Carlyle’s diversifies its business ahead of IPO

ESG has assets under management of $1.6 billion and focuses on emerging markets. It joins Claren Road Asset Management, a $4.5 billion credit hedge fund, and AlpInvest Partners, one of Europe’s largest fund-of-funds, in the Carlyle portfolio.

“As a global alternative asset manager Carlyle’s goal has been to offer a variety of products to a growing investor base,” Christopher W. Ullman, managing director of global communications at Carlyle, tells AVCJ. “Our investors seek a variety of investment options, from traditional buyout to infrastructure to credit to real estate and now fund-of-funds and hedge funds.”

IPO ahead

It is no coincidence that the private equity has also been talking to investment banks about going public. JPMorgan, Citigroup and Credit Suisse are tipped to be the lead underwriters on a $1 billion offering likely to be squeezed in before the end of the year.

“Listed companies need a wider range of products to generate dividends for their investors,” one Asia-based LP tells AVCJ. “It is also important to diversify investment risk by accessing different type of funds rather purely private equity, which takes longer to make returns."

In short, the volatility of cash windfalls from standard private equity investments – the timing of which are often victim to wider market conditions – doesn’t necessarily meet the needs of a company that wants to deliver consistent quarterly earnings reports. Asset management, and greater exposure to more liquid public equities, can help redress the balance.

At the end of last year, corporate private equity accounted for 52.6% of Carlyle’s assets under management, real assets represented 26%, and global market strategies were 19.4%.

Blackstone and KKR, which listed in June 2007 and July 2010, respectively, have already taken steps to diversify their operations, placing greater emphasis on hedge fund investment. Prior to its IPO earlier this year, Apollo Global Management teamed up with Light Investment Partners, a Florida-based fund-of-funds manager, to offer hedge fund products to clients.

ESG specifically adds weight to Carlyle’s emerging markets offering, an area of focus for all global private equity firms in recent years. The company, which was founded in 2004 by Kevin Kenny with initial backing from Tiger Management founder Julian H. Robertson, operates 84 funds on behalf of 1,350 investors in over 70 countries. It executes various macroeconomic and long/short equity strategies in China, India and Brazil as well as South Korea, Vietnam, Indonesia, Russia, Saudi Arabia, Turkey and South Africa.

Tiger Management will retain an undisclosed stake in the company and continue to invest in its funds, while Kenny chief investment officer.
“Emerging markets is a core competency of Carlyle’s corporate private equity and real assets franchise and a significant untapped opportunity for Carlyle’s global market strategies platform,” says Mitch Petrick, managing director and head of Carlyle’s global market strategies business.
Petrick, formerly sales and trading chief at Morgan Stanley, was brought on board in 2010 and tasked with identifying acquisition targets involved in day-to-day securities trading. He said he came across ESG while in the process of sourcing the Claren Road Asset Management deal. Petrick also knew Kenny from Morgan Stanley, where the latter was head of emerging markets bond trading, while Carlyle co-founder David Rubenstein is familiar with Robertson.

Emerging markets focus

Meanwhile, Carlyle has announced successful closes on two funds that target buyout and growth capital investments in South America, another step forward in its emerging markets strategy. The Carlyle South America Buyout Fund (CSABF) received $776 million in total commitments, is a pan-South America fund with a particular focus on Brazil. The other fund, worth $225 million, was raised in partnership with Banco do Brasil and will invest side-by-side with CSABF in deals in Brazil. 

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• Topics
• Buyouts
• North America
• MENA
• Central Asia
• Greater China
• The Carlyle Group
• KKR
• The Blackstone Group