The hedge fund-of-funds business is getting smaller, putting any one of the most successful global hedge fund of funds on Carlyle's shopping list, observers say. However, it is not yet known whether Carlyle has a shortlist and which firms are on it.
But industry insiders said such expansions aren't seen as a huge plus by institutional investors.
“It is unsure” what benefit Carlyle's expansion will have for its limited partners, said Stephen L. Nesbitt, CEO of alternative investment consultant Cliffwater LLC, Marina del Rey, Calif. “Generally, it is neutral to negative for the limited partner.”
Carlyle's strategy has been to diversify by acquisition and organic growth, as the firm's global clientele will “often prod us to do new things,” David M. Rubenstein, co-founder and managing director, said in an interview.
“Our strategy is to build ourselves into a well-recognized, perhaps leading, alternative asset firm,” Mr. Rubenstein said. “Other large American private equity firms are basically doing the same thing.”
Carlyle has been this way before. In the past five years, Carlyle has launched and terminated a hedge fund, a hedge fund of funds and a publicly traded mortgage-backed securities fund.
But Carlyle executives say they have learned from their mistakes. This time, they're building on what they know, such as starting private equity shops in new locations like South America and sub-Saharan Africa. They chose these areas for the younger demographics of the population, which points to greater economic growth, Mr. Rubenstein said.
Carlyle also has gone the acquisition route, adding new investment capabilities by buying or taking majority stakes in existing investment firms and letting those firms' executives continue running the businesses.
The firm has made the following deals in the past 12 months:
• Carlyle in January agreed to buy AlpInvest Partners NV, a e32.3 billion ($43.3 billion) private equity fund-of-funds business, from two money managers that oversee the investments of the e265 billion APG and the e100 billion PGGM. The deal is expected to close in the next several weeks.
• The firm in December acquired a 55% stake in Claren Road Asset Management, a long-short credit hedge fund with $4.5 billion in assets, in exchange for cash, an ownership interest in Carlyle and performance-based contingent payments. Terms weren't disclosed.
• A new energy mezzanine business was created late last year.
• Carlyle last year bought the management contracts on $4.2 billion in 11 collateralized loan obligations, mainly in high-yield-grade corporate loans, from New York-based fixed-income manager Stanfield Capital Partners, and $1.2 billion in four CLOs from Mizuho Alternative Investments LLC's U.S. business, Mountain Capital Advisors.
• The firm formed a midmarket private equity business, snagging Rodney Cohen, now a Carlyle managing director, from midmarket private equity firm, Pegasus Capital Advisors where he had been co-managing partner.