investments included ventures in both the oil and gas and other energy sectors. Warburg and private equity peer Kayne Anderson Capital Advisors last year committed more than $1bn to Houston oil and gas producer WildFire Energy I. In January, Warburg pledged up to $300m to Scale Microgrid Solutions, a Ridgewood, NJ-based provider of power systems.

Some of Warburg’s bets on oil and gas businesses soured under the weight of debt and low oil prices. Sheridan Holding Company I in March ran through a fast chapter 11 bankruptcy reorganisation that erased $470m in debt, WSJ Pro Bankruptcy has reported. The operation was part of the Sheridan Group, which was established by Warburg alongside industry executives in 2006. Another Sheridan affiliate filed for bankruptcy last year.

The firm, which has more than $53bn in private equity assets, closed the Warburg Pincus Energy Fund, its first vehicle to focus exclusively on the sector, in 2014 with $4bn in commitments. At the end of last year, the fund had a 4.6% net internal rate of return, according to a document from the Public Employees’ Retirement Association of Colorado. The pension system committed $50m to the fund, the document showed.

Warburg canceled plans last year to raise a successor energy fund.

Source: WSJ



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