Craton fueled with first close of energy fund

Craton Equity Partners has raised $82.5 million of its first clean energy fund, which is targeted at $250 million.

The Los Angeles, Calif.-based buyout shop (f.k.a. Paladin Private Equity Partners) hopes to complete fund-raising by year-end. The firm focuses on companies that produce clean water, make electricity from clean renewable sources, or convert waste into usable byproducts. Portfolio companies are likely to be modest in size, with enterprise values of less than $50 million, says Managing Partner Robert MacDonald.

Among the limited partners in the fund are several West Coast-based investors, such as the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, Los Angeles City Employees’ Retirement System, and the New Mexico State Investment Council—Land Grant Permanent Fund.

The investment team has expertise in basic industrial companies and clean technology, but the firm decided to concentrate on cleantech as concerns rise over the threat of global warming. The team also wants to address concerns about the U.S. dependence on foreign oil and about the movement of large populations into urban areas, which puts stress on water systems and other infrastructure.

MacDonald worked in municipal bonds and public finance at Salomon Brothers in the 1970s. In 1981, with the help of some fellow Salomon Brothers pros, he created a hydroelectric power and waste products conversion company called Catalyst Energy Corp. He sold the company to the Bronfman family for $1 billion in 1988. MacDonald also has done stints at Eastrock Partners, a New York-based private investment and financial consulting firm, and Simon Private Equity. He serves on the board of the Clean Tech Advisory Council in San Francisco.

Craton Equity Partners’s other managing partner, Tom Soto, is an environmental activist. For 15 years he has helped companies generate profits while operating environmentally friendly businesses. In 1990, he worked on the drafting of amendments to the National Clean Air Act and the California Clean Air Act.

The two other investment pros are John Gerson, a partner and CFO who previously was CFO at Kohlberg Kravis Roberts & Co.; and Michael Lenard, a former managing director with William E. Simon & Sons, the parent company of Simon Private Equity. Lenard is also a former U.S. Olympian in team handball. —Erick Bergquist