Energy funds jolted by dollar surge

Three US energy private equity firms – First Reserve, LS Power Group and Energy Capital – are drawing commitments totaling roughly $13bn for energy and power investment, as LP interest in the strategy surges.

As limited partner interest in energy and power funds surges, three US private equity specialty firms are being handsomely rewarded with capital commitments.

Leading the pack by a wide margin is Greenwich, Connecticut-based energy investment veteran First Reserve Corporation, which before the end of July will hold a final close on its eleventh private equity fund. The vehicle is expected to round up a total of nearly $8 billion (€6.3 billion), although LP demand was far in excess of this, according to a source close to the fundraising.

“People are excited about the long-term prospects in the energy market,” the source said.

First Reserve’s last fund closed on $2.4 billion in 2004.

Less established energy specialists are also experience high investor demand. Back in the market after only one year is New York-based LS Power Group, which is currently speaking to investors about a second fund with a target of $2.5 billion. Just last August, the firm, led by Jim Bartlett, closed on a debut vehicle with $1.2 billion in commitments, exceeding a target of $750 million.

A good portion of LS Power’s first fund was invested in its purchase of power plants from Charlotte, North Carolina-based Duke Energy, a deal that was valued at roughly $1.5 billion.

Energy Capital Partners, based in Short Hills, New Jersey, is experiencing a similar surge of dollars. The firm is led by former Goldman Sachs power specialist Doug Kimmelman, who was responsible for the investment bank’s huge success with the formation of Orion Power. He also helped the firm form its J. Aron power asset portfolio.

Energy Capital is about to hold a close on $1.5 billion for its debut vehicle, and will likely hold a final close on a total of more than $2 billion by September, according to a source.