LONDON - AIG Capital Partners Inc., New York, and Credit Suisse First Boston Private Equity, London, are raising money for international private equity funds.
AIG is looking to raise up to $1 billion for a Global Emerging Markets Fund investing in a fund-of-funds of in direct equity. Credit Suisse First Boston is looking to raise $500 million to $600 million for its International Private Equity Fund.
Both firms are reluctant to reveal too many details at this stage. AIG officials said the fund was not registered with the Securities and Exchange Commission and thus they could not comment.
However, Robert L. Howe, a senior portfolio officer with AIG, told a recent conference in Barcelona that the first closing for the GEM Fund would take place by the end of July, by which time he hopes to have raised at least $500 million. He declined to name any of the investors, although he said AIG would invest about $300 million of its own assets.
At the same conference, Andrew Reicher, an executive director with CSFB in London, revealed the International Private Equity Fund would invest in established companies around the world, excluding the United States. He added the bank already had committed $150 million of its own money in an effort to woo potential investors.
While Mr. Reicher declined to name any of the investors in the CSFB fund, he observed that large U.S. corporate pension funds such as AT&T Corp. and General Motors Corp. recently had shifted their emphasis to direct private equity investing.
Broadly speaking, direct equity investing involves taking stakes in companies that aren't publicly listed, such as in venture capital and managed buy-outs.
Institutional interest in the United States, where $32 billion was raised last year alone, dwarfs that of other regions, according to estimates by CSFB. Europe accounted for $5.3 billion, while Asia invested $5 billion and Latin America, $1.6 billion.
U.S. plan sponsors long have been involved in domestic direct equity ventures, but some are now looking further afield, in pursuit of double-digit returns as returns in public securities are expected to decline below 10%.
"There's increasing interest in international direct equity investing and emerging markets is a sliver of that," observed Hal Strong, managing director at Frank Russell Capital Inc., a Tacoma, Wash.-based private equity specialist.
The growing appetite for international private equity is visible elsewhere. In May, London-based Schroder Ventures launched the largest private equity fund outside the United States, successfully raising $1 billion for its Schroder Ventures European Fund. The fund tapped 34 investors in North America, Europe and Japan and will invest in European businesses that are newly privatized or restructuring.
AIG's GEM Fund will be an umbrella fund that invests in a number of regional subfunds AIG is still setting up, Mr. Howe said.
These subfunds will mirror AIG's existing range of regional funds such as the Asian Infrastructure Fund, the China Retail Fund and the Latin American Infrastructure Fund, he said. The funds often are run in conjunction with local partners. The latest addition to its stable is a fund investing in the former Soviet republics of Central Asia called the Silk Fund.
The Global Emerging Markets Fund also will invest in funds managed by third parties.
Global asset allocation ranges will be 40% to 50% in Asia, 25% to 40% in Latin America, 20 to 35% in Central and Eastern Europe and up to 15% in other countries such as the Middle East and Africa.
No one country will have more than 20% of total assets allocated to it, Mr. Howe added.
The fund's structure is designed to be as flexible as possible with a Delaware-based limited partnership for U.S. investors and a limited liability company based in Bermuda for foreign investors. There's a single fee of 2.5% per year and a minimum investment of $10 million.
CSFB's International Private Equity Fund, meanwhile, will invest chunks of $10 million to $100 million in established companies it considers capable of establishing significant market share or sustainable competitive advantage, said Mr. Reicher.
The fund has a minimum investment size of $25 million and will charge a management fee of 2% a year, he added. Investors committing at least $25 million to the fund will receive co-investment rights on deals exceeding $50 million.
CSFB will get 20% of profits after a hurdle rate to investors of 9% a year is achieved. CSFB officials anticipate internal rates of return of at least 30% a year.
At the same conference, Mr. Reicher noted the firm's "weak points." For one thing, CSFB has a relatively short track record in the asset class and its team has not worked together for an extended period, he said.
What's more, he acknowledged conflict of interests questions exist. Some pension funds are worried a fund would do deals brought to it by the firm's merger and acquisitions department, he said.
While international private equity investment is increasingly popular in the United States, particularly among pension funds, private banks and insurers, it has met with less enthusiasm in Europe.
Gary Steinberg, head of investments for British Petroleum Co. PLC's (British pounds) 8 billion pension fund in London, for example, said while international private equity was something his fund would look at in the future, it now had no more than (British pounds) 10 million invested in the asset class.
Furthermore, Mr. Steinberg would be highly cautious about investing in emerging markets. "I'm sure the returns are there, but we have to be cognizant of the level of risk that is acceptable to the trustees" he said.
Joel Chernoff contributed to this story.
