Carlyle holds first close on fourth Japan buyout fund

A tougher deal environment has made it challenging to consummate deals, and the quarter was a ‘low watermark’ for realisations, said co-chief executive Kewsong Lee.

Carlyle Group has held a first close for its fourth Japan Buyout Fund, bringing total private equity fundraising for the third quarter to $1.9 billion, according to the firm’s third-quarter financial results presentation.

The news comes shortly after the firm closed its largest-ever dedicated European buyout fund, Carlyle Europe Partners V, on €6.4 billion, surpassing its target by nearly €1 billion.

It is unclear how much the firm has raised for Carlyle Japan Partners IV. Its predecessor closed on ¥119.5 billion ($1.1 billion; €992.2 million) in 2015.

Corporate private equity assets under management grew to $84.1 billion in Q3 2019, up 3 percent from the prior quarter.

A slower pace of exits from its large buyout funds resulted in continued lower levels of net performance revenues and realised proceeds in the third quarter of 2019.

Realised net performance revenues were $18 million in the third quarter, and $55 million over the 12-month period ending 30 September, down from $288 million over the prior 12-month period. Realised proceeds were $1.1 billion in the third quarter and $5.4 billion over the 12-month period ending 30 September, down from $10.5 billion over the prior 12 months.

Carlyle expects an uptick in activity in 2020, but predicting carry with current macro-risks is challenging, chief financial officer Curtis Buser said on the call.

Compared with this time last year, global growth is slowing and the industrial sector is weaker, as are certain parts of Europe, co-chief executive Kewsong Lee said on the firm’s third-quarter earnings call Thursday.

Carlyle is observing the same macro trends in portfolio companies, but on a run-rate basis they are growing at 8 percent in EBITDA year-on-year. “On a fundamental basis, we think we are in okay shape,” Lee said.

Lee said the deal environment has been tough this year, with more uncertainty making it harder to get things done. “Confidence and trust is something that’s required to get deals consummated. Everyone recognises that this is an environment where there is a little bit more uncertainty and it was the low watermark in realisations.”

Carlyle invested $1 billion in the third quarter, including new investments in Forgital (through Carlyle Partners Fund VII and Carlyle Europe Partners Fund V), Net Health Systems (through Carlyle US Equity Opportunity Fund II) and HSO Group (through Carlyle Europe Technology Partners III). In addition, more than $2 billion in transactions were announced or signed in the third quarter, according to the third-quarter earnings presentation.

The firm is on track to achieve its fundraising target for 2019, Youngkin said. In Carlyle’s first-quarter earnings call, Youngkin said the firm had reached its four-year $100 billion goal early, and the rest of 2019 fundraising would provide an upside to that goal.

It raised $2.8 billion in global credit, $600 million in real assets and $1.9 billion in private equity in Q3, the presentation said.

Carlyle’s total assets under management stood at $222 billion at the end of the third quarter.