PineBridge's Costabile looks to debt funds

The head of private equity funds of funds at the former AIG Investments said this morning the rebranded firm is bracing for the after-effects of a ‘false dawn’in the economy.

The former private equity funds of funds business of AIG Investments, now part of the newly rebranded firm PineBridge Investments, will spend 2010 investing in debt strategies and preparing for fundraising.

Steve Costabile, who runs the private equity funds of funds at PineBridge and formerly at AIG Investments, declined to provide specific details of the fundraising plans.

Costabile, speaking at a PineBridge presentation Thursday morning, said some of the best opportunities in private equity this year will be in growth investments in the small mid-market. “That’s where the best opportunity is now,” he said. A marketing document circulated at the meeting indicated that PineBridge will be “laying the groundwork for our next global growth and small mid market initiative”.

Looking to

The document indicated that PineBridge’s fund of funds team believe “mezzanine debt and rescue capital” have the best risk-adjusted return profile right now.

The firm will look to invest in debt-focused funds of at least $500 million, “because in our view the real opportunity is with managers who have scale and are targeting better franchise companies, from a credit perspective, which are more commonly seen in companies with at least $20 million of EBITDA”, the document said.

PineBridge’s press breakfast Thursday was designed to re-introduce the firm and many of the executives. PineBridge was formed after Hong Kong billionaire Richard Li agreed to buy AIG’s asset management units that are part of AIG Investments for $500 million last year. The deal has not closed, but could be finalised by the end of January, Win Neuger, PineBridge’s chief executive officer, said at the meeting. “Within the next six weeks I hope,” he said.

PineBridge’s chief economist, Markus Schomer, said during the meeting that some of the major drivers of growth in the past months, like the government stimulus, will start to fade later this year. “The financial condition will become less bullish in the second half of the year,” Schomer said.

PineBridge’s private equity executives also will be spending time tending to portfolio companies, keeping them prepared for another possible downturn in the economy that could hit later this year, Costabile said.

“I’m concerned that what we’re seeing is a false dawn in the equity markets … you can’t distinguish between what the drivers [of the recovery] are and what is stimulus,” Costabile said. “We don’t want [portfolio companies] positioning for growth and getting caught” in a downturn.

The sale to Pacific Century Group, controlled by Li, represents a portion of AIG’s asset management and investment advisory business that includes private equity, hedge funds of funds, fixed income and listed equities. The portion of the business being sold manages $88.7 billion in assets across a range of AIG-branded funds including private equity funds of funds AIG Private Equity Portfolio, AIG Asia Infrastructure Funds, AIG African Infrastructure Fund and AIG Altaris Health Partners.

The sale is part of AIG’s efforts generate capital to pay back the US government, which has lent the company about $183 billion. As of November, AIG had spent about $83 billion of the government bailout money.