How Carlyle is gearing up for another $130bn

As Carlyle plots at least $130 billion for its next fundraising campaign, how are you expanding your capacity in the investor relations team?

We’re fortunate to have a strong investor relations team of over 100 people across North and South America, Europe, the Middle East and Asia. We’re also fortunate to have longstanding relationships with institutions in these markets.

We are adding relationship manager headcount in both Europe and the Middle East, where we think there are opportunities. We’re also focusing on the private wealth channel, where we’re finding more opportunities to provide private clients with access to our products. International wealth, specifically in Europe and Asia, is a growth area for us and we are going to add at least one key resource in both Europe and Asia.

As Carlyle has gotten larger, we are building out a central IR function to ensure our investors have an excellent experience. This team, which sits in the US, provides specialist resources to support fundraisings and every aspect of the LP investment lifecycle.

How has your team managed the shift to remote work and how will you continue post-covid-19?

Everything changed last year. The actual process of talking to LPs used to be: you flew to their town, you got an Uber and you spent a couple of hours together. Now we can just talk to more investors more frequently.

About a year ago we took a step back as a firm and asked ourselves, ‘What can we offer to our investors in addition to our investment resources products?’ What we found was that Carlyle has a wide variety of global insights and perspectives that LPs were keen to hear.

This new way of virtual working together allowed us to connect with LPs more easily. This has led to quarterly calls with investors, which synthesise Carlyle’s global views on what’s going on in the world and the market opportunity, as well as calls with the leaders of our funds where we provide deeper reporting on the actual fund and investment activities. The last year has created a lot more fund transparency and touch points with LPs to provide global insights and research.

Nobody really knows exactly how the future will play out, but I don’t think we’re going to just stop doing this. We are going to use this technology and new ways of working with our investors to provide more transparency. We all miss sitting down, seeing people and having one-on-one discussions. That will certainly happen, but I think it will be a hybrid model of working because we’ve learned so much and it’s worked so well.

Which strategies do you expect to be most active contributors to the fundraising outlook for Carlyle over the next 12 months?

We can’t talk about specific funds, but in general all three of our segments – global private equity, global credit and investment solutions – are growing and have fundraising objectives over the next two years.

In global private equity, we’re really excited about the super cycle of our flagship private equity funds across the US, Europe and Asia. These have been longstanding strategies with experienced teams, core sector expertise and long-term partnerships with LPs. We have been strategic about how we approach these markets in that we are pursuing both traditional buyout deals as well as growth deals. In our strategic plan, we aim to achieve about 50 percent of our capital-raising target in global private equity.

“This new way of virtual working together allowed us to connect with LPs more easily”

We’ve doubled AUM for global credit in the past five years and we’re hoping to double that again by 2024. We’ve taken a decidedly platform approach where we have broad product offerings across different risk/return strategies. And we have divided that into liquid credit, illiquid credit and real assets credit.

We continue to grow our capabilities across offerings. For example, in real assets credit, we recently expanded our real estate credit team to add to our existing capabilities. We also hired an infrastructure credit team and expanded into aviation leasing.

Investment solutions just came off a record year of fundraising in 2020. We’ll continue to offer customised solutions for large institutions across primaries, secondaries and co-investment.

Is there anything different about the fee structure in your next flagship funds compared with previous funds?

We can’t discuss specific terms. In general, we’re always looking at the market and seek to offer best-in-class terms and conditions to our LPs. When we think of terms, we think of alignment with our LPs and make sure we have aligned incentives. We’re always looking to be leaders in the market on that front. We have a broad variety of products, so the fund structures are going to be different across them based on the investment strategy.

Carlyle’s strategic plan for 2021-24 outlined a big push into credit, secondaries and insurance. What is the firm thinking about building?

In credit, a lot of what we are doing now is about scaling the capabilities we already have and benefitting from that scale. Credit is a great example where we’ve doubled the AUM, and this just broadens our origination footprint and ability to find investment opportunities.
And if you think about broadening your capabilities, we can now approach a target company with a solution across different places in the capital structure.

Similarly, for our LPs, we can say, ‘What problem are you trying to solve? Are you managing against the benchmark? Are you managing for an absolute return? How can we help you achieve that?’ And on our insurance business, Carlyle is not an insurance company. We’re an asset manager. It’s the only business we have. And we’re not an investment bank. There are two aspects of the insurance business that I think are interesting. One, on the asset side, we have a broad investment capability and a number of customised solutions that can help insurance companies invest their assets. Two, we also have Fortitude, which allows us to help insurance companies manage their liabilities [last June, Carlyle closed on its purchase of a 71.5 percent ownership stake in Fortitude Group, the holding company of reinsurer Fortitude Re].

We’re not competing with these insurance companies. We are providing a solution for them by helping them manage both the asset and liability side of their balance sheets.

How can Carlyle continue generating top returns for its investors with the increase in fund sizes and deal sizes across its platform?

Our asset class has institutionalised over the last 20 or 30 years and our scale has allowed us to invest in our platform and build processes and resources to deliver the results to our LPs.

Carlyle’s broad, integrated investment platform includes our operating partners, who are former CEOs and have real expertise; our investment teams, who are aligned by sector and have a deep background in their sectors and markets; as well as our global investment resources and sustainability and diversity specialists.

Once we buy a company, the number of resources we are able to deploy to improve the operations of that business has become so much more sophisticated. That is really what this is all about.

Does Carlyle expect global fundraising to grow this year?

All signs point to the continued expansion of the private capital markets. The trends that support this include the low interest rate environment, investors continuously seeking yield, and seeking private capital markets to generate outperformance.

There’s also a growing opportunity set for large managers like us to deploy the capital. There are secular tailwinds that are fuelling demand for private capital, including the energy transition and fast-growing, disruptive business models that are emerging and require a lot of capital.

There’s also the growing and well documented trend of companies staying private for longer. In all this, the private capital solution is often the most logical. Large GPs will build on their strength and continue to grow and capture market share.

There’s a movement towards players of scale, and to be the preferred partner, not just to investors, but to companies as well.

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