- New vehicle can invest in companies for as long as 20 years
- Merrill and Zachem will lead 14-member investment team
Carlyle Group LP has raised more than $3 billion for a new private equity vehicle that will invest in companies for up to twice as long as a conventional fund, people familiar with the matter said.
Washington-based Carlyle, the world’s second-largest private equity manager, has recruited a 14-member investment team for the fund, according to Tyler Zachem, who joined the firm last fall to co-head the group with Carlyle veteran Eliot Merrill. Carlyle Global Partners LP, as the fund is known, has already invested nearly $500 million in two companies, Zachem said.
The move parallels efforts by private equity firms including Blackstone Group LP and CVC Capital Partners to break free of the usual 10-year fund life and put money to work for longer, or even permanently. The fund, which has a lifespan of up to 20 years, will pursue deals that don’t fit the mandate of Carlyle’s flagship private equity fund, which seeks to cash out of individual investments in three to five years.
“There are businesses that need capital longer, to build themselves over an extended period, and family-owned companies that don’t want to go public in years three to five,” Merrill said last week in a phone interview.
“We used to have to have pass on those deals. Now, we can lean in.”
Merrill and Zachem declined to say how much money the fund has raised or how much more Carlyle hopes to gather. The two investments they’ve made are in aerospace and media and telecommunications, respectively, they said, declining to comment further.
Zachem, 50, and three other deal makers joined Carlyle in November from Broad Sky Partners, a buyout boutique he co-founded in 2013 after leaving MidOcean Partners. Their hiring came as Carlyle purchased Broad Sky’s entire investment portfolio, comprising stakes in Apex Parks Group, which operates family-entertainment centers, and Manna Pro Products, an animal-feed company.
The rest of the team was recruited internally. Merrill, 45, a long-time media and telecoms specialist, has been at Carlyle since 2001.
Like Carlyle’s main buyout fund, Carlyle Global Partners will seek to at least double the value of its investments over time, while targeting somewhat lower annual returns. It will charge a lower incentive fee than the 20 percent of gains levied by the main fund.
Much of Carlyle Global Partners’ money has come from pension funds and sovereign wealth funds. It will take minority and majority stakes in companies in the U.S. and abroad. With co-investors, it will be able to lead equity investments of $1 billion or more.
Carlyle isn’t the only firm vying to escape private equity’s customary time limit. Industry executives such as KKR & Co.’s Henry Kravis have said they hope to invest more in the style of Warren Buffett, whose Berkshire Hathaway Inc. funds buyouts of companies including Kraft Heinz Co. and BNSF Railway Co. with money from its insurance operations and can hold them indefinitely.
Kravis has dubbed Berkshire “the perfect private equity model.”
KKR has amassed a $10 billion cache of assets outside its funds, which it has used to buy stakes in tech startups. Apollo Global Management LLC, Fortress Investment Group LLC and others have created an array of publicly traded vehicles, including real estate investment trusts and commercial lenders, which don’t have to wind down.
In addition to Carlyle, Blackstone is gathering money for a so-called core private equity platform, to invest in lower-risk companies for an extended time. The buyout firm has not said how much it has raised. CVC, Europe’s biggest private equity firm, has set up a fund with a similar strategy.
“It’s a product that I think has great potential for us,” Carlyle co-founder David Rubenstein said about the new fund in an October earnings call. “We only want a limited number of investors in it, and so far, progress has been quite good.”
Carlyle, which oversaw $187.7 billion in private equity, credit and other assets as of Sept. 30, is scheduled to report fourth-quarter earnings on Wednesday.