Private equity firm Pine Brook is one of many PE firms to recently close a fund that will specifically invest in the energy sector. In February, the New York firm closed a $2.43 billion fund that will target the oil and gas sector, as well as the financial services sector. Managing director Craig Jarchow says recent developments in the energy sector are creating a high demand for investments.
Why are we seeing so much interest in the energy sector?
I think we're seeing capital go into the energy business for a very good reason-we've had this unconventional revolution related to shale gas and extracting oil from shale. This has really led to great circumstances for us. Now, in North America the industry has lots and lots of drilling locations that we did not have in the past. The industry is long inventory, but short capital. If you look at analyst predictions that North America will be self sufficient in oil production by 2020, to get there will require about $500 billion in capital to drill these locations that we already know about. The world of private equity will be providing more and more of the capital that is needed to drill out these locations or find more locations. That's why you're seeing so much capital go into the energy space-there is a need for it. The capital is also being attracted by a nice risk-reward. The returns are good.
Is this trend here to stay?
I think it's a longer term phenomenon. We shouldn't lose sight of international needs. These unconventional rocks exist elsewhere in the world, and they're just now being developed, and the capital needed to prove these rocks, to drill them and develop them, will be substantial.
Why did the firm choose to invest in the financial services and energy sectors?
This is our second fund, and we have since the very beginning been focused on financial services and energy. These are the two areas where the partners in the firm have considerable expertise and experience. We were just within a whisker of our hard cap, and we're very pleased with that. That is related to the sectors in which you are choosing to do business, and choosing to invest, and obviously our track record has a lot to do with it as well. We have five substantial investments that we could point to in this fund, and thereby the LPs could get a feel for what we intended to do, the sort of investments we were going to make and the management teams that we were going to back.