American Capital to raise debut LBO fund

American Capital Strategies, the publicly traded business development company, is seeking to raise its first LBO fund organized as a private limited partnership, as first reported by Buyouts magazine, an affiliated publication of PE Week.

To spearhead the effort, the Bethesda, Md.-based company has hired Jim Griffin Jr., who previously held fund-raising positions with The Carlyle Group, Veritas Capital and Questor Management Co.

American Capital has not yet announced a target for the fund, nor has it begun officially marketing the vehicle. American Capital declined to comment for this story.

American Capital has raised private funds before, but previous funds have served essentially as secondary vehicles. For example, the firm last year raised a $1 billion pool from limited partners to buy an interest in American Capital’s existing and future portfolio.

Its most recent fund, a $585 million pool that closed in October and anchored by AIG, purchased a 17% interest in 80 portfolio companies already owned by American Capital. An American Capital subsidiary manages the fund, collecting a 2% management fee and carried interest ranging between 10% and 30 percent.

The firm set aside $97 million of the fund’s equity to finance add-on acquisitions for the portfolio.

The new fund would be different. It would function as a more traditional LBO vehicle that buys, holds and exits companies.

American Capital would have the option to contribute to deals by kicking in capital raised through the public market. Malon Wilkus, the firm’s founder and CEO, had previously praised the efficiency of the public markets, arguing that it’s cheaper to raise money through stock offerings than from hitting up LPs for private funds.

The firm began seeking private money, however, after Wilkus determined that the fee income generated by managing the funds would help stabilize American Capital’s stock price and boost the company’s valuation by public shareholders, according to a March article in Forbes magazine.

“As we grow our alternative asset management business, we hope to obtain a valuation comparable to our asset management peers, which should provide significant value creation for our shareholders,” Wilkus said in a statement issued in February, shortly after Fortress Investment Group went public.