The $53 billion Pennsylvania Public School Employees Retirement System (PSERS) has pledged to invest up to $250 million in the Carlyle Mezzanine Energy Opportunities Fund II (CEMOF II) and up to $200 million in the Avenue Energy Opportunities Fund. This marks Penn School’s eleventh fund investment with Avenue and its eighth with Carlyle.
The Pennsylvania pension fund previously invested $200 million in Carlyle’s first mezz energy fund I in 2012.
The new Carlyle fund is pursuing privately negotiated debt investments in real asset based energy exploration and production companies, as well as independent power projects and companies located primarily in the US and Canada. One third of the fund will open for investment in other regions, according to presentation on the fund by Laurann Stepp, senior portfolio manager at PSERS, on 8 December.
The Carlyle fund is targeting $2.5 billion. Investments will range from $30 million to $500 million and typically have two to six year maturities with an average hold of three years. The fund will focus on upstream and midstream oil and gas assets, energy-related infrastructure, traditional and renewable power generation assets as well as mining and related natural resource assets. The fund is targeting 15-18 percent gross IRR, with 6-8 percent from current cash interest or dividends. The CEMOF I fund had a net IRR of 20.4 percent.
The Avenue fund is targeting $750 million and will invest primarily in debt, with some exposure to select equity securities or other obligations of stressed or distressed North American energy and utility companies. Over half of the fund is expected to be dedicated to senior secured debt.
The investments will typically be in energy and utility companies that are undergoing restructuring, reorganization or bankruptcy, are experiencing operational or financial difficulty, are in turmoil or are undervalued because of discrete extraordinary events, according to another board memo from Stepp. The fund is targeting 20 percent gross IRR with an 8 percent current yield. Avenue has invested in the energy and utility sector since 1997, as part of its general US funds, and has achieved a 22 percent gross IRR in that time, continued the presentation.