Endurance targets $350 million for energy secondary fund

(P1) Newly formed Endurance Investment Partners is seeking $350 million for its debut fund to invest in secondary market opportunities within the North American energy sector, capitalizing on a growing need for liquidity in aging private-equity funds. The Dallas-based firm is backed by Rice Investment Group, the family office of the founders of EQT Corp., the largest natural gas producer in the U.S.

(P2) "It’s totally natural to see those two types of investments in the same strategy,” said Clay Brett, a partner at law firm Baker Botts and co-head of its energy-private equity practice, referring to backing continuation funds and buying minority stakes. Both types of deals give investors interests in the target businesses, though continuation-fund backers participate through that vehicle instead of directly, Brett said.

(P3) Endurance has already deployed capital from the new fund, EIP Fund I, committing up to $80 million to a continuation fund for Enercoast Midstream and leading a $1 billion recapitalization of GulfTex Energy, an oil-and-gas producer in the Eagle Ford shale region of South Texas. The firm plans to invest between $50 million and $150 million per deal.

(P4) The push into energy secondaries comes as a dearth of asset sales by buyout firms has boosted the secondary market. With only $7 billion in dry powder for energy and infrastructure secondaries compared to $216 billion for all secondary funds, according to Evercore data cited by Endurance, the firm sees a significant market opportunity and aims to more than double investors' money.

The fund's strategy focuses on acquiring interests in mature energy companies, often held in older private-equity funds where investors are seeking an exit. Endurance will target continuation funds, minority stake acquisitions, and management-led buyouts across the North American oil and gas, energy infrastructure, and power sectors.

The partnership with Rice Investment Group provides Endurance with significant operational and technical expertise. The Rice family, including brothers Toby, Daniel, and Derek Rice, took control of EQT Corp. after a proxy battle in 2019, seven years after founding Rice Energy. While the family office will not be involved in the day-to-day operations of Endurance, the firm is expected to leverage the Rice team's technical and administrative resources to source deals and expand portfolio companies.

The secondary market for private equity in the energy sector is still a relatively niche area, with few specialized firms. This has created an opportunity for new entrants like Endurance and Austin-based Melange Capital Partners, which recently closed its first fund at $430 million, to fill the gap.

The increased capital discipline and improved performance of U.S. oil-and-gas producers have made the sector more attractive to generalist investors. Secondary deals in mature companies are often seen as a less risky way to gain exposure to the energy sector, offering better protection against commodity-price volatility compared to investing in new buyout funds that often target younger businesses.

"The information advantage is actually significant in the secondary market, which could explain its growth as a wedge of overall energy investments,” Brett added.

Endurance's EIP Fund I has a 10-year life and is being pitched to investors with the goal of more than doubling their money. The firm was formed last year by partners John Spradling and Trey Hatcher, who previously worked together at NGP Energy Capital Management and Tailwater Capital.

This article is for informational purposes only and does not constitute investment advice.