Carlyle on track for record fundraising year

The firm has held a first close on its latest Asia fund, and expects a first close on its US buyout fund before year-end.

Carlyle Group is making significant headway towards its goal of raising $100 billion across its investment platforms by 2020.

In the firm’s third-quarter earnings conference call on Tuesday, co-founder Bill Conway said Carlyle was “in the midst of one of our best fundraising years in the last decade”.

“2017 could ultimately wind up as our best year ever,” he said.

The firm raised more than $7 billion in the third quarter across its investment platforms, bringing the year-to-date total for fundraising to $18.5 billion.

Carlyle held a first close on its latest Asia buyout fund on Monday on more than $4.5 billion, Conway said. Already substantially larger than its $3.9 billion predecessor, Carlyle Asia Partners V launched in the second quarter with a target of $5 billion.

Carlyle also anticipates a first close on its latest US buyout fund, which is in market targeting $15 billion, in the fourth quarter.

“With the first close of our Asia buyout fund as well as other closings, we have already raised approximately as much money in October as we did in the entire third quarter, further demonstrating that we are well on our way to meeting our $100 billion target,” Conway said.

Co-founder David Rubenstein said in Carlyle’s third-quarter earnings conference call last year that the firm would raise $100 billion between the end of 2016 and the end of 2020.

During Tuesday’s call, Rubenstein said there had been a slight change in the firm’s LP base, with more money coming from sovereign wealth funds. However, public pension funds still remain the largest source of capital for carry funds.

“In our own case, we have found over the years that [if] investors like us in one product, they will invest in other products,” he said, adding that around 60 percent of Carlyle’s capital comes from investors who are in six of more of its funds, and 10 percent from those in 20 or more funds.

“Our biggest challenges in fundraising are over-allocation,” Rubenstein said. “We’re telling everybody, if they want to come into these funds, they’ve got to be in the first closing if they want to get their full allocation.”

In reference to KKR’s focus on building strategic partnerships with investors, Rubenstein said Carlyle’s peers are not doing anything that Carlyle itself has not been doing in this area. In general, sovereign wealth funds are most interested in having these partnerships, he said.

“We don’t generally advertise them, but they are designed to give them more information about what we see going on in the world, very good co-investment opportunities, in return for very, very large commitments,” he said.

“To be honest, there’s a limited number of so-called strategic relationships you can really have; you can’t be married to 15 different people.”

On the permanent capital front, Rubenstein said he expects there to be a successor to the firm’s long-term private equity fund which will be bigger than the first vehicle. He added that, while the firm’s buyout funds are not permanent capital, Carlyle’s industry reputation means the firm is confident in its ability to raise funds “for quite some time into the future”.

“Our current US buyout fund’s $13 billion, when we go out and raise the successor one, which we’re now doing, we’re fairly comfortable that we’re going to get a fund of at least that size if not more,” he said.

“While it’s not technically permanent capital, we have a pretty good ability to get capital when we need it, and we really haven’t struggled to raise capital in any recent time [for] any of the major funds we have.”

In the third quarter, Carlyle’s assets under management grew 3 percent from the previous quarter to $174.4 billion. The firm invested $6.9 billion across its investment programmes during the period, its highest level of investment since Carlyle’s IPO in 2012, and posted $8.4 billion in realised proceeds. In private equity, it invested $3.6 billion in the third quarter and realised $4 billion.

Conway said the firm managed to retain a robust investment pace despite a challenging environment. He said Carlyle finds Japan a “particularly attractive” market.

“The market there generally has been tremendously under-penetrated for private equity. Today it is becoming more welcoming to private equity, and we’ve got a big, deep team there. We’ve been there a long time; we’re on our third fund,” he said, adding the firm is finding “many great opportunities” across Asia more generally.