Carlyle Eyes China With $3.5B Target For Fourth Asia Fund

Carlyle, which stepped up in the Asia market with the $750 million Carlyle Asia Partners I Fund in 1998, has since raised a succession of funds, most recently the vintage 2008 Carlyle Asia Partners III, which raised $2.6 billion, and the $1.8 billion Carlyle Asia Partners Fund II in 2006.

The team in the region, which includes 45 members in seven offices, is headed up by 10 managing directors including Janine Feng, Simon Moore, Devinjit Singh, XD Yang and Greg Zeluck. Carlyle Group looks to invest in core industries such as consumer/retail, financial services, telecommunications, media, industrial and health care.

Ranking as the firm’s most successful Asia fund, the 1998 CAP I Fund rang up an estimated net internal rate of return of 25.1 percent as of Sept. 30. 2012, according to a confidential marketing document obtained by Buyouts. CAP II Fund generated a net IRR of 7.9 percent, while 2008’s CAP Fund II rang up a net IRR loss of 5.5 percent through same period.

“Fund I was definitely best in class,” said one placement agent who reviewed the performance data. “Fund II was respectable for the vintage. Fund III may not look exciting on an absolute basis, but relative to the peer group, it managed to survive the downturn even as others failed.” Overall, the placement agent said Carlyle Group would be viewed as a “safe pair of hands” in Asia by prospective limited partners.

Goldman Sachs Asset Management clients were pitched an access fund for Carlyle Asia Partners IV Fund in October with a total fundraising goal of $200 million, according to the marketing document. Carlyle Group was targeting a January close for the overall fund, which offered a minimum subscription of $5 million and a commitment period of five years from the date of final closing. A spokeswoman for Goldman declined to comment.

Including co-investments, Carlyle Group invested $5.8 billion in 30 companies through its first three Asia funds as of Sept. 30, 2012 for a total value of $13.5 billion in deals, according to the marketing document. Thus far, China has drawn the largest chunk of investments, totaling about $2.6 billion, followed by $1 billion in Taiwan, $770 million in Australia/New Zealand and $630 million in Korea.

While the fund’s focus comprises all of Asia, Carlyle Co-Founder and Co-Chief Executive Officer David Rubenstein recently said China stands out as a top pick for the Washington-based firm.

“I think next to the United States, to me the most attractive place in the world to invest has been for the last five years or so and will be for the next five, ten, fifteen years, or so, China,” Rubenstein told attendees at his keynote address earlier this month at the PartnerConnect conference in Boston. “It is going to be the biggest economy in the world in our lifetime.”

That said, Carlyle Group faces a challenging environment as the marquee private equity firm looks to close its $4 billion acquisition of Focus Media Holdings Ltd.as the largest leveraged buyout in China.

In what could be its most high-profile deal yet in China, Carlyle Group is leading a consortium including FountainVest Partners, CITIC Capital Partners and China Everbright to buy the operator of advertising video screens based in Shanghai. The deal, announced last year, was scheduled for a shareholder vote in Hong Kong on April 28.

The deal has run into opposition from hedge fund Muddy Waters. Known for shorting Chinese Internet companies, Muddy Waters continues to criticize Focus Media, including allegations of exaggerating its assets and paying too much for acquisitions.

Focus Media disclosed on Jan. 18 that the Securities and Exchange Commission launched an investigation into possible violations of federal securities laws. The company published its most recent rebuttal to Muddy Waters on Feb. 9.

Carson Block, head of research and founder at Muddy Waters LLC, told Buyouts the SEC apparently “had Focus Media in its crosshairs” and the take-private deal “seems to be about escaping the scrutiny.”

A spokesman for Carlyle Group declined to comment on Muddy Waters’s statements or the Carlyle Asia Partners Fund IV.

Meanwhile, competition from other big private equity firms is heating up, as Kohlberg Kravis Roberts & Co has recently sought $6 billion for its new Asian fund and TPG Capital has recently sought a $4 billion pan-Asian fund, its sixth, according to published reports.

Buyouts Senior Editor Gregory Roth contributed to this report