How Carlyle helped AlpInvest to ‘take a leap’

Nearly half the LPs that committed to AlpInvest’s latest secondaries fund came from the Carlyle network.

The extensive investor network of The Carlyle Group was of major importance during AlpInvest Partners’ recent fundraising.

Nearly half of the LPs that committed to the firm’s fifth secondaries fund came from the Carlyle network, Volkert Doeksen, the firm's chairman of the Board and managing director and secondaries head Wouter Moerel told Private Equity International.

Amsterdam-based AlpInvest, which was acquired by Carlyle in 2011, raised $4.2 billion for its latest secondaries fund last year. It attracted 21 new investors: three were managed account investors, while the other 18 invested via a blind pool commingled fund – which closed ahead of its $500 million target on its $750 million hard-cap. Of those 18, at least half came via the Carlyle network.

LP came from North America, Europe, Latin America and Asia, and included pension funds, insurance companies and a few high-net-worth individuals. On top of these new LPs, AlpInvest added “at least 40 or 50 relationships” of investors that didn’t back them in this fund, but gave positive feedback and may commit next time round.

It was the first time AlpInvest had raised external capital in addition to mandates from its traditional backers PGGM and APG. Indeed, having spent the previous decade primarily working for these two clients, the firm didn’t have much in the way of an IR function – which made Carlyle a natural home for the business.

“We were looking for an organisation that could help us really boost our fundraising and investor relations capabilities, and take a leap, rather than build this expertise over a 10-year period,” Moerel said.

“If you look at the Carlyle set-up, they [have] probably raised more money than anyone in the private equity industry,” Doeksen added.

Fundraising was not straightforward, however. AlpInvest may have been in the business for a long time, but building up third-party client relationships was a different sort of challenge. “People need to trust that you are going to take care of their money and need to feel comfortable with you, which can take a long time,” says Doeksen. “People have incumbent managers with whom they are comfortable, and you therefore sometimes have to replace an existing relationship,” he said.

AlpInvest now sits within Carlyle’s Solutions Group, which the US-based group has been building up in recent years. In February this year, it completed the acquisition of Diversified Global Asset Management Corporation (DGAM), a hedge fund manager with more than $6.7 billion of assets under management. Last year, it also bought Metropolitan Real Estate Equity Management, a global real estate multi-manager with $2.6 billion in capital commitments. With AlpInvest, DGAM, and Metropolitan, Carlyle’s solutions segment had $57.3 billion of assets under management as of September 30, 2013.

The platform, which is led by Jacques Chappuis, will offer smaller investors tailored accounts that allow them to access different strategies. Since these investors would not typically invest directly in a Carlyle fund – on the grounds of scale – the Solutions Group is not likely to be in competition with other parts of the Carlyle platform, according to the firm. Equally, larger LPs who do invest directly in the big funds may outsource a particular aspect of their strategy to the Solutions Group, and retain control of everything else.

Following the Carlyle deal, there were inevitably concerns about conflicts of interest. “For us, of course, there was a risk,” Doeksen admitted. “We are doing a lot of co-investments with some of Carlyle’s peers and we wanted to make sure that we could continue to grow this business.”

As a result, AlpInvest has worked hard to maintain a separate identity. Crucially, Carlyle has no representation on AlpInvest’s investment committee or any say in its day-to-day operations. “There’s a hard information barrier between ourselves and Carlyle,” Moerel said.

Three years after the acquisition, AlpInvest is convinced it has managed to keep these potential issues at bay. The firm has had more co-investment deal flow than ever. In 2013, it received 117 deal invitations with a combined value of €4.7 billion from 80 GPs across the globe. In 2012, the firm received 105 invitations, and in 2009 it looked at 75 transactions. Of those 117 deals, AlpInvest completed 17 last year, with a combined value of €1 billion – and most were with Carlyle’s main competitors. Admittedly, some of this deal flow increase is a function of an improving market. But it does suggest that other GPs are willing to believe that the Chinese wall functions properly.

The full interview with AlpInvest Partners is published in our March issue, which can be read here.