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Carlyle Insiders Boost New Fund by Pledging $700 Million

Carlyle Group Co-Founder David Rubenstein
Carlyle, led by co-founders William Conway, Daniel D’Aniello and David Rubenstein, seen here, is offering breaks such as lower fees for big clients to entice investors in the most crowded market for gathering money since 2009. Photographer: Andrew Harrer/Bloomberg

Carlyle Group LP, the world’s second-biggest private-equity firm, said executives pledged more than $700 million of their own money to its latest buyout fund, boosting efforts to reach a $10 billion goal.

The insider commitments during the second quarter, according to regulatory filings and a person with knowledge of the firm, accounted for 35 percent of the $2 billion brought in during its first fundraising round at the end of May. The management’s contribution would represent at least 7 percent of the target that the firm has set for Carlyle Partners VI LP.

Carlyle, led by co-founders William Conway, Daniel D’Aniello and David Rubenstein, is offering breaks such as lower fees for big clients to entice investors in the most crowded market for gathering money since 2009. Investors generally like to see a substantial commitment from executives, which signals confidence in the firm’s strategy. The Carlyle executives’ pledge is higher than the 2.5 percent median for private-equity funds formed in 2011 and 2012, according to an annual study by Preqin Ltd., a London-based research firm.

“That is going to be a meaningful commitment, well over the norm,” said Thomas Bernhardt, a senior vice president at TorreyCove Capital Partners, a La Jolla, California, firm that advises clients on private-equity funds. Investors always want to see the managers of a fund make sizable commitment, he said.

Crowded Market

Money managers are seeking $217 billion for buyout funds globally, the most since 2009, according to Preqin. KKR & Co. is putting together a $8 billion to $10 billion buyout fund focused on North America, and Apollo Global Management LLC is gearing up to raise as much as $12 billion for its latest private-equity pool, people briefed on the matter said earlier this month.

As the market for raising money has gotten tougher, commitments by private-equity managers have risen over the past decade from about 1 percent, according to data from Preqin.

KKR put $500 million into its new North America buyout fund, about 10 percent of the $5 billion initially raised, according to a February filing with the U.S. Securities and Exchange Commission. For a $15.2 billion for a buyout fund that commenced investing last January, Blackstone Group LP, the biggest private-equity firm, promised $719.7 million, including $250 million from individual executives, according to regulatory filings. That would equal about 4.7 percent of the total.

Chris Ullman, a spokesman for Washington-based Carlyle, declined to comment, as did Charles Zehren, a spokesman for Apollo in New York, and Kristi Huller, a spokeswoman for New York-based KKR. Peter Rose, a spokesman for New York-based Blackstone, didn’t immediately respond to a request for comment.

Dupont Deal

Rubenstein, Carlyle’s co-chief executive officer who led Carlyle’s initial public offering earlier this year, said on an Aug. 8 earnings call that his firm raised $3.9 billion during the second quarter, its highest amount for any single quarter since 2008. That included $2 billion for the new buyout fund, Rubenstein said, though he made no mention of how much money came from within the firm, according to a transcript of the call.

Carlyle agreed today to acquire DuPont Co.’s auto-paint unit for $4.9 billion, giving it control of the second-biggest maker of coatings for cars and trucks. The firm has been the most acquisitive U.S. buyout manager this year, announcing 20 deals with a combined disclosed value of $16.3 billion, according to data compiled by Bloomberg.

Carlyle’s stock has gained 17 percent since its IPO on May 2. Blackstone is up 3.9 percent, while Apollo, the third-largest U.S. buyout firm by assets, has increased 5.9 percent.

‘Not Immune’

In marketing documents dated February 2012 obtained by Bloomberg News, Carlyle said that the firm and its principals would make a capital commitment of at least $500 million to the new fund “by the final round of fundraising.” About $200 million of that would come from Carlyle’s own coffers, based on a policy of matching 2 percent of the capital commitments for its buyout funds, with the remainder provided by employees.

Rubenstein also said that Carlyle is “not immune from industrywide fundraising challenges” because new commitments to private equity industrywide are still less than half of those received in 2007. U.S. public pension plans, traditionally a major source of capital for buyout funds, “might already be at their allocation limits” for private equity, Rubenstein said, adding that the average fund now takes 17 months to raise, compared to nine months in 2004.

Investors “are being very deliberate,” Robert Lee, an investment-services analyst at Keefe, Bruyette & Woods Inc., said in an interview. “It probably takes longer to get stuff to the finish line.”

Aligning Interests

Carlyle’s quarterly report, filed with the SEC on Aug. 14, shows corporate private-equity commitments by the firm and “senior Carlyle professionals, operating executives and other professionals” jumped to $1.79 billion as of June 30 from $961.3 million as of March 31. Almost all of the increase stemmed from commitments to Carlyle VI by senior personnel, said the person familiar with the situation, who requested anonymity because the firm hasn’t publicly discussed the specific figures.

“To further align our interests with those of investors in our investment funds, we have invested our own capital and that of our senior Carlyle professionals,” the firm said in the disclosure documents for its initial public offering. Carlyle managers have invested or committed to invest more than $5 billion in the firm’s funds since its founding in 1987 through June 30, according to a fact sheet on the company’s website.

“Most firms put in 2 percent to 5 percent,” said Marc Bonavitacola, the head of U.S. private equity at SVG Advisers Inc. in Boston. “It’s a function of how much money they have in their pockets and what they have in expected carried interest,” Bonavitacola added, referring to the portion of profits that buyout managers receive after investors have gotten a specified return.

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