Carlyle said to be shopping TCW around – exclusive

Just three years after buying the asset manager from Société Générale, Carlyle Group is talking to potential buyers about selling off TCW, a $185 billion fixed-income manager. 

The Carlyle Group has been talking to potential buyers about selling off its majority stake in TCW, several market sources familiar with the matter told PDI. 

TCW was acquired by the alternative investment firm a little over three years ago, with Carlyle buying a 60 percent interest from Société Générale. The remaining 40 percent is held by TCW employees.

TCW and Carlyle spokesmen declined to comment.

New York-based Carlyle bought the stake with money from two in-house private equity funds at the time, Carlyle Global Financial Services Partners, a $1.1 billion financial services fund, and Carlyle Partners V, a $13.7 billion US buyout fund.

These vehicles are now nearing the ends of their investment period and have to start harvesting money to investors soon, PDI has learned. As such, the TCW stake would need to be sold off in order for Carlyle to harvest the gains to LPs, according to sources.

TCW’s lists up to $185 billion in assets now, an increase from $127 billion when the deal was signed in August 2012. Given the increase in TCW’s capital, sources surmise it could be a good sell for Carlyle.

It’s not yet clear whether Carlyle has involved an investment bank in a potential sale process or what suitors might make a run for TCW. Two sources suggested Asian insurers could be in the mix, though they couldn’t yet say which firms.

It’s also not certain that Carlyle would definitely sell off the business. People familiar with the process said the firm could yet re-purchase the manager with money from new private equity funds or its balance sheet.

Though seeing as Carlyle’s stock has declined significantly since the time of the deal, a balance sheet purchase is less likely, sources explained. Carlyle’s stock was trading at about $35 per share in February 2013, when the deal closed. It was down to $17 per share as of Monday (1 August).

Los Angeles-headquartered TCW manages, for the most-part, institutional and retail fixed-income strategies, though the firm has been expanding in equities and alternatives. In 2012, TCW bought a direct lending group from Regiment Capital Advisors, which is now managing about $2 billion in a private fund and a non-traded BDC out of Boston.

People familiar with the firms also point out that the thinking behind the sale could relate to competition between some of Carlyle’s and TCW’s strategies. Carlyle also runs a mid-market lending business within its Global Market Strategies unit and its Carlyle GMS Finance BDC, for instance.

TCW was originally acquired by Société Générale in 2001. TCW’s assets rose from $80 billion to $147 billion between 2001 and 2007 but started declining after the 2008 financial crisis. The scandal around and ouster of its high-flying bond portfolio manager, Jeff Gundlach in 2010 along, with the ensuing fight and lawsuits hardly helped matters. Gundlach took many of TCW’s former employees with him and started his own fixed-income shop called DoubleLine Capital, which is now 20 percent-owned by Oaktree Capital Management.

TCW has since rebuilt its business, put the Gundlach fiasco behind it and picked up many of the mandates that PIMCO, another large West Coast bond manager, was losing, given its own reputational problems, according to Institutional Investor.

PIMCO’s chief investment officer Bill Gross left in 2014 after a spat with then-chief executive Mohamed El Erian over performance and outflows from PIMCO’s flagship Total Return Bond fund. The fund lost even more money since then. As of 30 June, the vehicle had $86 billion in assets compared to the April 2013 peak of $293 billion, according to Morningstar. PIMCO recently hired Man Group’s Emanuel Ronan as its new chief executive.