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ArcLight explores secondary process on older fund

  • ArcLight in market with Fund VII
  • Seeks staple of fresh capital as part of deal
  • Not clear how far along the deal is

ArcLight Capital Partners is exploring a secondaries process on one of its older funds as it works to raise its seventh energy and power-focused pool, sources told Buyouts.

ArcLight is one of several energy-focused GPs considering a secondary market sale to give investors in older funds the option to cash out of their interests while bringing in new capital for investments. Other firms that either are in market or have considered a sale include Denham Capital and Panda Power.

ArcLight, which focuses primarily on energy-infrastructure assets in midstream, power and production, is working on a process for its fifth fund, which closed on $3.3 billion in 2011, sources said.

The deal would enable existing LPs in Fund V to sell their interests if they choose, and would bring in fresh capital for the new fund, sources said. This process is known as a tender offer and staple.

Often, a GP will run such a process on older funds when it’s in the market trying to raise a new fund. That is the case for ArcLight, which has been raising its seventh fund since earlier this year, according to a Form D filing. The filing did not list a target for Fund VII.

How far along ArcLight is on the secondary process is unclear. ArcLight Energy Partners Fund V was generating a 9.8 percent net internal rate of return as of June 30, 2018, according to performance information from the Maine Public Employees’ Retirement System.

ArcLight closed its most recent pool, Fund VI, on about $5.6 billion in 2015. That fund was generating a 12.8 percent net IRR since inception as of the same date, according to Maine.  

ArcLight, launched in 2001 by Daniel Revers and Robb Turner, sold a minority stake to Goldman Sachs last year.

Turner sold out of his interest in the firm in the minority deal and he left the firm to start a new shop called Madava Asset Management. Madava was forced to shut down shortly after inception, after Blackstone Group pulled its capital from the shop, the Wall Street Journal reported last year.

Meanwhile, oil-and-gas-focused Denham has been working with Lazard on a secondary for its 2005 fourth fund. Denham Commodity Partners IV had about $1.24 billion in 2005, Buyouts reported. The deal appears to be a Fund IV restructuring that would transfer remaining assets into a new pool managed by the GP, sources said.

Update: This story was updated with more recent fund performance information for ArcLight’s Funds V and VI.

Action Item: Check out ArcLight’s Form ADV: https://bit.ly/2UfIcSQ