LS Power closed its sixth flagship private equity fund at its USD 6bn hard cap on 30 September, exceeding its USD 4bn target by USD 2bn after reaching that amount in June.

About 70% of Fund VI commitments came from North American investors, almost entirely US-based, while the remainder came from investors in the Middle East, Europe and Asia, COO Darpan Kapadia told Mergermarket.

International interest in US energy assets has increased throughout the firm’s Fund V and Fund VI fundraising cycles, Kapadia said, as investors seek exposure to what he described as unprecedented US power demand growth.

Roughly 55% of Fund VI’s commitments came from existing investors, with about USD 3bn of new capital raised, according to Kapadia.

The investor base includes pension funds, university endowments, foundations, family offices, high-net-worth investors and non-US pension plans.

“Particularly on the pension side, we were very grateful to be able to add a number of new pension investors into the roster,” Kapadia added.

He attributed this partly to support from leading investment consultants, whose endorsements often play an important role in pension fund allocation decisions.

Deployment

The deployment strategy for Fund VI is centered on operating power generation assets and platforms, according to Kapadia.

LS Power remains primarily focused on acquiring and investing in projects and platforms that are already operating, though it retains the capability to pursue greenfield developments when the opportunity arises, he added.

The firm’s Fund VI has already committed 30% of its capital to the acquisition of approximately 5GW of operating gas-fired power plants from Constellation Energy, Kapadia said. Coming as part of a string of divestitures required under the antitrust review for Constellation’s USD 26.5bn merger with Calpine, LS Power acquired a PJM-based power portfolio and a 606 MW Texas-based project from the energy company, as previously reported.

Looking ahead, the firm could also look at large, complex deals, similar to its Fund V investment in a portfolio of 44 different renewables projects Canadian-based utility Algonquin. The transaction involved projects across a dozen states, 5 power markets, 4 provinces in Canada, and two countries, Kapadia noted.

More broadly, Kapadia said Fund VI will continue to invest across three main subsectors: conventional power generation assets, renewables, and distributed energy resources

“We’ve never been busier,” Kapadia said, pointing to a robust pipeline of opportunities currently being evaluated by the firm’s private equity strategy.

The COO said distributed energy resources represent an increasingly attractive opportunity set.

“These distributed resources, like energy efficiency companies, demand response companies, will be important to manage this strain on the grid system going forward,” Kapadia said.

Electricity demand is growing more rapidly than supply can keep up, meaning there is significant supply/demand imbalance in the market, he added.

Kapadia contrasted data center construction timelines of roughly 12 to 16 months with the more than five years often required to build a new combined-cycle gas plant.

“There’s this tension in the marketplace,” he said.