Carlyle Group agreed to buy a 55% stake in Claren Road Asset Management, a $4.5 billion long-short hedge fund focused on liquid credit assets.
Citigroup, which invested in Claren Road in 2006, and Goldman Sachs Group’s Petershill Fund, which bought a minority stake in 2008, will sell their holdings, according to an e-mailed statement by Carlyle.
Claren Road founders Brian Riano, John Eckerson, Sean Fahey and Albert Marino will continue to manage day-to-day operations and make all investment decisions.
Carlyle is adding more liquid investments as it prepares for a public share sale to join listed rivals Blackstone Group and KKR & Co., which have diversified after the credit crisis. A previous effort by Carlyle to add hedge funds failed in 2008 when the firm liquidated a pool hurt by investments in mortgage securities.
“We have a view of which strategies are necessary to exploit the market opportunities,” said Michael Petrick, managing director and global head of credit alternatives and capital markets at Carlyle. “Claren Road is an important piece of the puzzle, and we are in various stages of development on additional strategies.”
Mr. Petrick, who joined Carlyle in March, is seeking to build out the firm’s credit business, which oversaw $14.7 billion in 34 funds as of Sept. 30.
William Conway, who founded Carlyle in 1987 with David Rubenstein and Daniel D’Aniello, said the company is gearing up for a public share sale to amass permanent capital and contend with the growing challenge of raising money for buyout funds.
Carlyle has considered an IPO since at least June 2007, when larger rival Blackstone began trading on the New York Stock Exchange. Plans were put on hold soon after when debt markets froze. Carlyle instead sold a 7.5% stake to Mubadala Development Co., an arm of the Abu Dhabi government, in September 2007.
Carlyle will pay for the Claren Road stake with a combination of cash, stock and payments contingent on performance, according to the statement.
Claren Road’s founders, former members of Citigroup’s credit trading department who established their firm in 2005, will invest “substantially all” of the cash proceeds into their funds.
The credit crisis forced Carlyle two years ago to shut its only hedge fund, a venture it had started in March 2007 with Deutsche Bank AG executives Rick Goldsmith and Ralph Reynolds. Assets in that fund had dropped by a third to $600 million.
Another fund, the publicly traded mortgage bond fund Carlyle Capital Corp., was suspended from trading that year after it failed to meet more than $400 million in margin calls on mortgage-backed collateral. The firm had started the fund less than two years before, hiring John Stomber, a former managing director of Cerberus Capital Management, to head it.