The once proud name of American International Group has taken a hit of late. Bid rigging and price fixing charges, allegations of fraud, and federal security law violations have all conspired to sink the company’s stock price, which in turn has put AIG in the crosshairs of some of the nation’s biggest institutions.
California State Teacher’s Retirement System and California Public Employees Retirement System have alleged that AIG’s missteps have cost the two pensions around $400 million in stock losses, while Ohio’s attorney general has launched a class action suit against the company on behalf of The Ohio Public Employees Retirement System, State Teachers Retirement System Ohio and the Ohio Police & Fire Pension Fund.
Meanwhile, even as AIG’s private equity arm has been untouched by the allegations surrounding the parent, the group has seen the tranquility of its cloister disrupted when AIG Capital Partners, a fund of funds within AIG’s Global Investment Group, endured a shakeup of its upper management (see story, page 4).
But there is one PE group within AIG appears to be unfazed by the fires encircling it, as AIG Highstar Capital, AIG’s infrastructure fund, has been maintaining a “business as usual” stance amid the turmoil. The group recently took part in the $1.75 billion purchase of InterGen NV, and according to filings with the SEC is looking to raise $750 million for its follow up vehicle.
But while the dealmaking should continue as long as there is money to dispense, as the firm embarks on a new fundraising drive it remains to be seen if the new AIG Highstar fund will feel the institutional pinch because of its “AIG” surname going forward.
According to one limited partner, this will not likely be the case. The source states that as “sophisticated” investors, most LPs are not just out shopping for brands, and would not be expected to be turned off by the actions of the group’s parent. “It’s the team that counts, not the company,” the source states, adding, “I’ve worked with these guys for a long time, and clearly AIG is not an Enron type of situation.”
Even those that are getting ready to battle AIG in the courts won’t preclude themselves from investing in an AIG fund in the future. Brad Pacheco, a spokesman for CalPERS, told Buyouts that AIG’s inclusion on CalPERS’ “Laggard’s List” only pertains to “what’s going on with the company and [CalPERS] as a public stock holder.” But he does note, “I can’t say completely that CalPERS would not invest in an AIG fund, but our staff would take a closer look at it before making an investment.” CalPERS, for the record, has not invested in any of AIG’s private equity offerings in the past.
The fund’s stated target would imply that AIG Highstar also does not anticipate any reservations from prospective investors, as it represents a fairly significant jump from its $407 million predecessor fund. After having been on the market for more than a year, Fund II has lined up $226 million of committed capital, which follows a previous $90 million close held last May, according to SEC filings.
AIG’s private equity groups have relied on institutional support in the past, and representative limited partners from other AIG funds include the University of Richmond, TIAA-CREF, the University of Michigan, South Dakota Investment Council and Ohio State Teachers, which is taking part in the class action lawsuit against the company.
According to the filings submitted with the SEC, investors in AIG Highstar’s latest fund so far include Principal Life Insurance Co., Everest Reinsurance Co., Mars Retirement Trust, Alberta Investment Management, Kamil Holdings Ltd., and Stichting Pensioenfonds TNO.
The company has been involved in private equity since the sixties and since that time has built itself a franchise in the space. Its Global Investment Group has raised over $10 billion for 28 direct PE funds, and the firm also has three funds of funds and has separately set aside roughly $1 billion allocated for its Direct Investments Group.
AIG declined public comment for this story.