Carlyle shifts focus to US opportunities

The firm invested heavily in the US during Q1 and held interim closings on nine funds.

The Carlyle Group invested or committed $4.2 billion of equity during the first quarter of 2014, a particularly active period in which the firm ramped up investments in the US, Carlyle co-chief executive officer Bill Conway said during an earnings call Wednesday.  

“Last year we were very busy in China and Europe. We invested more than $1 billion in China, the most we’ve ever invested there in one year, and closed seven investments in Europe,” Conway said. “In contrast, this year so far we’ve been very active in announcing and closing deals in the US.” 

During the first quarter, Carlyle acquired Johnson & Johnson’s ortho clinical diagnostics business for an enterprise value of $4.1 billion and bought Industrial Package Group, now called Signode, in a $3.2 billion deal. The firm also made three investments from its US mid-market fund.  

Carlyle still managed to remain active internationally, however, sealing an investment in security company ADT Korea, the largest buyout in Korea since 2008, and buying French manufacturer Custom Sensors and Technologies alongside PAI Partners. Carlyle also made its second investment in sub-Saharan Africa, acquiring logistics company J&J Africa. 

Despite an active quarter on the investment front, Conway expressed significant concern over credit markets in the near future.  

Given recent geopolitical and macroeconomic events, we are surprised at how ebullient credit markets have been in 2014. The world continues to be awash in liquidity and investors are chasing yield seemingly regardless of credit quality and risk,” he said. “We continuously ask ourselves whether the fundamentals in the global credit markets are healthy and sustainable. Frankly, we don’t think so.” 

On the fundraising front, Carlyle raised $5.5 billion in new capital during the quarter, up from $4.7 billion during the first quarter of 2013.  

Last year we raised a large amount of money – $22 billion – a good portion of which was in our new US buyout fund,” Carlyle co-CEO David Rubenstein said on the call. “This quarter we continued to raise large amounts of money, but across a much more diversified set of funds.”  

Carlyle held interim closings on nine funds during the quarter, including the firm’s new international energy fund and its latest Asia, Europe and Japan funds.  

“We held our final closing on our sub-Saharan African fund, reaching approximately $700 million in total commitments, well above our target of $500 million,” Rubenstein said. “Of the 25 largest [sovereign wealth funds], 22 invest in international private equity [and] 21 of these 22 now invest with us.” 

Carlyle’s distributable earnings for the quarter were $183 million, up from $171 million during the first quarter of 2013. 

Carlyle’s corporate private equity division generated economic net income – a measure of earnings that includes realised and unrealised investments – of $258 million for the first quarter, compared to $239 million for the same period last year, and generated $1.1 billion of ENI during the past 12 months, a 126 percent increase year over year. 

The carry funds in Carlyle’s corporate private equity portfolio appreciated 6 percent in the first quarter and 18 percent during the past 12 months. Its corporate private equity segment generated realised proceeds of $2.2 billion during the quarter and $11.4 billion during the past 12 months. 

Carlyle’s Global Market Strategies segment, which includes its distressed, mezzanine and energy mezzanine funds, appreciated 3 percent during the first quarter. 

In terms of realisations, Carlyle generated proceeds of $4.2 billion during the quarter.

During the past 12 months, Carlyle’s dry powder has risen to $56 billion, $36 billion of which sits in carry funds and energy affiliate Natural Gas Partners.

Carlyle’s assets under management during the past 12 months increased 13 percent, from $176 billion to $199 billion.

“We are particularly happy that our investment pace has picked up, our portfolio is performing well, and assuming attractive market conditions persist, we have laid the groundwork for strong distributions in the years ahead,” Conway said.

Carlyle’s shares were trading at $32.14 as of mid-day Wednesday, down from $35.62 at the start of the year.