Riverstone’s Alternative ESG Investment Strategy Finally Pays Off


After the 2014-2015 oil price crash, Riverstone’s Private Equity business was struggling to find a new direction.  After ~$US 25 Billion raised and invested it had become clear that the majority would never recover the initial investment.  In fact, no well in the entire portfolio had ever reached true payout, and the only returns generated were based on flipping prospective acreage to a public company. 

As the pubco’s had lost appetite for this type of acquisition, the firms now had to drill their returns, and it had become increasingly clear to both Riverstone and the broader investment community that the US energy space could not generate the 20% hurdle promised by the fund (well, without excessive leverage). 

Seeing as they were closing the $US 5.1 Billion Riverstone Global Power & Energy Fund VI, they couldn’t just return the capital to shareholders seeing as most funds are designed to live off the 2% management fee and successively higher fund raises as opposed to actually achieving a 20% performance fee.  What strategy could possibly be employed to achieve a future livelihood for the firm?

The answer came in the form of ESG.  Management decided that through investing in several high-profile failures, they could make a legitimate argument that they were actively trying to destroy the shale space so as to usher in a new era of clean energy. 

As Jim Hackett explains, “I didn’t even have to ask for the money. These guys literally just handed me a check and told me to write any number down I wanted.  There was only one stipulation; I had to buy the worst asset I could think of. 

One asset that I was aware of fit the bill: Hal Chappelle’s Alta Mesa.  If it weren’t for dealing with the Bayou City team, I would say that Riverstone did the least amount of due diligence I had ever seen.”  The strategy really took off; it was clear from day one that the SPAC was an immediate loser and that nearly $1 Billion was up in smoke.

Riverstone went searching for other investments that were guaranteed to lose large sums of capital, like Mark Papa’s Centennial and tier 4 Bakken operator Liberty, quite obviously in the worst part of the basin to anyone with half a brain.  To assuage investors, they still invested in a slight winner from time to time, but would not let it distract from the core strategy of losing large sums of capital. 

And that they did.  As the sun sets on Riverstone’s Energy Private Equity portfolio, they are said to be in the early stages of a $10 Billion Clean Energy fund, and quite proud of the amount of investor capital destroyed in pursuit of a sustainable world.

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