Frequently Asked Questions About
The Carlyle Group and Alternative Asset Management:
The Carlyle Group
- What is The Carlyle Group?
- Who owns The Carlyle Group?
- How is the firm structured?
- Who are your investors?
- How is Carlyle different from other alternative asset managers?
- Why doesn’t Carlyle publish detailed accounts of its funds’ performance? How about audited financials of The Carlyle Group itself?
- Who benefits from Carlyle’s investments?
The Alternative Asset Management Industry
- What is alternative asset management?
- Who can invest with The Carlyle Group?
- What is a leveraged buyout?
- What is growth capital?
- What is credit alternatives?
- What's the difference between alternative asset managers and hedge fund managers?
- How do alternative asset managers change the short-term mindset and enhance growth?
- How do alternative asset managers add value to companies they invest in and help them to improve performance?
- Are alternative asset manager-owned companies more or less inclined to promote research and development?
- Why are the returns in alternative asset management typically higher compared to the public markets?
The Carlyle Group
1. What is The Carlyle Group?
The Carlyle Group is a global alternative asset manager with $90.5 billion of assets under management committed to 67 funds as of March 31, 2010. Carlyle invests across three asset classes - private equity, real estate and credit alternatives - in Africa, Asia, Australia, Europe, North America and South America focusing on aerospace & defense, automotive & transportation, consumer & retail, energy & power, financial services, healthcare, industrial, infrastructure, technology & business services and telecommunications & media. Since 1987, the firm has invested $60.6 billion of equity in 969 transactions. The Carlyle Group employs more than 880 people in 19 countries. In the aggregate, Carlyle portfolio companies have more than $84 billion in revenue and employ more than 398,000 people around the world.
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2. Who owns The Carlyle Group?
Carlyle is a private partnership, which means that it is owned by a group of individuals, most of whom are Managing Directors at Carlyle, and two institutional investors. CalPERS, the California Public Employees Retirement Systems, owns approximately 5 percent, and Mubadala Development Company, a strategic investment and development company headquartered in Abu Dhabi, owns 7.5 percent. The companies and real estate in which Carlyle invests are owned by the funds that made the investments.
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3. How is the firm structured?
Carlyle, with more than 880 employees, is based in Washington, DC and has 27 offices in 19 countries. Day to day management of the organization is conducted by its three Co-founders and Managing Directors, William E. Conway, Jr., Daniel A. D’Aniello and David M. Rubenstein. Carlyle has 166 Managing Directors and Senior Advisors and 425 investment professionals. One of the reasons Carlyle has a large staff is because many of the roles other private equity firms contract out are done in-house at Carlyle, including investor relations, accounting oversight, deal sourcing and due diligence and various investor services.
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4. Who are your investors?
Carlyle's 1,300 investors from 72 countries are public and private institutional investors and high net worth individuals. Carlyle does not disclose information about its investors.
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5. How is Carlyle different from other alternative asset managers?
Carlyle's global presence and local market knowledge sets us apart from other alternative asset managers. We have Global Vision : Local Insight - Global because Carlyle operates 67 funds in 19 countries; Local because our 425 investment professionals work in their home countries. Carlyle is also different because of its conservative investment philosophy; rather than swing for the fences with every investment, we strive for consistency, hitting singles, doubles, and triples with fewer strike-outs. Carlyle investment professionals also invest their own money (currently $3.7 billion) alongside our investors, so when we say we treat our investors' money like our own, we mean it.
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6. Why doesn’t Carlyle publish detailed accounts of its funds’ performance? How about audited financials of The Carlyle Group itself?
As a private partnership, Carlyle is not subject to the same disclosure rules as public companies. Nonetheless, this website contains a wealth of information about Carlyle, its investment professionals, investment approach and portfolio companies. However, Carlyle does provide great detail on our investments and performance to our investors.
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7. Who benefits from Carlyle’s investments?
Carlyle invests on behalf of public and private institutional investors and high net worth individuals. In many cases, our institutional investors are pension funds that represent state and city employees and workers at large corporations. Indirectly, millions of people are investors in Carlyle funds. We are proud of the fact that millions of people are able to benefit from the success of Carlyle’s investment activities.
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The Alternative Asset Management Industry
1. What is alternative asset management?
The alternative asset management industry encompasses many disciplines and derives from the practice of investing primarily private capital in primarily privately held companies, real estate or other assets.
Alternative asset managers establish funds that raise capital from investors – who are referred to as limited partners, or LPs. The alternative asset managers – known as general partners, or GPs – invest their own capital along with the capital raised from investors. With the combination of equity and the borrowed funds, the general partners buy companies that they believe could achieve significantly greater growth and profitability with the right infusion of talent and capital.
Alternative asset managers typically hold companies for about three to seven years, and then sell them, hoping to realize a gain on the sale as a result of the increased value they have created for the portfolio companies during their period of ownership. Importantly, Carlyle only makes money if our investors make money.
The size of the capital gain directly relates to the increase in value the investment firm has created. Between 1991 and 2006, private equity firms worldwide returned more than $430 billion in profits to their investors, according to Private Equity Intelligence (London), 40% of which were public and private pension funds and foundations.
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2. Who can invest with The Carlyle Group?
Because of applicable U.S. securities laws, firms such as Carlyle work only with "accredited investors" and "qualified purchasers" as those terms are defined under the securities laws. These types of investors are highly sophisticated investors with considerable financial resources, such as high net worth individuals and institutional investors. Carlyle is prohibited from offering its products to the general public under applicable securities law regulations.
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3. What is a leveraged buyout?
Carlyle engages in management-led buyouts, which are the purchase of companies in cooperation with the current management. A combination of equity and debt is used for the typical transaction. The equity mostly comes from Carlyle’s various funds and other “co-investors” and the debt typically comes from major banks.
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4. What is growth capital?
Growth capital is money invested in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition usually without a change of control of the business.
Companies that seek growth capital are likely to be more mature than venture capital funded companies, and they are able to generate revenue and operating profits but unable to generate sufficient cash to fund major expansions, acquisitions or other investments.
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5. What is credit alternatives?
Carlyle's high yield investments consist of structured vehicles known as Collateralized Debt Obligations (CDOs) that primarily invest in a portfolio of non-investment grade assets. An equity investment in the CDOs affords investors the opportunity to diversify their holdings and gain exposure to the high yield fixed income and leveraged bank loan markets.
Mezzanine is the level of securities that resides between common equity and senior debt and includes preferred stock and senior subordinated debt. Mezzanine investments have high risk adjusted returns with significant current income.
Distressed or "strategic" investments are made in the debt of operationally sound, financially distressed, U.S. middle market companies using a control-oriented strategy that focuses on the debt of smaller, less liquid issuers in industries in which Carlyle has demonstrated expertise. Distressed investing offers investors the opportunity to earn high, risk adjusted returns.
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6. What’s the difference between alternative asset managers and hedge fund managers?
Alternative asset managers seek to create value over the long-term (typically 3-7 years), while hedge funds typically have a much shorter time horizon. Alternative asset managers typically buy and own whole companies and help them realize earnings growth over time. Alternative asset managers succeed only when the companies they own succeed.
Hedge funds are pools of capital that usually invest in stocks, bonds, or commodities. Typically, they do not purchase a controlling interest in a company (although some may do so). Rather, they try to capitalize on short-term gains, using complicated trading strategies involving options and other derivative financial instruments. In some cases, hedge funds bet against the shares of companies they don’t own, hoping to profit from a falling price. The typical holding period for a hedge fund investment is weeks or months, not years.
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7. How do alternative asset managers change the short-term mindset and enhance growth?
It is important to understand one overarching truth about private equity: The entire investment hinges on improving the business and increasing its value. If the alternative asset manager fails to do that, it loses its own money, its investors lose their money, and its ability to raise future funds is undermined.
The essence of alternative asset management is the alignment of the interests and incentives of the management with that of the owners. That is the reason why Carlyle usually requires the management of companies we buy to invest their own money into the company so they have a vested interest in its success.
Carlyle and other alternative asset managers also enable companies and the management to have a sharper focus on how capital is allocated across the business – without the constant pressure of delivering quarterly results to public shareholders. Shareholders and their company managers have a single objective: Grow the company’s value. Thus, they can make business decisions solely focused on that goal.
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8. How do alternative asset managers add value to companies they invest in and help them to improve performance?
According to a 2007 study by Ernst & Young, two-thirds of the earnings growth (before taxes, interest and capital expense) at PE-owned portfolio companies came from business expansion, with organic revenue growth being the most significant element.
The investment firm must add new capabilities to the company it buys by adding new products, increase competitiveness by reducing waste and improving operations and grow revenues by entering new markets or finding new customers to make any money for itself or its investors. And it needs to develop, implement and successfully execute a compelling business strategy.
The best alternative asset managers today deliver deep expertise in the sector in which the investment is being made; a performance culture that rewards entrepreneurialism and results; managerial and functional capabilities (IT, for example); and an ownership structure that allows even the toughest decisions to be made quickly.
The Carlyle value-creation process often involves facilitating customer introductions and business alliances to increase the revenues of portfolio companies. Carlyle also helps portfolio companies identify opportunities that enable growth, such as strategic acquisitions and expansions, to enhance the value of its investments.
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9. Are alternative asset manager-owned companies more or less inclined to promote research and development?
A study led by Professor Lerner of 5,000 U.S. transactions over a 25-year period, commissioned by the World Economic Forum, found that U.S. companies owned by private equity firms are significantly more likely to pursue economically important innovations than companies that are not owned by private equity investor.
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10. Why are the returns in alternative asset management typically higher than the public markets?
In the world of investing, rates of returns correlate well with rates of risk: the greater the risk, the greater the return; the lower the risk, the lower the return. Alternative asset investments are among the most risky investments. Nonetheless, Carlyle is a conservative investor, which is why we have few “black holes or blow-ups,” which are large investments that fail.
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