Washington State Goes Deep With Energy, Mining GPs

Pension System: Washington State Investment Board

Assets Managed: $84 Billion (June 30, 2012)

PE Assets Managed (Main Pension Fund): $16 Billion (June 30, 2012)

PE Allocation (Target): 26% (25%) (June 30, 2012)

Chief Investment Officer: Gary Bruebaker

The $84 billion Washington State Investment Board has committed $550 million to two buyout firms that focus on the energy and mining sectors.

The larger of the two commitments was a $400 million pledge to the newest fund from First Reserve Corp., First Reserve Fund XIII LP, which is targeting $6 billion. The pledge matches the $400 million it made to First Reserve’s previous fund, the 2008 vintage Fund XII. That fund has so far generated a net 4 percent IRR and a 1.1x return multiple. The 2006 vintage Fund XI, to which Washington State pledged $300 million, has done slightly better, returning a 5 percent net IRR and a 1.2x return multiple.

Founded in Greenwich, Conn. and Houston in 1983, First Reserve is led by William E. Macaulay, its chairman and chief executive. The firm is a diversified energy investor and also invests in infrastructure. Earlier this month, First Reserve sold Acteon, a U.K.-based oil and gas services group, to Kohlberg Kravis Roberts & Co. for an undisclosed sum.

The second Washington pledge was $150 million to Red Kite Mine Finance Fund II LP, a fund seeking to raise $750 million. Red Kite is focused on investing in the metals industry and provides project financing to mining companies. This is Washington’s first investment with the firm.

Earlier this year, the Wyoming Retirement System and the Oregon Investment Council each committed $75 million to the fund, while the University of Michigan endowment pledged $25 million. According to a presentation from the Oregon Investment Council, Red Kite’s debut fund, the 2008 vintage Red Kite Mine Financing I LP, was generating a gross IRR of 29 percent and a gross return multiple of 1.9x. The new fund seeks annual returns of 30 percent by offering completion financing to mining companies in exchange for a portion of a mine’s future production.

The firm, which was founded in 2004, operates out of offices in Bermuda, Hong Kong, London, New York, Shanghai and Sydney.