ArcLight closes $1.6bn energy fund

Boston-based ArcLight Capital Partners plans to use its Fund II to invest in the coal, natural gas, power generation, and electric and gas transmission and distribution industries.

Boston-based energy investment firm ArcLight Capital Partners has announced the close of its second private equity fund on $1.6 billion (€1.3 billion).

Fundraising for the oversubscribed vehicle began in October 2003, and it boasts commitments from more than 75 investors, according to a statement. Return backers such as The Caisse de Dépôt et Placement du Québec (CDP Capital) and the University of Texas were joined by institutional newcomers Adams Street Partners and CalPERS.

Ropes and Gray provided legal advice to ArcLight while Probitas Partners acted as the placement agent.

In the statement, ArcLight – currently managing $2.5 billion in assets – said it plans to continue the investment strategy of its first fund by investing in cash flow-generating companies in the coal, natural gas, power generation, and electric and gas transmission and distribution sectors. 

ArcLight announced the close of its $950 million debut fund in September 2002. Fund I attracted more than 20 institutional investors, including John Hancock Life Insurance Company, WestLB and Stanford University, and invested in 18 portfolio deals.

In the statement, ArcLight managing partner Daniel Revers said that the success of the new fund is due in part to the trend among institutional investors to allocate 'a greater percentage of their alternative investment portfolios to hard assets.' He said many institutions are 'trying to reduce their dependence on venture capital and buyout funds and are increasingly turning to hard-asset plays including energy.'

High price is not the only factor affecting the energy industry at present; with the sector deregulating and restructuring, energy companies are divesting non-core assets. A number of firms have raised standalone funds in the past year to capitalise on these opportunities.

Houston-based Quantum Energy Partners in April announced a final close for its third fund, rounding up a total of $345.5 million. Earlier that same month, a new $1.1 billion fund to focus on the energy sector was launched by Carlyle Group and Riverstone Holdings, succeeding the firms' $222 million Carlyle/Riverstone Global Energy & Power Fund I, which closed in 2001. And in February, Boston-based Energy Investors Funds Group (EIF Group) closed its $250 million United States Power Fund.