The Carlyle Group is gearing up for full fundraising mode as it expects to raise at least $100 billion in the next four years.
During the third-quarter earnings conference call with investors on Tuesday, Washington, DC-based Carlyle’s co-chief executive David Rubenstein said the firm is about to enter a four-year period in which it will raise its next generation of funds. This will include the next US buyout, Asian buyout, European buyout, and Japan buyout funds, which he expects to launch as early as 2017.
He added that many of the funds will be larger than the current generation, although it is still unclear what the target size would be for each fund.
“Some thought it might not be ideal to be in market [with several funds] at the same time,” Rubenstein said during the call. “On the other hand, we found some investors are interested in just US buyout or Asia buyout, so they will not necessarily be cannibalising each other. They have long track records, so lots of LPs are interested in going back to them.”
The firm’s latest US buyout fund, Carlyle Partners (CP) VI, was launched in May 2012 and raised $13 billion. During the call, Carlyle co-CEO Bill Conway said CP VI is about 60 percent deployed, and has appreciated 7 percent in its fair market value during the third quarter. Its predecessor, a 2007-vintage vehicle titled CP V that closed on $13.7 billion in 2008, was generating a 13 percent net internal rate of return as of 30 September, according to Carlyle.
Carlyle Europe Partners (CEP) IV launched in August 2013 and closed in July 2015 on €3.67 billion. The fund was 43 percent invested as of 30 September, according to the buyout firm’s earnings release. CEP III, a €5.3 billion 2006-vintage fund, produced a 14 percent net IRR as of the end of the third quarter.
Carlyle Asia Partners (CAP) IV launched in November 2012 and closed in September 2014 on $3.88 billion. As of 30 September, CAP IV was 46 percent invested, according to the earnings release. The $2.6 billion 2008-vintage predecessor CAP III posted a 13 percent net IRR in the third quarter.
The buyout firm’s Japan-focused fund, Carlyle Japan Partners (CJP) III, launched in August 2013 and closed in September 2015 on ¥119.5 billion ($1.2 billion; €1.1 billion). CJP III had deployed 42 percent of its capital as of 30 September, the earnings release indicated. CJP II, which had launched in July 2006 and closed on ¥165.6 billion, marked a 2 percent net IRR as of 30 September.
Conway added that Carlyle is currently “in a bit of a lull in fundraising”. The firm overall raised $400 million in private equity during the third quarter, mostly thanks to its longer-term fund, Carlyle Global Partners, which closed on $3.6 billion earlier this month, and certain co-investments, according to the earnings release. This fundraise pushed the dry powder of Carlyle’s corporate private equity (CPE) portfolio to $20.7 billion, up $100 million from the $20.6 billion in the firm’s war chest at the end of the previous quarter.
Looking forward, Rubenstein thinks sovereign wealth funds will become some of the largest investors in private equity and in Carlyle funds in particular, which he believes will also help with its fundraising plans. He noted that SWFs had about $1 trillion in total aggregate capital in 2003 and are expected to have about $10 trillion by 2020.
“I suspect they will be the biggest source of capital,” Rubenstein said during the call. “They are putting in very large sums into our funds, as well as family offices. I suspect they will be important investors for us and our peers.”
On the deployment and realisations side, CPE exited 46 investments across 20 funds during the third quarter, gaining $4.8 billion in realised proceeds, according to the earnings release. This cash inflow was offset by 16 investments worth $541 million from 12 funds that were made during the quarter.
Overall, Carlyle’s private equity portfolio had $54.6 billion in assets under management, about 32 percent of the firm’s total AUM of $169.1 billion.
For the quarter, the firm generated an economic net income of $54 million, down from $158 million in the previous quarter but up from an economic net loss of $128 million in the third quarter of 2015.