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American Capital raises $1bn PE fund

HarbourVest, Lexington Partners and Partners Group have invested in the Nasdaq-listed buyout firm’s new fund.

American Capital Strategies, a publicly-listed buyout firm, has raised a $1 billion (€789 million) private equity fund. Investors in the new fund were led by HarbourVest Partners, a Boston-based global fund of funds group. Lexington Partners, a New York-headquartered global secondaries investor, and Partners Group, a Swiss alternatives investment group, also committed capital to the new fund.

“This transaction allowed us to access for the first time a set of global investors with significant funds and expertise dedicated to private equity,” American Capital chief financial officer John Erickson said in the press statement. “This gives us an additional source of capital to fund our business and increases our flexibility in how and when we raise capital.”

In creating American Capital Equity I, the Bethesda, Maryland-headquartered firm is selling $670 million of equity to the new fund, in addition to raising $330 million of undrawn commitments for future equity investments to be made by American Capital, according to the statement. The $670 million will be directed toward reducing American Capital’s existing obligations under its revolving credit facilities.

The new fund will acquire roughly 30 percent of American Capital’s equity stakes in 96 portfolio companies, with the combined cash purchase price of $670 million. The remaining $330 million of American Capital Equity I will be used to invest in 30 percent of each private equity investment made by American Capital in the US.

Managing the new fund is American Capital Equity Management, a wholly-owned affiliate of America Capital. A two percent management fee will be charged on the net cost basis of the assets acquired by the new fund, as well as carried interest of 10 to 30 percent, subject to a hurdle rate.

“This transaction significantly expands our asset management business and will more than double the amount of third-party assets under management to approximately 15 percent of our total internally and externally managed assets,” American Capital’s chairman, president and CEO Malon Wilkus was quoted in a press statement. “As a result, our asset management fee income will grow substantially.”

With the new fund, American Capital now has two funds under management. The other fund, European Capital Limited, was created in 2005 with $2.4 billion of third party capital under management.

According to the press release, American Capital manages an approximate total of $10.7 billion in total capital commitments, including $900 million of undrawn capital commitments. The Nasdaq-listed firm provides senior debt, mezzanine debt and equity for growth, buyout, recapitalisation and securitisation transactions, and it invests between $5 million and $500 million per company. Wilkus recently told PEO that its European Capital affiliate will soon open offices in Frankfurt and Madrid, expanding its European franchise beyond its initial London and Paris footholds.