Carlyle AUM drops 14% in 2016 as it exits hedge funds

Carlyle Group reported assets under management of $157.6 billion as of Dec. 31, down 7% from three months earlier and down 14% from a year earlier, according to the alternative investment firm's earnings report released Wednesday.

During the fourth quarter, Carlyle got out of the hedge fund management business, resulting in $4.7 billion in combined divestments. Carlyle transferred its 55% ownership stake in hedge fund unit Claren Road back to its founders in the quarter. The Claren Road transaction closed Jan. 31. Carlyle also completed the sale of its 55% interest in hedge fund manager Emerging Sovereign Group the founders in the fourth quarter. And Carlyle is winding down its commodity hedge fund business, formerly known as Vermillion Asset Management.

Also during the year, Carlyle began winding down its hedge funds-of-funds business, Diversified Global Asset Management, which resulted in $600 million in redemptions of hedge fund partnerships and the return of $200 million in investor capital in the fourth quarter.

Carlyle's earnings were also affected by $175 million in charges due to losses in Vermillion Asset Management, principally from the misappropriation of petroleum commodities by third parties outside the U.S. from various Vermillion investment vehicles strategies. In the fourth quarter, Carlyle repurchased investor interests in one of the Vermillion's funds for $100 million, settling potential claims and acquiring the limited partners' rights to future recoveries. In February 2016, a former portfolio manager in Vermillion sued Carlyle and Vermillion's former heads, Chris Nygaard and Drew Gilbert, for allegedly knowingly misleading investors concerning the risks of a roughly $2 billion investment in derivatives tied to shipping rates to avoid losing fees. In 2016, Carlyle's stake in Vermillion rose to 83% from 55%.

Also during the fourth quarter, Carlyle distributed $8.8 billion, suffered foreign-exchange losses of $3.3 billion and had net redemptions of $700 million. This was partially offset by $4.5 billion in market appreciation and $1.8 billion in commitments net of expired capital.

Carlyle had total dry powder of $50.1 billion as of the end of the fourth quarter.

Private equity AUM was $50.9 billion as of Dec. 31, down 7% from three months earlier and down 19% from a year earlier. Real assets AUM was $34.2 billion as of Dec. 31, down 4% from Sept. 30 and down 10% from Dec. 31, 2015.

Carlyle's global market strategies business, which included Carlyle's credit and a portion of Carlyle's former hedge fund business, had $29.4 billion in AUM at the end of the fourth quarter, down 14% from the end of the previous quarter and down 17% from the end of the year-earlier quarter.

The AUM of Carlyle's investment solutions business — which now includes only private equity funds-of-funds unit Alpinvest Partners and real estate funds-of-funds unit Metropolitan Real Estate Equity Management — was $43.1 billion, down 4% from Sept. 30 and down 7% from Dec. 31, 2015.

Net income under GAAP was $6.4 million for the year ended Dec. 31, up from a loss of $18.4 million year-over-year.