FORT WORTH, Texas -- The investment management arm of American Airlines Inc. has begun marketing a private equity fund of funds to outside investors, said William F. Quinn, president of AMR Investment Services.
AMR plans to raise $100 million initially by targeting middle-market clients and bank trusts. Around 80% of the assets will go to four partnerships that AMR has been investing with for American's private equity portfolio: Hicks, Muse, Tate & Furst Inc., Dallas; Castle Harlan Inc., New York; Evercore Partners Inc., New York; and Fremont Partners, San Francisco. A fifth fund may be added later.
"We decided to open a private equity fund of funds because it's hard for smaller funds with only a few million to invest in the asset class to access some of the top partnerships," Mr. Quinn said.
The fund of funds will work the same way as the other investments AMR offers to outside clients through its American Advantage Funds, launched in 1987. "Those all replicate what we do for our own $6 billion defined benefit plan, using the same managers that we use," he said.
Several AMR clients had asked if there would be a way for them to participate in some of AMR's private equity partnerships, Mr. Quinn said, which led to the launch.
Currently AMR's private equity investments amount to $600 million to $700 million divided among 12 partnerships. "We believe we're in some of the best funds, and that we can give our clients access and diversity to private equity through a fund of funds. Smaller funds can't get the diversity they need if they have only $2 to $3 million to invest," Mr. Quinn noted. AMR does not invest in any funds of funds, only in individual partnerships.
The fund of funds, overseen by Mr. Quinn and Nancy Eckl, vice president trust investments, is slated to close in late April or early May. AMR is training staff and expects to add four people to work on administration, sales and analysis. The fund of funds will invest in partnerships that will be coming back to market with new funds scheduled to close in 2001.
The fund of funds will focus on buyouts and avoid venture capital, because AMR hasn't invested much in that area, Mr. Quinn said. "We want to do what we do well."
Despite the recent volatility in the stock market, he said he is not worried about his partnerships finding private equity deals.
"We believe the volatility will create a lot of great investment opportunities," he said.