By Jonathan Shieber
NEW YORK--Riverstone Holdings is approaching a $4.5 billion
close for its $6 billion fifth energy-focused private equity fund
at the end of July, putting to rest any questions about the firm's
ability to attract capital after its 2009 run-in with the New York
Attorney General's Office.
According to one person familiar with the effort, Riverstone has
already closed on over $3 billion, and expects to hold another
close of $1.5 billion by the end of July. The firm began raising
its fifth fund in December 2011.
Pension funds that have already committed to the firm's fifth
vehicle include the Kentucky Teachers' Retirement System, Teachers'
Retirement System of the State of Illinois, New Mexico Public
Employees Retirement System, and the Delaware Public Employees
Retirement System.
Since late last year, Riverstone has presented investors with a
persuasive argument for reinvestment thanks to exits like the
firm's three times return on its investment in Kinder Morgan Inc.
(KMI); the 3.7 times return on its investment in Dynamic Offshore
Resources LLC, and its 4.9 times return on the firm's investment in
TSI Acquisition Holdings LLC.
While some investors are eager to get in to Riverstone's latest
fund, there are a few large limited partners who are not willing to
overlook the fines the firm and its founding managing director paid
as part of a 2009 New York State Common Retirement Fund pay-to-play
investigation.
In June 2009, Riverstone paid $30 million in a settlement
related to criminal investigations of influence peddling whereby
pension fund money was invested with funds that hired specific
placement agents who had ties to government officials.
Separately, in December 2009, Riverstone Managing Director and
co-founder David Leuschen agreed to pay $20 million for his
involvement in the corruption investigation. Leuschen had made a
$100,000 investment in "Chooch," a film produced by the brother of
David Loglisci, a former official at the New York State Common
Retirement Fund, who had been charged in the investigation.
According to people with knowledge of the situation, part of that
payment was made by the partnership as well. Loglisci pled guilty
to securities fraud on March 2010.
Gov. Andrew Cuomo, formerly New York's attorney general, had
alleged that Riverstone's joint venture with the Carlyle Group LP
(CG) had retained a company associated with one of the defendants
in his case to help receive investments totaling up to $530 million
from the New York fund. The joint venture paid the company more
than $10.6 million for its services.
For some limited partners, like the Oregon Public Employees
Retirement System, the payments, and the departures of some
managing directors, have been reason enough to hold off on making a
commitment to the firm, according to people with knowledge of the
situation.
"There are some funds that are concerned about the headline risk
for sure," said one person familiar with the firm's fundraising
plans. "The real issue is whether something that transpired and was
settled three years ago ought to be a continuing issue with the
market."
"A lot of LPs view it as old news and as water under the
bridge," the person said. "My sense is that they'll get their fund
done. From an energy investment perspective they're really
good."
(Dow Jones LBO Wire covers buyout and growth equity deals, as
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Write to Jonathan Shieber at jonathan.shieber@dowjones.com.