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 already has secured $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 being formed in 2000 rather than in 2004. “We could have had better timing, because the energy sector had lots of money when we set the firm up in late 2000,” he explained. “When the public markets blew up, it came right to us.”
Turner added that ArcLight has differentiated itself by mostly avoiding the big corporate buyouts that are the bread-and-butter of large buyout shops like Texas Pacific Group. “We will do corporate buyouts, but we’d prefer to do single-asset deals like power plants or coal mines. Firms like TPG don’t generally do that because they are set up for much larger transactions.”
The ArcLight Web site lists portfolio companies, and Turner says that Fund I is completely committed. In order 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 any 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 had 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 I-bank Berenson Minella & Co., where he too 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 August 31, 2003 portfolio performance report from UTIMCO, the first ArcLight fund featured an internal rate of return (IRR) of 7.78 percent.