Side Letter: Carlyle chief resigns; Apollo’s next biggest fund; a16z’s wealth play

Carlyle CEO Kewsong Lee steps down. Plus: Apollo believes private wealth could spawn its largest product within just 12 months; Tech investor a16z is turning wealth manager; and details on Carlyle's decarbonisation-linked financing programme. Here's today's brief, for our valued subscribers only.

Just happened

Carlyle’s Lee: Stepping down with immediate effect months before end of contract (Source: Carlyle)

Lee leaves Carlyle
The Carlyle Group chief executive Kewsong Lee has resigned, almost mid-way through a multi-year strategic plan that seeks to raise at least $130 billion by 2024. Lee’s sudden exit comes just a few months before his five-year employment contract finishes at the end of 2022.

Co-founder and former co-CEO William Conway will step in as interim CEO while the search for a new candidate takes place, the firm said in a statement on Sunday. A newly formed search committee, which includes the firm’s senior executives, will help find a permanent successor.

Lee’s departure could be a setback for the $376 billion firm, which has in recent years seen an expansion into adjacent avenues including reinsurance, as well as the scaling up of its biggest fund strategies, such as its global buyout funds, real estate and secondaries.

Lee had noted during the firm’s second-quarter results call that fundraising is most challenging in the corporate PE segment of the market. As soon as a new CEO is found, all eyes will be on them as they navigate a challenging time for the PE industry, marked by fundraising congestion, difficult market conditions and a looming recession.

Apollo’s next big thing
Tapping the private wealth opportunity at scale is no mean feat: an extensive network of wealth managers and private banks, liquidity constraints, human resources and the ability to navigate a multitude of differing regulatory barriers are just some of the obstacles to overcome. With that in mind, Side Letter was particularly interested to learn on Thursday that Apollo Global Management believes the channel could spawn its most substantial product within just 12 months.

Speaking on Thursday’s Q2 earnings call, chief executive Marc Rowan said its newly launched global wealth platform, Apollo Aligned Alternatives, has the potential to be the largest fund across the business by this time next year. “Our desire here is to be positioned in this market as a thought leader and as an innovator,” he added. “[We want to] create products specifically for this channel that really seek to eliminate friction points that historically have kept this channel from… embracing alternatives.” More in our coverage here.

Here are some other highlights from the call:

  • The firm has raised $13 billion in a first close for Apollo Investment Fund X, representing more than half of its $25 billion target. Fund X has raised a record amount of capital from the global wealth channel. A final close is expected in the fourth quarter.
  • Fund IX has approximately $1 billion of remaining capital.
  • Nearly 100 new people joined Apollo in the second quarter, including key hires in its family office and insurance departments. The pace of hiring is expected to slow down in the coming months, with “the vast scaling that we needed to do” now largely completed.
  • The firm sees the collapse of growth equity markets as a financing opportunity and challenge for once-highly valued companies. It aims to capitalise on this dislocation by providing preferred equity and creative debt structuring.

Speaking of wealth…
One of the world’s most successful venture capital firms is entering the wealth management space. Andreesen Horowitz, an early investor in companies such as Twitter and Facebook, is looking to offer wealth management services to its own partners and the executives of its portfolio companies, Bloomberg reports. a16z has hired Michel Del Buono as chief investment officer of the new unit. He comes from Jordan Park Group, where he advised on around $16 billion of assets on behalf of high-net-worth investors, according to his LinkedIn profile.

It is not clear which services Andreesen Horowitz will provide but its approach could mirror that of ICONIQ Capital. Founded in 2011 by three wealth management professionals from Goldman Sachs and Morgan Stanley, the firm today advises on $80 billion of assets on behalf of HNW clients, having built its track record managing the assets of Facebook executives Mark Zuckerberg, Sheryl Sandberg and Dustin Moskowitz. ICONIQ also manages funds, channeling a portion of its clients’ wealth into PE, VC and real estate assets.

Competition to manage the assets of wealthy individuals is heating up, with PE firms such as Blackstone and KKR among those leaning heavily into the channel. It will be interesting to see if those who built their wealth through tech will develop an appetite for it to be managed by investors cut from the same cloth.

Dyal up
GP-stakes giant Blue Owl has so far collected $10 billion for its fifth Dyal fund, per the firm’s Q2 earnings statement. Fund V had a $9 billion target, according to PEI data, and has already deployed $7.4 billion. The ongoing fundraise drove the firm’s GP stakes AUM to $45.7 billion as of 30 June, marking a 46 percent increase from last year. Of the $7.2 billion raised across all strategies, including direct lending and real estate, retail accounted for $3.6 billion. Dyal Fund III had generated a 31.2 percent gross IRR as of 30 June, with Dyal Fund IV at 112.1 percent.


Carlyle’s credit carrot for carbon cutting
Carlyle has launched a decarbonisation-linked financing programme through its credit platform, our colleagues at Private Debt Investor report (registration required). The programme will provide incentives for borrowers to reduce greenhouse gas emissions and achieve other climate-related targets. Carlyle claims it is one of the first decarbonisation programmes available in the US private credit market.

Borrowers will see pricing benefits tied to surpassing decarbonisation targets and other climate-related KPIs. Carlyle will work with its borrowers to assess and monitor KPIs, and its ESG team will provide ongoing support to assist firms in achieving these goals. The firm recently made its first two debt financings with decarbonisation-linked terms, supporting Morgan Stanley Capital Partners’ buyout of Fairway Lawns and the refinancing of American Industrial Partners’ portfolio company The Carlstar Group. Both deals contained pricing reductions relating to reducing greenhouse gas footprints and other ESG KPIs.

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

09 August

10 August

11 August

12 August

Today’s letter was prepared by Alex Lynn with Rod James, Helen de Beer and Carmela Mendoza.