First Reserve energy infra fund closes on $1.2bn

First Reserve Corporation, the energy and natural resources investor based in Greenwich, Connecticut, has closed the First Reserve Energy Infrastructure Fund – its debut fund dedicated to energy infrastructure – on $1.2 billion.

The fundraising process took around 15 months, with a further two-month extension for administrative purposes. The target size for the fund was between $1 billion and $1.5 billion. A spokesperson for the firm said that 90 percent of the capital was raised internally, with 10 percent raised by an unnamed placement agent tasked with covering a particular geographic area.

The fund has a target return in the “mid-teens” according to the spokesperson. The return would include dividend yield, “not just capital appreciation”.  

According to public records, Maine Public Employees Retirement System commited $50 million to the fund and the Teacher Retirement System of Texas $250 million. They were among institutional investors from ten different countries. As well as pensions, limited partners include insurance companies and sovereign wealth funds.  Half the capital came from existing First Reserve relationships, and half from new ones, according to the spokesperson.       

In an exclusive interview with Infrastructure Investor, First Reserve managing director and infrastructure group head Mark Florian said the energy infrastructure team had “grown a lot” over the last several months and now has 15 investment professionals. Among these is Tim Vincent, who joined the firm last month and who used to work alongside Florian in the Goldman Sachs Public Sector and Infrastructure Investment Banking Group.

Florian added that First Reserve had sought to bring together professionals with experience in four areas: energy, infrastructure, principal  investment and asset management. 

The fund will focus on investing in assets in North America and Western Europe in three areas: contracted midstream, including pipelines, storage and LNG facilities; contracted power, including renewable generation and conventional generation; and regulated transmission and distribution, including electric and gas utilities. Florian pointed out that the International Monetary Fund’s World Economic Outlook report had identified a $6 trillion investment opportunity in OECD countries in these three areas.

The first investment from the fund is SunEdison Reserve, a joint venture with US solar firm SunEdison to own utility-scale solar photovoltaic power generation facilities. The deal was agreed last year.  

Florian hinted that this kind of strategic joint venture would probably be repeated. “It allows you to negotiate with the owner of the asset rather than having to get into auction processes, and we feel we can craft such investments to minimise our risk and make sure we achieve a stable return. A joint venture partner has a strong incentive to make the deal a success and not squeeze every penny out of us, so there is good alignment.”    

First Reserve is primarily known for its buyout strategy, with its most recent buyout fund – First Reserve Fund XII – having closed on $9 billion in 2009. Florian said a big part of the energy infrastructure strategy would be the synergies that could be gained from interaction with the buyout team in areas such as deal sourcing, industry knowledge and relationships.