BlackRock keeps First Reserve’s winning formula as new fund hits $1.5bn first close

The Global Energy and Power Infrastructure Fund III has a $3.5bn target and is the first launched by the former First Reserve team following its acquisition.

BlackRock Real Assets has reached a $1.5 billion first close on the debut energy fund launched by the former First Reserve team since being acquired by BlackRock last year.

The first close comes ahead of a $3.5 billion target for the Global Energy and Power Infrastructure Fund III, a successor to First Reserve’s 2010 and 2014 vintages, which raised $1.23 billion and $2.5 billion, respectively. BlackRock closed the acquisition of First Reserve’s funds business last June.

The target is expected to be reached either at the end of this year or the beginning of next, Mark Florian, head of BlackRock’s global energy and power team, told Infrastructure Investor. He added that, while talks were held on a possible change of strategy for the fund, the group decided to proceed with what brought it success previously.

“We talked about whether there would be changes in our strategy when we moved to BlackRock, but the firm answered that it did not want changes,” Florian explained. “The firm didn’t want to change anything about our strategy since it had been successful for investors in the past.”

As such, GEPIF III will be hunting for long-term contracted assets in the midstream, pipeline and gas storage sectors, primarily in developed countries. The average contract length in the current portfolio is about 11 years, according to Florian.

“There’s a move from coal and nuclear to renewables, but we also think there’s a need for natural gas-fired power, so the shifting energy mix is creating a lot of need for capital,” he added. “We see more mobility of resources around the world. Natural gas used to be something in a pipe and delivered regionally, now you can put it in liquid form and send it anywhere in the world, which is going to need tens of billions of infrastructure funding.”

The continuation and evolution of this strategy helped secure a “substantial” re-up rate, Florian said, with around 50 percent of the fund’s investors coming from the US. The balance came from Europe, the Middle East and Asia-Pacific. Florian declined to disclose the fund’s targeted returns, but Infrastructure Investor understands this is around the mid-teens mark. The First Reserve Energy Infrastructure Fund II was generating a 58.8 percent net IRR and a money multiple of 1.65 times as at the end of June last year, according to the New York City Teachers’ Retirement System.

Florian said equity cheques for GEPIF III will range from about $100 million to $300 million, culminating in investments worth a total of between $500 million and $1 billion, with some room for greenfield exposure.

“We do some construction, but only if it’s a really good project and de-risked,” he said. “All the permits need to be in place. Certain types of assets have lower construction risk, but we have no more than 20 to 25 percent in construction.”