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AIG Highstar Capital III closes with USD3.5bn in capital commitments

AIG Highstar Capital III has closed with capital commitments of USD3.5bn, more than 90 per cent of which have been sourced from non-AIG-affiliated investors, principally a diverse group of

AIG Highstar Capital III has closed with capital commitments of USD3.5bn, more than 90 per cent of which have been sourced from non-AIG-affiliated investors, principally a diverse group of pension plans, endowments, financial institutions and family investment offices.

Highstar III is focused on high value-added investment opportunities in the infrastructure sector that possess significant downside protection and attractive upside potential. The investment management team comprises Highstar founder and managing partner Christopher Lee and partners Michael Miller, John Stokes and Michael Walsh, backed by 15 investment professionals in New York and Houston.

Because infrastructure investing typically involves critical public services, Highstar is experienced in working closely with regulators, public officials, local communities, management, employees, and customers in addition to its investors and lenders.

Since Highstar and AIG began their partnership in 2000, the firm has made investments totalling more than USD10bn in enterprise value in US and international power generation, natural gas storage and transportation, water and waste water treatment and distribution, waste-to-energy and waste management, transportation logistics and port operations businesses. Highstar currently manages a portfolio of assets valued at more than USD3bn.

Merrill Lynch and AIG Equity Sales acted as placement agents for Highstar III and Debevoise & Plimpton is the fund’s legal counsel. At the end of September, the fund had made investment commitments totalling USD2.4bn, including USD800m currently reserved as co-investment opportunities for the fund’s limited partners.

The investment portfolio includes Ports America (formerly P&O Ports North America), which was acquired from Dubai Ports World in March, and two other US-based port operators, Amports and MTC Holdings. Highstar believes these investments collectively comprise the largest and most experienced independent port operator and automotive import/export processor in the US.

Highstar III also controls two vertically integrated waste management businesses in the south-east and north-east US through Star Atlantic Waste Holdings and is a significant investor in the Kinder Morgan management buyout.

‘In 2000, when we closed our first fund, infrastructure was a nascent asset class for private equity investing,’ Lee says. Today, infrastructure investing is a critical component of a successful and diversified alternative investment strategy, given its low correlation with other asset classes and relative stability of cash flow over time.

‘I believe that closing Highstar III at nearly twice our initial size target and more than four times the size of AIG Highstar Capital II, which closed in June 2005, demonstrates the quality of the Highstar franchise and our proven and successful investment track record over the past seven years.

‘In addition to being significantly oversubscribed, we closed Highstar III within nine months of its launch and had a reinvestment rate of more than 90 per cent from limited partners in our prior fund, many of whom significantly upsized their investment commitments with us.

‘The success of the Highstar III fundraising exercise also demonstrates the benefits to Highstar and our investors of our partnership with AIG, which has provided us with significant incremental financial resources for our funds, including bridge equity and guarantee capacity.’

Robert T. Thompson, a senior managing director and global head of alternative investments at AIG Investments, adds: ‘We are extremely pleased with Highstar’s continued leadership in the infrastructure industry.

‘The combination of a highly experienced private equity team, industry insight and relationships, plus the depth and breadth of AIG’s resources, has enabled Highstar to deliver top-quality results for our limited partners in the three funds to date.’

AIG Investments, the asset management arm of American International Group has extensive capabilities in equity, fixed income, hedge fund, private equity and real estate investments; its member companies managed more than USD740bn in assets and employed more than 2,000 professionals in 44 offices worldwide at the end of September.

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