AIG Closes $700M Co-Investment Fund

Firm: AIG Global Investment Group (AIGGIG)

Fund: AIG Co-Investment Fund L.P.

Target: $500 million

Amount raised: $700 million

Legal counsel: Paul Weiss

At a time when limited partners are increasingly seeking and exercising co-investment rights, it makes sense that co-investment funds would increase across the board. The latest group to raise a dedicated co-investment fund is AIG Global Investment Group (AIGGIG), which closed its premier dedicated co-investment fund, AIG Co-Investment Fund, with a total of $700 million in commitments.

The fund had $664.4 million in capital commitments from outside investors, with the remainer coming from the AIG Employee Retirement Plan bringing the total of the fund to $700 million. The firm says it started fund raising with a goal of $500 million and quickly raised the cap. When AIG filed documents with the SEC in September 2005 to document a close on $357.6 million, the fund’s cap was listed as $700 million. The firm held another closing last November with a total of $576.4 million.

Managing Director F.T. Chong, who heads AIGIG’s direct investments group, says that AIG could have closed on $1 billion, but kept the fund smaller. “One of the things we try to tell people is that we will maintain our selectivity and our discipline in our approach,” say Wong. “Even though based on the volume of deal we could do $1 billion, [$700 million] was a conservative cap on our part.”

Limited partners in the fund include pension funds, insurance companies, banks and family offices from the United States, Europe and Asia. Chong declined to name any of the LPs in the new fund, but says it included many existing AIG clients as well as a few significant new additions, particularly government pension funds from Europe and Asia. Limited partners in past AIG funds include the Connecticut State Treasurer, John Hancock Mutual Life Insurance Co., Ohio Public Employees Retirement System and United Parcel Service of America.

The fund invests in a mix of middle-market and large buyout deals. Chong says that approximately 70% of the fund’s deals will be in the United States and the remaining 30% of the deals will be divided opportunistically between Europe and Asia. The portfolio will eventually have between 25 and 30 companies in it. Chong expects that the four-year investment period will see 30% of its investments made every year for the first three years, with the remaining 10% of the fund invested in the last year.

So far the co-investment vehicle has closed on 11 deals, including recent buyout deals involving Acosta and JetDirect Aviation. Two more deals are expected to close by the end of Q3. Chong says that while AIG has co-invested in such giant deals such as Hertz and SunGuard, it would also have a substantial presence in the middle market.

The fund will invest across various sectors including business services, consumer products and services, financial services, pharmaceuticals, media and entertainment and publishing.

AIG suffered a large potential setback last year with the indictment of Managing Director David Pinkerton (see Buyouts, Oct. 17, 2005). Pinkerton was indicted by a federal grand jury on charges of conspiring to bribe government officials in Azerbaijan. Pinkerton pleaded “not guilty” to the charges. Pinkerton is listed as being on “indefinite administrative leave” even though he is listed as a GP on the co-investment fund’s SEC documents. The Pinkerton indictment was the last in a string of setbacks AIG suffered last year, which included the dismissal of two emerging markets managers after disagreements over a buyout of its global emerging markets, the departure of AIGGIG president and CEO Cesar Zalamea and the firing of Taipei-based managing director for “trading improprieties.”

Chong credits AIG’s tradition as a consistent co-investor with its ability to raise its fund. “We’ve invested very consistently through up and down and hot and cold periods,” says Chong. “This is probably a more robust time than the past few years, but we have always steadily invested through the cycles. We aren’t timing the market any.” — M.S.