Target: Traxys Group
Sponsors: Carlyle Group, Louis Bacon
Sellers: Pegasus Capital Advisors, Kelso & Co, Resource Capital Funds
Financial Adviser: Morgan Stanley
Carlyle will buy the stake along with affiliates of investor Louis Bacon and Traxys management for an undisclosed sum from private equity firm Pegasus Capital Advisors, Kelso & Co and Resource Capital Funds.
The acquisition comes at a time when large banks such as JPMorgan, Morgan Stanley and Deutsche Bank AG are pulling the plug on physical commodities trading amid increasing government scrutiny and dwindling margins as demand from top importer China slows. This is opening up opportunities for trading houses and private equity firms to snap up established assets that offer them a quick foothold in top markets. Morgan Stanley sold the majority of its global physical oil trading operations to Russian state-run oil major Rosneft in December.
Traxys is a physical metals and minerals commodity merchant, logistics and trading firm with annual turnover of more than $6 billion, according to the joint statement from the companies. Louis Bacon is the founder and principal investment manager of New York-headquartered Moore Capital Management, which invests in global financial markets and private equity markets and is best known as a hedge fund.
Carlyle, which manages $189 billion in assets, acquired commodities hedge fund Vermillion in October 2012 for an undisclosed sum. But assets at Vermillion more than halved to around $900 million in the nine months to December, suggesting investor redemptions at the fund after some negative returns.
Commodities as an asset class have suffered from falling prices amid growing signs of an economic slowdown in China, the biggest buyer of most raw materials from copper and iron ore to rubber and cotton. Chinese Premier Li Keqiang recently hinted at some tolerance for slower economic expansion this year to push reforms aimed at providing longer-term and more sustainable growth.
Morgan Stanley was the financial adviser to Traxys for the deal, which is expected to close in the third quarter subject to regulatory approvals.
Stephen Aldred is a correspondent for Reuters in Hong Kong, Manolo Serapio Jr. in Singapore.