New Funds: New Fund-of-Fund Comes to Market –

Attempting to break the traditional fund-of-fund structures and management fees, former University of Texas Investment Management Company private markets group team of Austin M. Long III, Craig J. Nickels, Charles Preston III and Jim Griffin, former vice president of The Carlyle Group’s internal fundraising group, have joined forces this month to form Alignment Capital Partners. The newly created fund will manage a uniquely structured fund-of-funds, which calls for eliminating the dual layers of fees and carried interest traditionally implemented with fund-of-funds, and also private equity fund-raising efforts.

“We got together because we all wanted to start a business, and so we sat down and drew something up on our board and it was obvious from that instant we had what is now Alignment Capital,” Long said.

The Alignment Fund LP, will have a minimum target capitalization of $300 million to $500 million and will invest in small-to-mid-sized private equity companies. Long, Nickels and Preston will lead Alignment Capital’s investment efforts while Griffin will head the firm’s fundraising efforts, which will also be targeted at the small-to-mid-sized private equity markets. International institutional and high-net worth families will make up the investor pool for The Alignment Fund LP.

The fund will invest in the software, telecom, information technology, health care and manufacturing sectors. Alignment Capital will be based in Austin, Texas with other offices in Washington, D.C., and Cupertino, Calif.

All For Co-investing

Co-investment is a substantial part of Alignment Capital’s strategy. “It is two lines of business that reinforce each other. At UTIMCO, we made every effort to be close to a cluster of small-to-middle market venture and buyout firms, and we would originate deals for them and invest alongside them with co-investments,” Long said. “But the idea behind all of this is to come up with a community of principals that is very tight-knit and that exposes us to a maximum quantity and quality of co-investment deal flow.”

“What we would like to create is as broad a universe globally as possible for GPs so that they can diversify their fundraising efforts,” said Griffin. “Some of these GPs have only U.S. exposure and we would like to draw them into the international pool of money (Latin America, Europe, Asia) and do things for them on the fundraising front that will enhance their deal flow and exposure globally.”

Griffin said Alignment Capital differs from other fund-of-funds currently in the market by offering the GPs deal flow, reasonable fundraising schedule and cost, and a lot of ancillary things that are all independent with placement agents or co-investment funds. “We bring an aligned structure to the GP that is A to Z,” he said.

However, because of the unusual structure of the fund, investors have asked it to be repeated to them the first time they hear or read about it, Long said. “But I think a lot of people are going to look at this model, particularly from the LP community, and say “that is a product that works” and I also think a lot of fund-to-funds will start gravitating towards our model.” Long also said Alignment Capital will focus on co-investments with private equity firms that manage anything from start-up ventures to true buyout funds like the Cortec Group and Brentwood Associates Private Equity Group.

Griffin Flies the Coop

Griffin said departure from the Carlyle Group was purely a business decision.

“Austin Long and his group had an investing relationship with the Carlyle Group for five or six years, and we have become very familiar with each other,” Griffin said. “Carlyle is a wonderful global investment group but when you have an asset like Austin Long and his team with a new strategy that moves down in an area that is currently underserved, it becomes very compelling to go out and start your own private merchant bank with a strategy you believe in.”

The line of communication between the Carlyle Group and Alignment Capital is definitely opened and it is very amicable, said Griffin. “They’re very supportive of both myself and the group and we would hope that we can share deal flows, find opportunities in the future to do transactions together and co-invest alongside them,” he said.

Under Griffin’s stewardship, the Carlyle Group was set to launch its third U.S. buyout fund with a target of $2.5 billion in September (BUYOUTS Sept. 13, p. 1). The Carlyle Group on Dec. 31 held a final close on $750 million for its first fund focused on investing in Asia within the telecommunications, industrial manufacturing, aerospace and health care (BUYOUTS Jan. 24, p. 10).