Government-focused Arlington Capital Partners seeks $3.5bn for sixth fund

New Mexico State Investment Council committed $75 million to Arlington Capital’s sixth fund, which is targeting $3.5 billion for its latest offering focused on government services, aerospace, defense and healthcare.

Managers focusing on government services could fare well despite macroeconomic headwinds and recession fears due to a steady stream of public funding for related industries. Pension systems, many of which have limited commitment amounts next year, may favor this sector as they eye potentially safer investments during a volatile time.

Arlington Capital managing partner Peter Manos told the New Mexico SIC his firm is uniquely positioned in the sector due to clearances it obtained allowing it to purchase strategic assets. Manos added that Arlington Capital faces very few competitors in the space.

Manos spoke at New Mexico SIC’s meeting on November 22. Buyouts watched a webcast of the meeting.

“We invest in industries and companies the government heavily regulates or is the biggest buyer. If you’re making a component to go into a jet engine for Boeing, you need various certifications and approvals. If you’re making an implant to go into a spine or a knee, you need FDA and other qualifications and that creates a real stickiness,” Manos said.

According to SEC documents filed in April, Arlington Capital is seeking $3.5 billion for the pool. The firm closed its fifth fund in 2019 on $1.7 billion.

Other LPs that placed commitments to Arlington Capital’s sixth fund include California Public Employees’ Retirement System, Teachers’ Retirement System of Illinois and Arkansas Teacher Retirement System.

CalPERS made the largest commitment at $300 million.

Manos said Arlington Capital’s strategy is to partner with founders looking to expand their businesses by adding “extensions” to platform companies.

Many of its exits are to strategic buyers, Manos said. He said its fourth fund already earned 1.25x in returns after its latest exit with seven companies left to sell.

Over 80 percent of its exits since the manager formed have been “north of three times” of what it paid for in cash, Manos said. “That speaks to our position as unique sellers and the domain knowledge we’ve gained over the years,” Manos said.

The commitment was New Mexico’s first to Arlington Capital, according to documents included in the board packet.

Richard Pugmire, a partner with consultant Mercer, said the $75 million commitment would further diversify New Mexico’s private equity platform.

According to its presentation to New Mexico SIC, Arlington Capital was established in 1999 and manages $4 billion of committed capital. The manager did not respond to questions seeking comment.

Arlington Capital portfolio company BlueHalo also recently announced it would construct a new campus in Albuquerque. New Mexico operates a robust in-state investment program to develop local industries and create jobs.