Private Equity Partnerships

Investments in Private Energy Partnerships

August 2010

Private energy partnership investments offer a meaningful addition to a diversified private equity or real asset portfolio. Over the past 20 years, private energy investments have both enhanced portfolio returns and provided diversification against other asset classes. The lack of an appropriate benchmark for private energy partnerships has led us to create the Cliffwater Private Energy Index. The Index is based on actual private energy funds and is an appropriate comparison for private energy partnership performance and real asset portfolios. Private Energy Partnerships

The energy industry is divided into three broad categories: upstream, midstream, and downstream. Additional sectors include resources, services, cleantech, and renewables. Each of these categories has unique return and risk characteristics as described in Exhibit 1.

Exhibit 1 Energy Market Sectors

Sample General Partners Resources: EnerVest, Lime Rock Resources, Sheridan Partners Downstream: EIF, Tenaska, LS Power Midstream: EnCap Infrastructure, Energy Spectrum Partners Services: First Reserve, SCF Partners Upstream: EnCap, NGP, Quantum Renewables: Riverstone Renewables, US Renewables Cleantech: Khosla Ventures, Element Partners

Sector Risks: Resources: Downstream: Midstream: Services: Upstream: Renewables: Cleantech:

Operational Development Commodity Geologic Technology X X X X X X X X X X X X X X X X X

Policy X X X X X X X

Upstream

Upstream refers to the exploration and production (“E&P”) of crude oil, natural gas, coal, and other natural resource reserves. Most private upstream partnerships focus on oil and natural gas. Upstream companies incur the risk of acquiring and proving unknown reserves. Once a reserve

The views expressed herein are the views of Cliffwater only through the date of this report and are subject to change based on market or other conditions. All information has been obtained from sources believed to...