The fund, Kayne Private Energy Income Fund III, will invest in high-quality private companies focused on producing oil and natural gas from wells that generate stable cash flows, according to a statement seen by Reuters.
This type of production suits income-focused strategies, where investors are regularly paid out a portion of an investment’s earnings, on top of the traditional private equity return generated by assets appreciating in value.
Mark Teshoian, co-head of Kayne Energy Private Equity, said the success of the third fundraise, which initially targeted $1.5 billion, validates the income strategy the firm has pursued over the last decade.
Investor interest in oil and gas-focused private equity has been returning, after a period earlier this decade where it fell out of favor. Strong returns from the industry have helped drive the attraction, while regulatory pushback on environmental issues that previously dampened interest have ebbed away under the Trump administration.
A recent clutch of private equity funds have been raised by firms, such as Kayne Anderson, that have strong track records in oil and gas.
The net internal rate of return (IRR) of Kayne’s first two income funds, and associated co-investments, was around 24.4%, according to a person familiar with the matter. IRR is a key metric which helps judge profitability within private equity.
Danny Weingeist, who also leads Kayne Energy Private Equity, said both new and existing investors contributed to the third fund. Including co-investments and associated funds, the recent fundraising efforts secured more than $2.8 billion.
The third fund has already begun deploying capital: South Wind Exploration & Production received $400 million of equity capital, according to an April 29 statement. The management team of South Wind previously ran Flywheel Energy, a Kayne Anderson-backed energy producer until it was sold last year.
Teshoian said Kayne’s income strategy was well-suited to periods of market volatility, and today’s environment provided a compelling entry point for new investments.
U.S. crude prices touched a four-year low last week amid concerns over increased supply from the OPEC+ cartel, and sluggish global growth stemming from U.S. President Donald Trump’s trade war.
While such conditions have led executives of large publicly-listed shale producers to cut spending and output targets, the types of oil and gas wells favored by income strategies are less impacted as they are focused on milking existing production.
(Reporting by David French in New York; Editing by Sonali Paul)
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