Proposed Investment in American Industrial Partners Capital Fund V

Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Investment in American Industrial Partners Capital Fund V

The New Jersey Division of Investment (“Division”) is proposing an investment of up to $100 million in American Industrial Partners Capital Fund V (“AIP”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

The Division is recommending this investment for a number of reasons. The AIP team consists of experienced investment and operating professionals with a majority of the partners working together for 10 or more years. This strong team allows AIP to focus on complex transactions and companies with operational challenges. Fifty percent of their transactions have been sourced on a proprietary basis. The team has been able to add value to their portfolio companies by implementing cost reductions through meaningful operational improvements, rather than relying on financial engineering to generate returns. EBITDA has doubled, on average, during AIP’s ownership of portfolio companies.

All this has resulted in top quartile performance in their recent funds. A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.

Division Staff and its private equity consultant, Strategic Investment Solutions, undertook extensive due diligence on this proposed investment in accordance with the Division’s Alternative Investment Due Diligence Procedures.

The fund utilized MVision Private Equity Advisers (the “placement agent”) as third-party solicitor in connection with the potential investment. Staff has determined that the placement agent and its representatives met the registration, licensing and experience requirements set forth in the Division’s Placement Agent Policy (the “Policy”). Pursuant to the Policy, the fund has disclosed the contract between the fund and the placement agent, specifying the scope of services to be performed by the placement agent and the fee arrangement between the placement agent, the general partner and any other third party.

We will work with representatives of the Division of Law and outside counsel to review and negotiate specific terms of the legal documents to govern the investment. In addition, the proposed investment must comply with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4).

Please note that the investment is authorized pursuant to Articles 69 and 90 of the Council’s regulations. The American Industrial Partners Capital Fund V will be considered a “buy-out” private equity investment, as defined under N.J.A.C. 17:16-90.1.

A formal written due diligence report for the proposed investment was sent to each member of the IPC and a meeting of the Committee was held on November 22, 2011. In addition to the formal written due diligence report, all other information obtained by the Division on the investment was made available to the IPC.

We look forward to discussing the proposed investment at the Council’s December 8, 2011 meeting.

Source: State of New Jersey State Investment Council