The energy-focused private equity firm’s longtime partner, The Carlyle Group (CG), was pulling away in order to form its own energy investing platform. Firm co-founder David Leuschen had admitted to bankrolling a low-budget film produced by the brother of an influential public pension fund manager in New York. And there were additional pay-to-play allegations, due to Riverstone’s use of a corrupt “placement agent” who would eventually find himself in state prison.

Riverstone and Leuschen ultimately paid out a combined $50 million in restitution to New York, without admitting guilt.

Yesterday, however, the firm announced that it had raised a whopping $7.7 billion for its fifth fund. That’s larger than any prior Riverstone fund, and the first to not be co-branded with Carlyle. New York Common Retirement Fund didn’t re-up, but Riverstone did manage to secure commitments from public pensions in states like California, Delaware, Illinois, New Mexico and Texas.

The reversal of fortune is pretty easy to explain: Riverstone has generated a ton of money for its investors.

Take a look at its general fund returns through the end of 2012, according to documents published by the California Public Employees’ Retirement System (which is investing in the new fund):

• Carlyle/Riverstone Global Energy & Power II (2003)
  54.1% internal rate of return
  2.69x cash-on-cash multiple
• Carlyle/Riverstone Global Energy & Power III (2005)
  12.3% internal rate of return
  1.66x cash-on-cash multiple
• Carlyle/Riverstone Global Energy & Power IV (2008)
  17% internal rate of return
  1.47x cash-on-cash multiple

For an investor like CalPERS, all of that comes out to more than $1.2 billion in value (realized and unrealized) on $738 million invested (inclusive of fees).

Now compare this to returns from rival First Reserve Corp., which raised $9 billion for its last fund but recently had to cut its new target from $6 billion to $5 billion:

• First Reserve Fund X (2004)
  31.6% internal rate of return
  1.82x cash-on-cash multiple
• First Reserve Fund XI (2006)
  3.1% internal rate of return
  1.11x cash-on-cash multiple
• First Reserve Fund XII (2008)
  3.3% internal rate of return
  1.08x cash-on-cash multiple

Notice the difference?

For sure, there are plenty of other, large energy-focused private equity platforms within generalist private equity firms (including Carlyle). But for now Riverstone is tops. Couldn’t have imagined it a few years back.

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