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Alternatives

3 asset owners team up for alternatives joint venture

The Alaska Permanent Fund Corp., The Public Institution for Social Security of Kuwait and RPMI Railpen are making a combined initial $700 million commitment to launch a joint venture that will invest in new private equity and alternative investment managers.

Wafra Group, which is owned the Kuwait entity, is the investment manager for the joint venture.

Over the next five years the venture, called Capital Constellation, expects to invest a total of $1.5 billion from the original partners and possibly other asset owners.

Alaska Permanent Fund Corp., the Juneau-based $65 billion sovereign wealth fund, and RPMI, which manages the assets of the 28 billion ($38 billion) Railways Pension Scheme, London, are committing $200 million each, said Stephen Moseley, director of private equity and special opportunities at the Alaska Permanent Fund.

The more than $100 billion Public Institution for Social Security of Kuwait is committing $300 million, Mr. Moseley said.

The $700 million "is the initial capital. We like to seed firms with at least $100 million of capital and we plan to put together a diverse portfolio of at least 10 promising private equity and alternative investment (general partners) over the next five years, which would bring us to $1.5 billion in equity capital," said Daniel Adamson, New York-based managing director of Wafra and president of Constellation, in an interview.

In exchange for sharing its expertise with the new private equity and alternative investments firms, Constellation will receive a portion of the firms' revenues, said Russell Valdez, senior managing director of Wafra and a founding board member of Constellation, in the same interview.

"What we are trying to solve for is the challenge emerging managers face in raising capital and getting to the scale necessary to demonstrate the quality of their investment sourcing and execution," Mr. Valdez said. "On our side we do this through a combination of large commitments as a limited partner and revenue-sharing agreements."

Mr. Moseley said the unique partnership will help the Alaska Permanent Fund's relatively small alternatives staff invest in emerging private equity and alternative investment firms.

"We believe that first-time funds can perform well," he said.

"However, due diligence when investing in new managers is particularly important and extremely labor intensive," Mr. Moseley said.

"It's an unusual situation too," he said. "We have heard lots of institutional investors talk about a desire to team up with others … This is an area where there is a clear benefit connected with the teaming up."

The investment is also "scalable" in that Alaska Permanent could potentially co-invest with the emerging managers or make additional commitments to their funds, Mr. Moseley said.

Alaska Permanent's private equity and special opportunities portfolio accounts for up 13% of the sovereign wealth fund.

Constellation already has made its first investment — $100 million — to the first fund of Astra Capital Management, a private equity manager specializing in growth buyouts in the communications and technology services industries.