In order for the Carlyle Group to join two of its peers, The Blackstone Group and Kohlberg Kravis Roberts, among the pantheon of listed alternative asset management giants, it knows what it has to do: diversify its income streams and broaden its asset base. With this in mind, it is easy to understand exactly why it pursued the acquisition of AlpInvest Partners, Europe’s largest private equity fund investor.
AlpInvest manages around €32 billion in private equity fund investments for two Dutch pension asset managers, APG and PGGM. The two groups, which between them are responsible for managing around €365 billion of Dutch pensioners’ money, originally founded the platform and until the sale was agreed in January this year, were its owners. The recent sale agreement ended months of speculation and a sale process which reportedly began in 2008. Carlyle teamed up with AlpInvest’s management team to acquire 100 percent of the fund of funds group’s share capital. Financial details were not disclosed.
For Carlyle, the deal driver was clear. “They have paid what is probably a very small amount for a very large asset base,” says one European fund of funds manager. The question for Carlyle now is how easily it will be able to diversify the asset base of this huge platform away from its two clients, which to date have comprised 99 percent of its AUM.
As part of the deal to detach themselves from AlpInvest, APG and PGGM have agreed to between them commit €10 billion to the fund of funds to be invested until 2015. This is no small amount of capital, but it is a finite number. And while it gives certainty that the firm will have capital to deploy in the near term, it is unknown what level of fee income the firm will derive from it.
In short, Carlyle has acquired a huge, but in one sense shrinking, asset base and will need to develop its institutional sales team in order grow the business and move it forward. Carlyle declined to comment on the suggestion from one source that the firm had already tried to poach the sales team from one major European investment banking franchise.
For the two pensions, the sale means they will be able to take control of their private equity management programmes in house and “pursue their own respective multi-client strategies”, according to a joint statement. The deal also means an orderly detachment from a fund of funds platform that had at times proved controversial. In 2007 the boards of the two pensions– staffed primarily by union representatives – had struggled with the fact that the AlpInvest top brass had shared €150 million in bonuses.
The well-known co-founder and managing director of Carlyle, Rubenstein said the tie up will “create new opportunities for Carlyle investors who seek a proven fund-of-funds platform”. AlpInvest’s AUM will complement the near $120 billion already under Carlyle’s management.
Doeksen, the chief executive officer of AlpInvest and one of private equity’s most influential limited partners, will sit on the newly instituted AlpInvest board, which will be staffed by an even number of executives from Carlyle and AlpInvest.
As chief executive officer of APG, Sluimers is responsible for one of the world’s largest pension asset managers. APG invests the pension assets for more than 30 percent of the Dutch working population, worth around €265 billion.
Van Rijn has led PGGM, which manages more than €100 million of pension assets on behalf of 2.3 million scheme members, as its chief executive officer since 2008. Van Rijn highlighted the importance of Carlyle’s cooperation on environmental, social and governance issues to getting the deal done.