Carlyle to miss deadline for $22bn fund as investors cool on private equity
Carlyle is struggling to raise the $22bn it had targeted for what it hopes will be its largest fund, as it grapples with a succession crisis and a market downturn.
The US buyout group has asked investors for an extension until the end of August, three people with knowledge of the matter said, after saying it expected to miss its target to raise $22bn by March 2023.
One of the people said it had so far raised about $17bn for the fund.
Buyout groups have raised new funds at a record pace in recent years as pension funds and other investors ploughed ever-larger sums into the industry, in the hope of higher returns during an era of low interest rates.
But as interest rates rise many of those investors are growing wary of locking up their cash in illiquid private markets, and some have hit or breached their maximum limits for the amount of cash they can commit to buyout funds. Retail investors are also pulling back, with Blackstone suffering heavy withdrawals from its real estate funds for wealthy individuals.
“Managers have been raising more frequently and [raising] much larger funds, and at the same time there is not a lot of liquidity for investors,” said the head of a large California-based investment group. “[Investors] have to find any method at all to free up capital and one of those is cutting allocation.”
One pension fund said it had cut its allocation to Carlyle by half. “The problem [private equity funds] have now is most investors are over-allocated and severely curtailing new investments,” said a senior executive close to the pension fund. “US, Canadian and European investors are allocating less so funds have to go to the Middle East and Asia to find new investors.”
Carlyle declined to comment.
Private equity funds raised a total of $697bn in 2021, the highest figure on record, according to data from Preqin. That has fallen to $537bn this year, the lowest level since 2015.
Apollo Global Management last month said it would take longer to raise its latest buyout fund. The group’s co-president Scott Kleinman said this was because of the “denominator effect”, meaning that the value of pension funds’ publicly traded assets have fallen but their private holdings have not, leaving them with too high a proportion tied up in private markets. Kleinman said he was “confident” Apollo would hit its $25bn target.
Carlyle, once a dominant force in the private equity industry, has fallen behind rivals such as Blackstone, KKR and Apollo which manage larger sums of money and have higher valuations.
Chief executive Kewsong Lee abruptly departed in August, having asked for a $300mn pay package that was rejected by the group’s co-founders.
Co-founder William Conway was made interim leader but has not named Lee’s permanent replacement. Conway last month said “the search continues” and that it was “making good progress finding the right leader”.
Asked on an analyst call last month whether Lee’s departure had hit fundraising, Conway said, “the short answer would be no”. The slowdown was because of “congestion in the markets”, he said.