The energy investor closed a continuation vehicle for two Permian Basin minerals companies, anchored by funds affiliated with Melange Capital Partners, in what it called the largest raise for such a vehicle in upstream energy. Major banks, including EnCap's adviser, are also sounding out investors on evergreen versions that could hold assets for 10 to 15 years.
Private equity firms have long had to sell their best assets eventually. A growing set of tools lets them keep owning them with fresh money.
EnCap Investments said on Monday that it has closed a continuation vehicle with about $3.5 billion of commitments to hold EnCap Minerals and Rock River Minerals, two companies that own mineral and royalty interests in the Permian Basin. The vehicle was anchored by funds affiliated with Melange Capital Partners, and EnCap said demand was "well in excess of required commitments." It described the deal as the largest capital raise to date for a continuation vehicle in the upstream energy sector.
The two companies hold about 134,000 net royalty acres in the core of the Permian and produce about 37,000 barrels of oil equivalent a day, net. About 48% of activity on their acreage is operated by ExxonMobil, Diamondback Energy, Occidental Petroleum and ConocoPhillips. Evercore was EnCap's exclusive financial adviser.
How continuation vehicles work
In a continuation vehicle, a private equity firm moves assets from an older fund into a new one. Investors in the old fund can take cash or roll into the new vehicle, and new investors provide the money for those who leave. The firm keeps managing assets it believes still have room to grow, while giving existing investors an exit at a time when sales and listings have been slow.
Mineral and royalty interests are a natural fit. They generate cash from production by large operators without requiring the owner to fund drilling, and the Permian's best acreage can produce for decades.
The next step
Banks are now pitching a longer-lasting version. Goldman Sachs, Evercore, Jefferies, Raymond James and Lazard have been sounding out investors on evergreen continuation vehicles that could hold assets for 10 to 15 years, according to a report on Monday. Evercore, which advised EnCap, is among them. That would turn a one-time liquidity solution into something closer to permanent capital.
The pattern is spreading. EMK Capital closed a €1.25 billion continuation vehicle for VDK Groep last week, and similar structures have been used this autumn for energy transition and private credit assets.
What the release did not show
EnCap did not say what price the vehicle paid relative to the assets' net asset value, how many existing investors chose to sell rather than roll, or how much EnCap itself committed. Those details determine whether selling investors got a fair price.
Market implications
One reading is that continuation vehicles are maturing into a core part of private markets. They let firms hold high-quality assets longer, give investors a choice of liquidity, and attract large anchor investors.
A second reading is that they raise conflict-of-interest questions. The firm sits on both sides of the transaction, and evergreen structures would push the point at which assets are tested in an open sale even further into the future.
What to watch
The launch of any evergreen continuation vehicle; pricing data on continuation deals relative to net asset value; EnCap's next fundraising; and investor and regulatory scrutiny of how these deals are priced. A first evergreen vehicle closing at scale would mark a shift in how private equity defines an exit.