Constitution Capital Takes Lucrative Phone Call

Constitution Capital Partners didn’t set out to raise a $750 million captive fund. In fact, the Andover, Mass.-based funds-of-funds manager didn’t even make it to market with its fundraising plans.

Constitution Capital, formed earlier this year by veterans of Standard Life Investments Private Equity USA, was just beginning to draw up its first prospectus when Britain’s second-largest pension fund called in a bolt from the blue. Universities Superannuation Scheme, or USS, was actively scouring the market for international allocations and liked Constitution Capital’s strategy and seasoned team.

After months of negotiations and diligence, Constitution Capital last month announced USS’s $750 million commitment. The deal includes a $600 million capital commitment and a $150 million warehouse line. Further, USS gets a 10 percent stake in Constitution Capital’s management company. USS’s stake in the warehouse line may be replaced with other limited partners in the future.

The strategy that attracted USS hasn’t drifted over the 12 years Constitution Capital’s professionals worked together. As they did at Standard Life, Constitution Capital’s portfolio managers plan to focus on growth-oriented buyout funds ranging in size from $250 million to $2.5 billion. On the co-investment side, the firm expects to deploy $10 million to $45 million in companies valued between $100 million and $1 billion.

Even though Constitution Capital’s financial firepower is new, the firm already has deals in the pipeline. Before attempting to raise money, the firm’s partners plotted ways to deploy it, meeting with GPs on their own dime. “The [buyout firms] were giving us information on their funds but were scratching their heads a little bit,” said Daniel Cahill, a managing partner at Constitution Capital. “They were all asking, ‘Well, OK, but with what money?’”

But researching funds in advance created a seamless and quick transition as the partners moved from Standard Life to Constitution Capital. “Even though we just received the commitment, we’re able to begin deploying it right away,” Cahill said.

The firm plans to make three to four commitments and three to four co-investments over the next two months. Constitution Capital has evaluated funds raised by American Capital Strategies, Avista Capital Partners, Nautic Partners, Sun Capital Partners, Towerbrook Capital Partners and Wind Point Partners. The team at Constitution Capital has so far made three co-investments alongside Avista Capital.

The initial pool of capital will be deployed over a three year time period. For now, the focus is on North American funds, but in two to three years, the firm expects to begin committing to European funds, Cahill said.

Cahill and his partners bolted from Standard Life Investments in October following a dispute over profit-sharing. Specifically, parent company Standard Life agreed to partially spin its funds-of-funds team out into an independent firm called SL Capital and sell a 40 percent ownership stake to nine managers. None of those managers, however, was part of Standard Life Investments’s Boston-based team, which managed a $300 million mid-market fund of funds. The managers were instead in Edinburgh.

Before Standard Life, Cahill and his team built a similar funds-of-funds program for State Street Capital.