More Capital For Energized Funds –

Energy-focused private equity firms continue to grow, in an effort to keep pace with dramatically increased company valuations. The latest example is Kayne Anderson Capital Advisors (KACA), which recently closed its third energy fund with $550 million in limited partner commitments.

The firm which features offices in Los Angeles and Houston raised $112 million for its inaugural energy fund in 1998. It more than doubled its ambitions in raising $240 million four years later, but still didn’t have enough capital to avoid regular co-investments.

“We have 22 companies in our first two funds, but we had to have co-investors in 15 of them,” said Danny Weingeist, senior managing director of energy investments for KACA. “There would be a $50 million opportunity that he could only do by bringing in someone else, but we want some independence from that because it slows down the process… when you have three different people who need to approve something.”

The new fund will invest between $10 million and $75 million into existing North American oil and gas companies in need of acquisition or expansion capital. It is not averse to taking majority positions, but prefers control stakes of between 30% and 40 percent. Its largest current ownership position is 80%, while its smallest is eight percent.

“What differentiates us is that most private equity funds doing energy are involved in fairway deals, where they are doing everything from A to Z,” Weingeist said. “We like coming into existing companies with real cash-flow beneath them, but which need a little more to accelerate, or more quickly implement their plans.”

Weingeist declined to name specific limited partners, except to say that $300 million of the $550 million came from new investors.

Other firms that have closed energy-focused private equity funds in the past 12 months include First Reserve Corp. ($2.2 billion), ArcLight Capital ($1.6 billion), Lime Rock Partners ($425 million) and Quantum Energy Partners ($345 million).