FS Investments Launches New Energy-Focused Total Return Interval Fund

Mar 27 2017 | 10:41pm ET

Alternative asset manager FS Investments has debuted its first closed-end interval fund in partnership with Chicago-based Magnetar Capital.

The new fund, named FS Energy Total Return Fund, seeks to generate attractive total returns by investing in the equity and debt securities of both public and private energy and energy infrastructure companies, according to a statement. FS Investments already manages more than $5 billion of energy and power assets, with a focus on directly originated private debt investments.

The new ’40 Act fund reportedly carries a flexible investment mandate across all energy sub-sectors and capital structures, a fund structure that supports a long-term investment horizon, and a differentiated investment process that aims to manage macroeconomic and commodity price risk. 

Magnetar Asset Management has been selected as the investment sub-adviser for the new fund, the company said. For more than ten years, Magnetar’s energy team has actively invested in the North American energy markets and manages approximately $4.3 billion of investor capital in private funds and institutional accounts.

Changing sources of energy supply, aging energy infrastructure, merger and acquisition activity in the sector, and commodity price volatility have created an attractive environment for investing in energy and energy infrastructure companies, the statement continued. 

“FS Investments looks for ways to help investors access alternative sources of income and growth in the market, and we believe the energy industry has great long-term fundamentals if you have the flexibility to invest selectively across the entire sector and capital structure,” said Michael C. Forman, CEO of FS Investments.

“We always seek to match a fund’s structure with its investment strategy,” added Mike Kelly, CIO of FS Investments. “FS Energy Total Return Fund has a broad investment mandate and while a primary focus of the fund will be in liquid equity securities, as an interval fund, it maintains the ability to invest in less liquid securities that have the potential for outperformance.”

A type of liquid alternative, interval funds are closed-end investment vehicles that post a daily NAV and only allow withdrawals at set times, usually quarterly, in order to mitigate the redemption risk associated with investing in high-yielding but potentially illiquid financial instruments. Unlike some liquid alts, interval funds are not listed vehicles and thus don’t trade a premium or discount to their NAVs. 

Founded in 2007 as Franklin Square Partners, FS Investments is designs alternative investments to help institutional, advisory and individual investors build better portfolios. Its solutions include business development companies, closed-end credit funds and operating companies. The Philadelphia-based firm currently manages six funds with over $19 billion in assets under management as of December 31, 2016.

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