Oregon Taps Reservoir Capital For New $1.5B Energy Fund

The Oregon Investment Council, which manages $80 billion in state funds, has pledged $100 million to Reservoir Capital Group’s debut energy and resources fund, Reservoir Resource Partners LP, according to Buyouts, peHUB’s sister magazine. The fund plans to invest in energy, natural resources and power generation companies. The firm is seeking to raise $1.5 billion.

According to the council’s description of the fund, the firm has delivered an overall net IRR of more than 20 percent over its 15-year existence.  Reservoir Capital manages around $6 billion across three funds.

The new investment is the firm’s second from Oregon Investment Council, which committed $50 million to Reservoir Strategic Partners LP, a hedge fund of funds that makes seed investments in new and emerging hedge fund managers. A spokesman for Reservoir Capital was unable to comment on the new fund.

Within the energy space, Reservoir Capital’s new fund is earmarked for power generation, which will make up roughly two-thirds of the fund’s investments. The remaining third is expected to consist of midstream and downstream energy infrastructure assets, according to the council’s description.

TorreyCove Capital Partners, the council’s private equity adviser, wrote that the firm “expects opportunities…to arise in Europe given the fact that European utilities are in a distressed position and the fact that European power markets continue to undergo significant change.”

Reservoir Capital typically protects against downside risk by taking senior positions in a company’s debt capital structure, while making sure that investments are convertible to equity if a company’s operating performance exceeds expectations.

As part of its commitment, Oregon Investment Council was able to negotiate a concession on how its management fee is assessed.  The “standard management fee” will be paid only on invested capital, not committed capital, which is more common. This, said the council, “can help mitigate the traditional ‘J-curve’ associated with most private market fund structures. The fund will have a traditional carry.

Reservoir Capital was started in 1998, and was co-founded by Daniel Stern and Craig Huff, who are co-chief executives, and Gregg Zeitlin, a senior managing director at the firm.  Before founding Reservoir Council, the three helped to manage Ziff Brothers Investments.

Gregory Roth is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @RothReuters. Follow Buyouts tweets @Buyouts.

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