Greenwich, Conn.-based buyout shop First Reserve is aiming for superior returns with a newly-launched infrastructure fund, but recognizes there is mounting competition among its peers. Glenn Payne, v.p., says the interest in infrastructure displayed by Energy Capital Partners and vehicles run by Macquarie and Babcock & Brown may make its aim a challenge. “Yes, there is competition from funds interested in the energy space, but the proof of the pudding is in the exit. The proof of our pudding is our return,” he says.
Most of the 23-year old company’s series of 11 funds are in the upper quartile of Thomson Venture Economics, a performance indicator among private equity firms, says Payne, noting that Fund XI will be no different. The manager, which raised $7.8 billion for Fund XI, boasts a gross internal rate of return of 33% historically.
About 75% of contributors to Fund XI are repeat investors. New investors include: Canadian Pension Plan Investment Board, British Columbia Investment Management Corp. and LGT Capital Partners. Half of Fund XI is expected to be invested in infrastructure concerns, though the company will consider investments running the gamut of the energy sector, from transmission companies to generation assets.
Kristin Custar, assistant v.p., says the full $7.8 billion should be committed within four to five years, but notes that $2.3 billion Fund X was deployed in 23 months. Preferred targets are units priced in excess of $400 million, where acquisitions would typically be financed with $150-200 million equity and a portion of debt that would depend on the extent to which the target’s cash flow can be leveraged. Payne declined to say which banks the firm would work with on debt offerings.