AUSTIN, Texas – Founded by the former private markets group team at The University of Texas Investment Management Co. (UTIMCO) and a former vice-president of internal fundraising at The Carlyle Group, Alignment Capital Partners was recently launched with a plan to focus on the small and mid-sized private equity markets, said Austin Long III, managing director. The firm is aiming for a first close on its $300 million to $500 million-targeted Alignment Fund LP by the end of the year, he added.
The vehicle will invest 60% of its capital into existing venture capital and buyout funds, which focus on small to mid-sized companies and generate co-investment deal flow. The remaining 40% of the vehicle’s capital will go toward co-investment opportunities. Long said he thinks Alignment will likely invest in the next funds raised by venture capitalists like Morgenthaler Ventures and Crescendo Ventures, and such buyout shops as Brentwood Associates Private Equity Group.
As a result of Alignment’s involvement with a number of different vehicles, its deal flow is disparate and not particularly focused, Long noted. “But at the moment we are seeing a lot of information technology, telecom and software deals,” he added, noting his specialty is health-care deals. Long said Alignment would invest between $10 million and $15 million into other funds, and between $5 million and $20 million in co-investment opportunities. If the vehicle closes on $300 million, it will invest in 10 to 15 funds and make another 10 to 15 co-investments, he said. The fund should have a two to three-year investment cycle, he added.
The new firm will seek to align the interests of its limited partners with the general partnership groups in which it invests directly and alongside. Alignment intends to achieve this goal by raising funds and finding deals for GP groups with which it works. From his tenor at UTIMCO, Long said he has close relationships with approximately 20 GP groups. He declined to identify the groups. “We believe this will tighten our relationship with these GP groups, while bringing them good deal flow and in turn generating good returns for our investors,” he explained.
Alignment will likely do fund raising for about three GP groups a year, he said. The firm will charge a fund raising fee of 1%, which Long described as a below market price fee. Half of the fund raising fee will be paid in cash and invested in Alignment’s own fund, while the other half will be taken as a LP interest in the vehicle for which Alignment raised funds. Long said that two GP groups are currently considering having Alignment raise funds for their vehicles. He declined to identify the groups.
Alignment’s fund will have a management fee under 1%, Long said. “It will be in the 80 basis point range,” he added. Alignment’s participation in the vehicle’s carried interest will be less than 10% on both the investments made in other funds and on direct co-investments, he added.
Long declined to reveal any potential LPs for the fund. He said Alignment has been talking with a range of institutional investors and high-net-worth individuals as potential investors. In addition to Long, Alignment’s founders include Craig Nickels and Charles Preston III from UTIMCO and James Griffin, Jr. from The Carlyle Group.