Carlyle And Riverstone Power Up With $4.9B

Firms: The Carlyle Group, Riverstone

Funds: Carlyle/Riverstone Global Energy and Power Fund III; Carlyle/Riverstone Renewable Energy Infrastructure Fund I.

Target: $2 billion for Carlyle/Riverstone Global Energy and Power Fund III; $300 million for Carlyle/Riverstone Renewable Energy Infrastructure Fund I.

Amount Raised: $3.8 billion for Carlyle/Riverstone Global Energy and Power Fund III; $685 million for Carlyle/Riverstone Renewable Energy Infrastructure Fund I.

Legal Counsel: Latham & Watkins and Vinson & Elkins for both funds; Akin Gump also for Carlyle/Riverstone Renewable Energy Infrastructure Fund I.

Private equity firms are eager to adjust with the signs of the times lest they suffer the creeping death of obsolescence. And so it was with an eye toward the future that The Carlyle Group and Riverstone decided to ride the lightening to clean energy investments and a renewable energy fund along with their third global energy and power fund. The two firms closed on the two new joint funds with approximately $4.9 billion.

Carlyle and Riverstone announced the close of Carlyle/Riverstone Global Energy and Power Fund III with $3.8 billion and Carlyle/Riverstone Renewable Energy Infrastructure Fund I with $685 million. The funds raised a combined $4.85 billion and both funds closed in the first quarter.They also allow for co-investments. The initial goal for the third power fund was $2 billion and the renewable energy fund had an initial goal of $300 million, according to Riverstone.

The vast majority of limited partners in the third energy fund were investors in the $1.1 billion Global Energy & Power Fund II that closed in 2004. The groups managed to add more public pension funds with the newer fund. Limited partners in the Carlyle/Riverstone Global Energy and Power Fund III include the California Public Employees’ Retirement System (CalPERS), the New York State Common Retirement Fund, the Delaware Public Employees’ Retirement System and Sonangol, the oil and natural gas manager for Angola. Fund III has a 1.5% management fee and a 20% carried interest rate.

Carlyle/Riverstone Global Energy and Power Fund III invests globally, though about 70% to 80% of its investments will likely be in the United States. The fund makes buyout and growth capital investments in the energy and power industries with a focus on midstream, exploration and production, power, oilfield service and downstream companies.

So far the Carlyle/Riverstone Global Power and Energy Fund has agreed to purchase the natural gas storage business of EnCana Corp. (NYSE: ECA; TSX: EnCana) for approximately $1.5 billion. EnCana’s assets include the AECO Hub in Alberta, the Wild Goose facility in California, the Salt Plains facility in Oklahoma and the Starks facility in Louisiana. It also joined with Goldman Sachs Capital Partners in committing $500 million to launch Cobalt International Energy LP, a Houston, Texas-based oil and gas exploration company and production company in the Deepwater Gulf of Mexico and other high-potential global basins. The third Carlyle/Riverstone Global Energy & Power Funds also teamed with Cherington Capital to acquire International Logging Inc. (ILI), a Houston, Texas-based provider of well site drilling and formation evaluation services. NewStar Financial provided leverage, while ILI management also received an ownership percentage.

In addition to powering up for continued investment in more conventional energy and power companies, the Carlyle/Riverstone alliance decided to raise a separate fund for renewable energy investments. Riverstone Co-founder David Leuschen says that global trends mandate that responsible investors make cleaner investments and that the nature of renewable energy investments necessitated a separate fund. “The world over time is probably going to develop more renewable, cleaner energy sources; that’s a theme these days,” says Leuschen. “The reason it’s not done as part of our main fund is the character of those investments is different. The return expectations are likely to be lower and the cycle time is somewhat longer. So in order to access that opportunity it would be better to do that as a separate fund.”

The exit market has been kind to private equity backed energy companies. Last quarter’s largest IPO offering for a private equity-backed company came from Dallas-based oil and gas company EXCO Resources Inc., which raised $650 million. Company shareholders include Ares Management, Cerberus Capital Management, Oaktree Capital Management and Greenhill Capital Partners. Other big raisers included fellow energy companies Magellan Midstream Partners LP with $539 million and Energy Transfer Equity LP with $441 million.

The worldwide clean energy market is forecast to grow to $89 billion by 2012, a nine-fold increase from $9.5 billion in 2002, according to Clean Edge Inc., an energy research and consulting firm based in Oakland, Calif.