Global private equity powerhouse The Carlyle Group is looking to set up its own hedge fund and fund of funds later this year in order to diversify its business and be more competitive.
In an interview with Reuters, Carlyle founder David Rubenstein said he believes “that all the large private equity firms will offer them. And we will be doing it as well.”
A Carlyle spokesperson confirmed Rubenstein’s comments, but said no further details are being released at this time.
According to reports, Carlyle will set up a hedge fund of funds first. Rubenstein said the firm will then launch a hedge fund of its own, rather than acquiring one, and would staff the new fund with “fresh talent” and appoint “industry figureheads” to the helm.
This will be the second time that Carlyle will have set up a hedge fund. The firm’s first attempt, Rock Creek Group, spun out in 2003. 'I've learned a fair bit since then, and some things I would do differently and better,' Rubenstein was quoted.
The announcement comes just days after Rubenstein’s comments at the same conference that acknowledged the threat hedge funds pose to private equity. Reportedly, he said hedge funds have more money than private equity groups and were able to pay whatever it would take to hire the best private equity professionals.
Rival private equity firms Bain Capital, The Blackstone Group and Texas Pacific Group have also set up hedge funds, or funds of funds, of their own.
Managers of LBO funds and hedge funds are increasingly vying for the same assets. For example, hedge fund manager Highfields Capital Management made a $3.25 billion bid on February 15 for Circuit City Stores Inc., the No. 2 US electronics retailer. Kohlberg Kravis Roberts & Co., the world's biggest buyout firm, was part of a group that outbid hedge funds in July to acquire US power generator Texas Genco Holdings Inc. for $3.65 billion.
There are about 9,000 hedge funds with almost $1 trillion of investments, compared with 3,000 private equity funds with $150 billion of capital that's yet to be deployed, Rubenstein said.
Competition from hedge funds to buy companies “will continue until there are large losses,” Rubenstein said.