Carlyle War Chest Not As Big As Targeted

Lowered expectations have hit a firm whose co-founder, David Rubenstein, is legendary for his fundraising prowess.

The Carlyle Group has closed its latest buyout fund at $13.7 billion, giving the Washington, D.C.-based firm a sizeable war chest for 2009 but falling short of its original goal of $15 billion. According to a source close to the situation, Carlyle now expects to raise $1 billion to $3 billion for a financial services fund, less than a $5 billion hard cap that a firm of Carlyle’s stature might otherwise have expected to hit with ease.

The news comes after fundraising for U.S. buyout and mezzanine firms fell in 2008 for the first time since 2003, as many investors lost their appetite for mega-funds that have relied heavily on leverage to generate returns. Christopher Ullman, spokesman for Carlyle, confirmed the closing to Buyouts, saying the firm is “very pleased” with the reception it received from limited partners. “We see this is as an indication of our investors’ continued confidence in our ability to do good deals,” Ullman said.

The firm’s original goal for Carlyle Partners V LP was set in the first quarter of 2007 prior to the deepening of the credit crunch and subsequent turmoil in the financial markets. The fund reached a number of interim closes along the way and it had pulled in nearly $13 billion before the end of 2007, according to Thomson Reuters data. Carlyle itself has felt the pinch of the tough economic environment, citing market conditions when it announced a 10 percent staff reduction last month.

Fund V is about 30 percent invested. Portfolio companies include Manor Care Inc., the Toledo, Ohio-based long-term care provider that Carlyle took private in a December 2007 deal worth $6.3 billion; and Sequa Corp., a maker of gas turbines which was also bought in late 2007 in a transaction valued at $2.7 billion.

Investors in Carlyle Partners V include the California Public Employees’ Retirement System, Conversus Capital, Teachers Retirement System of Illinois, The New York State Teachers’ Retirement System and The Wisconsin State Investment Board. CalPERS made a $1 billion commitment to the fund, and as of June 30, $220 million of that pledge had been drawn down.

Carlyle is also in the process of raising a fund earmarked for the financial services sector. According to an October filing with the Securities and Exchange Commission, the firm was targeting $5 billion for Carlyle Global Financial Services Partners LP, and had secured commitments of $477.3 million at that time.

A document from CalPERS in mid-December, however, provided some conflicting information. The LP disclosed a pledge of $150 million to the financial services fund but said Carlyle was targeting a final size of around $1 billion for the pool. CalPERS also provided a bit more detail on the pool’s mandate, saying Carlyle was planning to target distressed sellers and divisional carve-outs in the financial services sector.

The firm declined comment on the status of the financial services fund but our source close to the situation told peHUB, the sister Web site of Buyouts, that the $5 billion figure was a hard cap and that expectations for the fund were now between $1 billion and $3 billion.