Kayne Anderson Capital Advisors has begun raising a new investment vehicle dedicated to U.S. oil and gas production, bucking the trend of private equity firms fleeing the sector because of its financial volatility and environmental concerns, people familiar with the matter said on Wednesday.

The alternative asset manager started marketing to investors last week Kayne Private Energy Income Fund III, aiming to secure $1.5 billion to buy and develop businesses generating steady cash flow from established production sites, the sources said.

The sources spoke on condition of anonymity to discuss confidential information. Kayne Anderson declined comment.

The 'income fund' approach to investing in the U.S. shale industry has gained traction in recent years as a way to earn returns from energy production without the risk associated with building a business from scratch on unproven oil and gas reserves.

The latter approach, popular among private equity firms during the height of the shale boom in the mid-to-late 2010s, left many with huge losses.

Los Angeles-based Kayne Anderson is hoping that Kayne Private Energy Income Fund III will replicate the success of its previous two energy income funds.

Closed at the start of 2020, the predecessor fund generated the equivalent of an 41.5% internal rate of return as of the end of March, according to the website of the San Bernardino County Employees' Retirement Association, one of the investors. That fund had raised $1.7 billion, and Kayne Anderson's first fund garnered $1.55 billion in 2016.

The fact the new Kayne Anderson fund is smaller than the two previous vehicles also reflects the challenge of raising money for oil and gas assets when more investment portfolios are compiled based on environmental, social and corporate governance (ESG) principles that are hostile to the sector, the sources said.

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