Carlyle Seeks Stake in Hedge-Fund Firm Amid Buyout Slump
Carlyle Said to Seek Stake in Hedge-Fund Firm
David Rogowski/Bloomberg
Carlyle is talking to firms including one hedge fund with as much as $5 billion in assets that trades across multiple markets.
Carlyle is talking to firms including one hedge fund with as much as $5 billion in assets that trades across multiple markets. Photographer: David Rogowski/Bloomberg
Carlyle Group, the world’s second- largest private-equity firm, may buy a stake in a hedge-fund manager and is negotiating with several firms as it seeks to add more liquid investments, said three people briefed on the plans.
Carlyle is talking to firms including one hedge fund with as much as $5 billion in assets that trades across multiple markets, said the people, who asked not to be identified because the information is private. The firm is also seeking to raise two new debt funds and a $1 billion pool to buy small companies, the people said.
The biggest private-equity firms are adding more liquid investments after the financial crisis sapped investors’ appetites for large buyouts. Blackstone Group LP expanded its debt business with the 2008 purchase of hedge fund GSO Capital Partners LP, and KKR & Co. has formed a group to underwrite debt and equity offerings. A previous effort by Carlyle to add hedge funds failed in 2008 when the firm liquidated a pool hurt by investments in mortgage securities.
The hedge-fund unit and the two new debt funds would be overseen by Mitch Petrick, who joined Washington-based Carlyle in March to run global credit alternatives and capital markets, said the people. Carlyle is targeting $1.5 billion for a new distressed fund and is marketing a new vehicle focused on mezzanine debt, said the people.
The distressed fund would top the $1.35 billion size of its 2007 predecessor fund and pool of $211 million raised in 2004, which has doubled in value before fees. The 2007 fund has appreciated 14 percent since inception.
Petrick’s Push
Christopher Ullman, a spokesman for Carlyle, declined to comment.
Leveraged finance investments accounted for about 16 percent of the $90.6 billion the firm oversaw as of June 30, according to Carlyle’s website. Since then, Petrick has increased assets in the division by adding 11 management contracts on $4.2 billion in collateralized loan obligations.
Petrick, Morgan Stanley’s former sales and trading chief, recruited David Albert and Rahul Culas from the investment bank’s project and structured-finance group to run Carlyle’s mezzanine fund, which will specialize in lending to power companies, said one of the people.
The credit crisis forced Carlyle two years ago to shut its only hedge fund, a venture it had started in March 2007 with Deutsche Bank AG executives Rick Goldsmith and Ralph Reynolds. Assets in that fund had dropped by a third to $600 million.
Fund Failures
Another fund, the publicly traded mortgage-bond fund Carlyle Capital Corp., was suspended from trading that year after it failed to meet more than $400 million of margin calls on mortgage-backed collateral. The firm had started the fund less than two years before, hiring John Stomber, a former managing director of Cerberus Capital Management LP, to head it.
The renewed push into hedge funds and more liquid investments may help Carlyle should it decide to sell shares in an initial public offering, said Daniel Fannon, a San Francisco- based analyst at Jefferies & Co.
“Investors have more confidence in valuing a more diversified asset manager than a traditional buyout business,” Fannon said.
Carlyle hired Rodney Cohen from Pegasus Capital Advisors to run its new equity fund, which will make investments of as much as $150 million, including buying minority stakes. The new fund is an extension of the firm’s existing U.S. growth capital business. Those vehicles, totaling $1.4 billion and managed by Brooke Coburn, have largely replaced Carlyle’s efforts in venture capital, where funds make smaller, riskier investments in start-up tech companies, said one of the people.
Going Public
Investors have shunned private-equity stocks since Blackstone, the largest buyout firm, sold shares three years ago. Blackstone’s IPO came just as the credit crisis ended a three-year boom in which $1.6 trillion in deals were announced, many of which have yet to turn a profit.
KKR, which depends on private-equity investments for 66 percent of fee-related income, this year completed a three-year journey to list its stock on the New York Stock Exchange. Apollo Global Management LLC has filed to sell $50 million of stock in an IPO and plans to list existing Class A shares on the New York Stock Exchange.
KKR, founded by buyout pioneers Henry Kravis and George Roberts, has been building its liquid and mezzanine strategies unit, KKR Asset Management, led by William Sonneborn. The division began in 2004 with a focus on corporate debt and now oversees about $13 billion, including trading in bank and mezzanine loans.
Blackstone has cut dependence on buyouts to 11 percent of fee income and now counts its credit and marketable alternatives business, which includes a fund of hedge funds operation, as its largest by assets.
To contact the reporters on this story: Cristina Alesci in New York at Calesci2@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net
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