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CalPERS Sets Sale Of Its Carlyle Stake

Pension: California Public Employees’ Retirement System

Assets Managed: $263 billion (May 31, 2013)

PE Assets Managed: $32 billion (May 31, 2013)

PE Allocation / Target: 12% / 14% (May 31, 2013)

Chief Investment Officer: Joe Dear

The sale of the stake in Carlyle — valued at $373.3 million as of the end of stock market trading on June 3 — comes 13 months after Carlyle’s initial public offering. Its shares have risen 34 percent since then.

Alternative asset managers such as Carlyle and Apollo Global Management LLC sold stakes to some of their biggest fund investors before they went public in a bid to raise cash. Their subsequent IPOs have given those investors an opportunity to more easily cash out on their investment.

CalPERS, which is the biggest U.S. public pension fund and is also an investor in many of Carlyle’s funds, acquired a 5.5 percent stake in Carlyle in 2001 for $175 million. That later got diluted to 4 percent. In May 2012, Buyouts reported CalPERS had until then received $225.2 million in carried interest, fees and distributions from its Carlyle stake, based on a California Public Records Act request.

Also accounting for Carlyle’s distributions as a public firm since May 2012, this would mean CalPERS stands to make close to 3.5 times its money on its Carlyle stake investment over a period of 12 years, calculations by Reuters show.

The move follows comments last year by a CalPERS official in which he said the giant pension preferred investing in private equity funds rather than buying stakes in sponsors.

“I think we’re better off concentrating on relationships from the LP side,” said Joe Dear, CalPERS’s chief investment officer, in an August 2012 Buyouts interview. “The real question is: Does investing in the GP and LP create a conflict for an investor like CalPERS?  By that I mean, the multiple assigned to the revenue flow from fees from private equity is greater than the multiple assigned to carried interest. That tends to mean that the firms will try and generate higher fee income. Well, who pays the fees? It’s the limited partners.”

The sale of the stake in Carlyle, disclosed in a regulatory filing on June 3, comes one month after CalPERS moved to sell a quarter of its 8 percent stake in Apollo. CalPERS joined Abu Dhabi Investment Authority and two of Apollo’s founders in selling some of its shares in New York-based Apollo. It raised $187.5 million by cutting its stake in Apollo to 6 percent from 8 percent.

Founded in 1987 by David Rubenstein, William Conway and Daniel D’Aniello, Carlyle had total assets under management of $176.3 billion as of the end of March, including in private equity, corporate credit and hedge funds.

Citigroup, Credit Suisse and JPMorgan will serve as the book-running managers for CalPERS’ offering.

CalPERS also has a stake in Silver Lake, a technology sector-focused private equity firm which, unlike Carlyle and Apollo, has not gone public. CalPERS acquired the 9.9 percent share in 2008.

CalPERS had $4 billion — equivalent to 10 percent of its private equity program — invested with Carlyle as of the end of the end of March, ranking the Washington, D.C.-based firm as the second-largest exposure in CalPERS’ private equity portfolio. It had $4.3 billion invested with Apollo and $1.1 billion invested with Silver Lake.

Greg Roumeliotis is a correspondent for Reuters in New York. Additional reporting by Gregory Roth.