Another Energy Fund Lights Up

ArcLight Capital Partners is in the midst of raising its second fund, less than three years after closing its inaugural vehicle with $950 million.

The Boston-based firm closed on $621 million for ArcLight Energy Partners Fund II, according to a Feb. 11 filing with the Securities and Exchange Commission. The document does not specify an overall fund target, but market sources peg the figure at around $1.2 billion.

Robb Turner, a New York-based managing director with ArcLight, declined to comment on the fund-raising process.

He did say, however, that the private equity market has turned bullish on energy investing, and that ArcLight has benefited from the recent interest in energy investing since the firm was formed in 2000.

“The energy sector had lots of money when we set the firm up in late 2000,” Turner says. “When the public markets blew up, it came right to us.”

He adds that ArcLight has differentiated itself by mostly avoiding the big corporate buyouts that are the bread-and-butter of large buyout shops, such as Texas Pacific Group (TPG).

“We will do corporate buyouts, but we’d prefer to do single-asset deals like power plants or coal mines,” Turner says. “Firms like TPG don’t generally do that because they are set up for much larger transactions.”

Turner says that Fund I is completely committed. To finance future investments, the firm held a $324 million first close on its new fund last November, upped the total to $381 million by December and added an additional $121 million as the New Year rolled around.

The SEC filings don’t list limited partners on the new fund except for John Hancock Mutual Life Insurance Co., which served as a cornerstone investor on Fund I. That relationship is tied to Daniel Revers, an ArcLight co-founder (along with Turner) who previously led Hancock’s investment effort in the power, utility and energy industries. He also brought along a trio of fellow Hancock alums in James Steggall, John Tinsdale and Kevin Crosby. Turner was previously a managing director with the investment bank Berenson Minella & Co., where he focused on energy investing.

ArcLight had used Lehman Brothers to place its first fund, but is using San Francisco-based Probitas Partners on its latest effort. Limited partners from the first fund include CDP Capital-Americas, WestLB, Stanford University and the University of Texas Investment Management Co. (UTIMCO).

According to an Aug. 31, 2003 portfolio performance report from UTIMCO, the first ArcLight fund featured an internal rate of return of 7.78 percent.

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