Carlyle Group LP, the private equity firm planning to go public this year, is making its next fund more liquid by offering to help investors exit their stakes early if they wish.
The firm, based in Washington, will give clients the chance twice a year to sell all or part of their stakes in Carlyle Partners VI LP, according to a private placement memorandum, a copy of which was obtained by Bloomberg News. The firm is attempting to raise $10 billion for the fund.
Investors in private equity, who typically agree to have their money locked up for 10 years or longer, are focusing more on liquidity since the 2008 global financial crisis froze credit markets. Stock market declines that year sent less-liquid private equity holdings over investors’ target allocations, making it more difficult for them to meet capital calls from fund managers.
“Two big concerns of investors today are liquidity and management fees,” said Rob Parkinson, an associate partner at Hewitt EnnisKnupp, a consulting firm in Chicago.
Backers who put up $500 million or more for Carlyle Partners VI will pay a discounted management fee of 1.1 percent on committed capital, while smaller investors will be charged as much as 1.5 percent, depending on the size of their commitment. The life of Carlyle’s sixth fund is 10 years.
Chris Ullman, a spokesman for Carlyle, declined to comment on fundraising.
Five secondary buyers, or firms that purchase existing private equity interests, have agreed to provide bids, according to Carlyle’s sales material. They are Goldman Sachs Private Equity Group, Credit Suisse Group AG, Coller Capital Ltd., Landmark Partners and Partners Group AG. Carlyle may also purchase as much as 33 percent of each available interest, the firm said.
Many private equity firms don’t get involved in their limited partners’ use of the secondary market beyond making sure that any potential buyer is acceptable to them. A few firms, such as Sun Capital Partners Inc. and Bain Capital LLC, have offered qualified matching services to their limited partners, in which they pre-qualify potential buyers. Such services are usually more hands-off than Carlyle’s approach.
The matching program will begin at least six months after the final close of the sixth fund, which officially started raising money in February.
Twice a year, Carlyle will come up with the final price on interests by taking the average weighted price of all bids required to meet the supply of available interests. The highest-priced bids will be matched first with the available interests to determine the final price.
The firm “cannot provide any assurance whatsoever” that it will be able to implement the program effectively, according to the memorandum.
Secondary buyers can exit the program any time, and Carlyle can terminate it at any point, the firm said.
The matching program limits the amount of interests that can be sold in any six-month period to 5 percent of the fund’s commitments. Buyers can hold no more than 15 percent of commitments to the fund, and sellers are required to pay an administrative fee to Carlyle.