Hedge fund Artis keeps growing

Artis Capital Management, a hedge fund that has invested in venture capital deals, has raised more than $361 million for proposed investment funds totaling $1.2 billion, according to regulatory documents.

Hedge funds in general continue to show interest in PE. For example, the second quarter saw AllianceBernstein do five deals and D.E. Shaw Group do four, while Tudor Investments has stepped up with four investments in the third quarter. Meanwhile, The Galleon Group, a $5 billion New York-based hedge fund, has committed $300 million to focus on pre-public, VC-style investments.

While hedge funds are drawing more attention in the PE market, they remain small players. As a group, hedge funds contributed to less than 5% of the venture deals done during the second quarter, according to a PE Week analysis of data gathered by Thomson Financial (publisher of PE Week).

Artis, which is based in San Francisco, has plenty of capital to become an even bigger VC participant. Recent regulatory filings show it has raised $59 million of a proposed $200 million for its Artis Partners fund from 76 investors; $253.8 million of a proposed $500 million for its Artis Partners (institutional) fund from 56 investors; and $48.4 million of a proposed $500 million for its Artis Partners 2X LP fund from 71 investors. (The filings don’t specify how each of the funds will be invested.)

For all the attention that hedge funds are devoting to private equity, Artis is one of the few that has scored major exits. It collected $60.5 million worth of Google stock when it sold YouTube in October 2006 for more than $1.6 billion in stock. Artis had participated in the startup’s $11.5 million Series B round in April 2006.

Artis scored again this year with the IPO of Aruba Networks (Nasdaq: ARUN). The wireless LAN company priced 8 million shares at $11 each at the end of March and the stock has since soared to $19 a share, putting the company’s market capitalization at about $1.46 billion. Artis set the terms of the company’s $19.3 million Series D financing in September 2005, a round that eventually swelled to $30 million in 2006. The firm set the company’s pre-money valuation for an unusually high $450 million, according to one source involved in the deal.

Artis has dipped its toe into the private equity market in the last several years, and it typically follows investments made by Sequoia Capital. (One of the Artis investors is David Lamond, the son of Sequoia Partner Pierre Lamond.)

Artis has invested in four private companies so far this year. It backed auto GPS company Dash Navigation in a $25 million Series B in February; alcohol-based fuel cell maker Oorja Protonics in a $15 million Series B in March; fabless semiconductor company Open-Silicon in a $10 million Series D, also in March; and enterprise software company SchemaLogic in a $12.7 million Series C in July.

Artis increased its holdings by $400 million during the second quarter, according to regulatory filings, hitting $1.91 billion in assets. Its largest holdings, as of the middle of May, were analog chip company Silicon Laboratories (Nasdaq: SLAB), in which it held shares worth $113.8 million; flash memory maker Sandisk Corp. (Nasdaq: SNDK), in which it held shares worth $105.6 million; and search company Google (Nasdaq: GOOG), in which it held shares worth $100.5 million.