Energy firm closes on $750M fund thanks to Aussies

Limited partners have again turned up the juice on private equity energy investing.

Energy Investors Funds announced last week it closed its sixth fund, United States Power Fund II, with $750 million in commitments, which is three times the size of the firm’s previous fund, which closed in 2002 with $250 million.

The firm, which invests in the U.S. energy and electrical power sector, attracted that much capital in large measure because of limited partners from down under. Investing in the firm for the first time were Australian institutional investors, which chipped in $142 million. Australian LPs included the Motor Trade Association of Australia Superannuation Fund, the Statewide Superannuation Trust and Westscheme, which were advised by Access Economics; and Challenger Financial and the Military Superannuation and Benefits Scheme.

Energy Investors will use fund II to acquire power and energy generation and transmission assets in the United States. About 5% of the fund is mandated for Canadian companies that do business in the United States. The fund will invest a maximum of $150 million in an investment, or up to $300 million with $150 million in co-investments from LPs.

The firm plans to invest up to 60% of the fund in existing power facilities, up to 50% in construction stage projects and as much as 10% of the fund in development stage deals.

Though the Aussie investors were new, returning limited partners comprised 85% of the fund. They included the California Public Employees’ Retirement System, the Howard Hughes Medical Institute, John Hancock Life Insurance Co., Kauffman Foundation, Massachusetts Institute of Technology, Pacific Life, UnionBanCal Equities and the University of North Carolina.

Other new LPs include the New Orleans Employees’ Retirement System, the General Retirement System of the City of Detroit, the Police and Fire Retirement System for the City of Detroit, Hirtle Callahan, Lincoln National Life Insurance, Quellos Private Capital Markets, Southventure and the University of Pittsburgh.

Altogether, the fund attracted 31 LPs.

Managing Partner John Buehler says that investments in private transmissions are taking off and that investments in the sector could comprise as much as a third of the fund.

The firm has made three investments from the fund: the Glen Park Hydroelectric Project, which would provide hydroelectricity in upstate New York; the Neptune Regional Transmission System, which would allow Long Island consumers to import cheaper power from Pennsylvania via an underwater cable, and a New York-based transmission project that the firm declined to name but that Buehler says is in the early RFP stages.

Buehler declined to disclose the fund’s fee and carry structure, but says fund II’s carry structure and hurdle rate are unchanged from USPF I.

Energy Investors has offices in Boston, New York and San Francisco. The firm was founded in 1987.

Energy Investors has recently hired two new professionals and plans to add a third by the end of the first quarter next year, Buehler says. The firm has a staff of about 30 with investment professionals comprising slightly more than 20.

The close of the second fund of Energy Investors comes as at least a trio of funds, dedicated to investing in the energy sector, have held initial or final closings on their respective funds:

* Cadent Energy Partners announced in November the closing of its debut fund, Cadent Energy Partners I. Cadent-based in the New York City suburb of Rye Brook, N.Y.-set out to raise $200 million when it launched in May 2004. The firm closed the fund at $220 million.

* Houston, Texas-based merchant bank Yellowstone Capital Partners announced it has closed on Yellowstone Energy Ventures with $10 million. Yellowstone will focus on early stage companies in the energy technology and renewable energy sectors.

* And Chrysalix Energy Management held a second close on its new fund, Chrysalix Energy II U.S. Limited Partnership. Chrysalix, a Canadian energy investor did not disclose how much capital it raised for its latest close, although the fund has had a broad target of between $60 million and $100 million.