ArcLight Capital Partners has closed its second fund-raising drive with $1.6 billion in limited partner commitments. The Boston-based firm launched the effort last October with a $1.25 billion target capitalization, but upped the ante after it received “intense investor interest,” a reflection of the bullish climate for energy investing.
Rather than buying into management teams and then working to build a business, ArcLight acquires cash-generating assets in electric power and energy sectors.
“A lot of our limited partners were looking for some hard asset plays to offset their reliance on venture capital and buyout funds,” says Daniel Revers, a managing partner with ArcLight. “And, to the extent that we’re a newer fund, it’s important to have a niche like that.”
ArcLight raised $950 million for its inaugural fund in 2002, and quickly filled its portfolio with 19 companies and specialty acquisition vehicles. Most of those deals only included between $30 million and $60 million of equity, but Revers says that a larger fund was needed because similar deals now require between $50 million and $100 million in equity.
John Hancock Mutual Life Insurance Co. – which once employed four of ArcLight’s investment pros, including Revers – returned as a limited partner on Fund II, after having served as a cornerstone investor on Fund I. Revers previously led Hancock’s investment effort in the power, utility and energy industries.
Other return backers include CDP Capital and the University of Texas Investment Management Co. 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.
ArcLight’s new fund also included over 50 new investors, like Adams Street Partners and the California Public Employees’ Retirement System.
Probitas Partners acted as the fund’s placement agent, while Ropes and Gray LLP provided legal counsel.