A big player just moved into the PE ‘next-gen’ seeding world

  • Alaska, UK, Kuwait institutions form pool of capital
  • Will be managed by Wafra
  • First investment in Astra Capital

Astra Capital Management, formed by an ex-Carlyle Group executive, has been in the market with its first fund, targeting $250 million for investments in technology, media and telecommunications.

Late last year, Astra, co-founded by five executives including former Carlyle Managing Director Mark Johnson and former Grande Communications President Matthew Murphy, held a first close on about $138 million for its debut fund, an SEC filing shows.

The first close included a $100 million commitment from a new group in market focusing on backing new managers called Capital Constellation.

First-time and emerging firms represent a hot side of the market these days, with many limited partners looking for ways to form relationships with the top new shops.

Along those lines, several institutions have formed programs specifically to invest in emerging managers.

Capital Constellation is a program backed by Alaska Permanent Fund CorpPublic Institute for Social Security of Kuwait, the U.K.’s Railways Pension Scheme and global investment firm Wafra. The founders are committing an initial $700 million to support private equity and alternative managers and expect to deploy more than $1.5 billion over five years, a statement from the firms says.

The founders hope to invest in 10 to 12 alternative and PE managers over the next few years, Daniel Adamson, managing director of Wafra and president of Constellation, told Buyouts in an interview.

Constellation targets “next-gen” managers, which could mean a first-time fund, a repositioning of an existing business, or a need for acceleration capital in a fund that has LPs interested but sitting on the sidelines.

“We believe in the proposition of the alignment that a first-time fund manager or manager whose business is on the line [has with investors]. We believe that delivers alpha and outperformance and we want to access that,” said Russell Valdez, senior managing director at Wafra and founding board member of Constellation.

Strategies will include private equity, real estate, infrastructure, private debt and opportunistic, Valdez said.

Constellation’s mission is to assist new managers by providing strategic and operational support and an “aligned, substantial and long-term capital base,” the statement said.

Investments will give Constellation revenue streams through a share of management fees and carried interest, Valdez said.

“We take revenue shares in the businesses we seed, long-horizon revenue shares meant to align the ultimate customers for these products, which are us, with the success of the business,” he said.

In a sense, Constellation does not have an exit strategy, Adamson said.

“We view ourselves as long-term strategic partners to these next-generation managers. … As promising new managers, they need a significant amount of support in not just achieving their first close and demonstrating their investment excellence but also realizing their vision as entrepreneurs. Long-term revenue sharing aligns us with those managers on a generational time scale.”

The geographic dispersion of the founders gives Constellation a broad network of opportunity, said Steve Moseley, head of private equity and special opportunities for Alaska Permanent Fund and a founding board member of Constellation.

“It’s not a coincidence we have three continents represented. We think we have a collection of LPs that have complementary networks and some real critical mass when we team up,” he said.

The commitment to Astra is the group’s first investment. The partnership formed from existing relationships Astra has had with the Constellation founders, most recently with Wafra. Astra worked with Wafra Investment Advisory Group and other investors on the acquisition of Logix Communications (which renamed itself Logix Fiber Networks), which specializes in voice and data services.

“It’s nice to have a set of partners who are strongly committed to our effort early on,” Johnson said.

Update: This story was updated to state that Logix Communications renamed itself Logix Fiber Networks, and that Astra was co-founded by five executives.

Action Item: Astra team’s bios: www.astracapitalmgmt.com/our-team

Photo: Robert Redington, a rookie, competes in the official restart of the Iditarod, a nearly 1,000 mile (1,610 km) sled dog race across the Alaskan wilderness, in Fairbanks on March 6, 2017. Photo courtesy Reuters/Nathaniel Wilder