By Devin Banerjee
Carlyle Group LP, the world’s second-biggest manager of alternative investments to stocks and bonds, plans to raise $7 billion for energy funds in the next two years.
The firm is seeking $4 billion for a North American energy fund and $1.5 billion each for international energy and North American power, Washington-based Carlyle said today in New York at its first investor day. The large fund will seek to invest as much as $500 million in individual deals, and the smaller vehicles will target equity investments as high as $150 million, Ken Hersh, an operating executive, said in a presentation.
Carlyle this year identified energy as the most attractive investment area globally as demand rises and new sources of power are discovered through processes such as hydraulic fracturing, or fracking. U.S. power markets will require $1 trillion in new investment by 2020 to meet demand, Hersh said in the presentation.
Fracking “has transformed the paradigm around natural resources from one of of scarcity to a world of abundance,” Hersh said. “The challenge is now about capital discipline and investing, because the industry needs to invest more than its free cash flow.”
Carlyle expanded its energy business in December by buying a stake in NGP Energy Capital Management LLC, which Hersh leads as chief executive officer. The firm added again to its energy team in May with the hire of six executives led by Marcel van Poecke, who will invest the international energy fund.
That pool and the power fund will focus on mid-size companies, according to today’s presentation. Carlyle plans to invest about 80 percent of the North American energy fund in companies that focus on the exploration and production of oil and gas.
Carlyle manages $185 billion across 122 funds and 81 funds- of-funds. The firm was founded by Bill Conway, Dan D’Aniello and David Rubenstein in 1987 as a leveraged buyout investor and has since added businesses to invest in real estate, energy, credit assets and hedge funds.
The firm plans to continue expanding because it’s “part of the game” as peers do the same, Glenn Youngkin, Carlyle’s chief operating officer, said at today’s event. The company seeks to start three new investment strategies a year on average, he said.
In addition to Carlyle’s international investment team and its NGP partnership, which it’s expanding as NGP starts an 11th fund, the firm invests in energy through Vermillion Asset Management LLC, a commodities-focused hedge-fund firm, and Cogentrix Energy LLC, which manages coal and solar-power projects. It acquired both businesses last year.
Carlyle also manages an energy mezzanine fund, which provides subordinated debt and other loans for power companies.