Texas-based private investment firm the Energy & Minerals Group is expected to collect between $2.5 billion and $3 billion for its EMG Fund III later this month, according to documents from the Los Angeles County Employees Retirement Association.
Fund III has a $2.5 billion target and a $3.5 billion hard-cap, though there is a possibility EMG will propose raising the hard-cap to $4 billion. The firm is expected to hold a final close during the second quarter of 2014 and “it is very likely the fund will be oversubscribed”, according to the documents.
EMG Fund III held a first close on 17 December 2013 on $1.5 billion and received commitments from 40 investors, including the Minnesota State Board of Investment and the Metropolitan Government of Nashville and Davidson County Employees’ Benefit Trust Fund, according to Private Equity International’s Research and Analytics division. The five largest investors represented 35 percent of total commitments, according to the documents.
Fund III will make investments of between $150 million and $400 million in between 10 and 12 energy, minerals and metals companies primarily in North America and Australia. Energy demand is projected to increase by 1.5 percent per year between 2010 and 2040 and is largely driven by developing countries, according to the documents.
EMG’s third fund includes a general partner commitment of 2 percent, or roughly $50 million if the fund reaches its target and $70 million if it reaches its hard-cap.
The management fee for limited partners is 1.75 percent per year for commitments up to $2 billion and 1.5 percent for commitments more than $2 billion. The preferred rate of return is 8 percent and carried interest is 20 percent, with a 100 percent fee offset rate.
EMG declined to comment.
Credit Suisse Private Fund Group is acting as a placement agent for the fund.
Los Angeles committed $150 million to fund, which marks a new relationship for the roughly $44.3 billion pension system, which only has one other energy-focused fund manager in its portfolio, First Reserve Corporation.
Los Angeles cited “a strong performance track record”, “diversified natural resources market opportunity” and “experienced investment professionals” as reasons for committing to EMG III.
EMG’s prior fund, EMG II, raised $2.2 billion on a $2.5 billion target in 2012. Fund II received commitments from LPs such as Adams Street Partners, Colorado Fire and Police Pension Association, Louisiana State University Foundation and Purdue University. The fund was generating a net internal rate of return of 11.9 percent as of 30 September 2013.
EMG’s debut fund was raised under a joint venture called Natural Gas Partners and closed on $1.4 billion in November 2007. Fund I was generating a net IRR of 24.5 percent as of September.
EMG chief executive officer John Raymond and chief operating officer John Calvert formed the firm in 2009 after working together at Natural Gas Partners. Raymond was previously CEO at Vulcan Energy Corporation, now Plain Resources, and Calvert was previously a managing director at Deutsche Bank Securities and at Credit Suisse. Both Raymond and Calvert are listed as key persons in the fund documents, though the investment committee also includes Lee Raymond, former president, chairman of the board and CEO of Exxon Corporation.
EMG has invested $2.5 billion in 19 investments. Four of the investments have been realised and have generated a gross return multiple of 3.62x and a gross IRR of 44.4 percent.