Ramp up of Carlyle’s $50bn credit platform paying off in crisis-driven market

Carlyle has $7 billion of dry powder to invest in the current cycle, head of global credit Mark Jenkins told Buyouts, a significant portion of which will go into “transitional capital” opportunities.

Carlyle Group is today benefiting from a major expansion of its credit investment platform by tapping into the rich deal environment spawned by the health crisis.

“Over the past three-and-a-half years, Carlyle made building out a credit strategy a top priority,” Mark Jenkins, head of global credit, told Buyouts. “Now that we’ve entered a cycle that’s not very different from the financial crisis, a time of tremendous opportunity to make money, I’m feeling happy about where we’re positioned.”

Jenkins joined Carlyle in 2016 from Canada Pension Plan Investment Board, where he ran global private investments. A private debt specialist, he perhaps made his biggest contribution to CPPIB in developing a credit program from scratch and leading the 2015 acquisition of lender Antares Capital.

Carlyle’s leadership, including CEO Kewsong Lee, hoped Jenkins would undertake something comparably ambitious in the new job.

Carlyle’s goal, Jenkins said, was to turn a narrowly focused credit unit into an integrated, multi-strategy operation able to invest across the global market. This was to be achieved in part by accessing the firm’s broader networks and resources, including its private equity relationships.

Investor friendly

Jenkins said he approached the task by drawing on his experience at CPPIB and “looking at it from an investor’s perspective.”

“Having a monolithic strategy was never going to work for Carlyle’s large institutional base,” Jenkins said. “We needed to give our investors optionality in a strategy that could pivot across cycles and segments, doing any transaction we choose and delivering a range of performance opportunities.”

To do this, Jenkins and his team focused on overhauling the existing program and adding capabilities. In some cases, this meant filling important gaps.

Carlyle in 2017 recruited Alex Popov from HPS Investment Partners to co-head illiquid credit and design a new opportunistic strategy. The initiative, furthered by the hires of Oz Management’s Taj Sidhu and HPS’ Andreas Boye, led to the close last year of a $2.4 billion debut fund.

Carlyle is back in the market with a second opportunistic offering, targeting $3.5 billion, Bloomberg reported. Jenkins declined to comment.

The credit platform’s illiquid side also takes in mid-market direct lending and distressed and special situations. Priority was given to expanding direct lending, Jenkins said, resulting in the hire two years ago of Apollo Global Management’s Taylor Boswell as CIO.

Carlyle also developed, essentially from scratch, a real assets credit strategy. This was advanced with the 2018 acquisition of Apollo Aviation, a commercial aviation leasing firm rebranded as Carlyle Aviation Partners. The group manages assets of $5.9 billion.

A fifth aviation fund is now in the market. Carlyle has exceeded its $850 million target, a Form 10-Q document shows, raising $900 million to date. Jenkins declined to comment.

In addition, Erik Savi was last year brought over from BlackRock to establish a first-time infrastructure credit group. He is putting together a team, Buyouts’ sister title Infrastructure Investor reported, with the expectation of soon launching a fresh offering.

Taken together, initiatives since 2016 made the credit platform Carlyle’s fastest-growing platform, with managed assets nearly doubling to $50 billion, from $29 billion.

Investing in crisis

Carlyle’s rollout of a fully-fledged credit operation was fortunate in its timing.

It came as the economy was contending with the fallout of the covid-19 pandemic, with demand destruction and volatility creating severe liquidity challenges for businesses. Distressed debt also began to spike, generating opportunities for private debt funds to snap up assets cheaply.

Jenkins said Carlyle’s global reach and “informational advantages” are being used to weigh opportunities now and over the next 12 to 24 months. This is vital, he noted, as today’s credit cycle is “even more complicated” than the 2008-09 financial crisis.

For the moment, Jenkins does not see a “big opportunity set on the distressed side,” at least outside of certain vulnerable sectors. He also believes central banks helped alleviate the early liquidity issues of borrowers, leaving “their solvency issues” as a key focus for private debt.

Carlyle has $7 billion of dry powder to invest in the cycle, Jenkins said, a significant portion of which will go into “transitional capital” opportunities.

Jenkins said transitional capital is needed by companies across a range of industries and regions to navigate “an uneven recovery.” He expects related demand for direct loans, opportunistic credit and special situations financing to continue for several years.

Carlyle recently closed two deals of this type. In May, a debt financing package was provided by the opportunistic strategy to Adams Outdoor Advertising, an out-of-home media supplier. The following month, the direct lending group co-led a $125 million term loan for film and TV producer New Regency.

Room to grow

Jenkins puts no limits on the credit platform’s potential future growth. He is not looking, however, to ratchet up resources merely to match those of larger peers like Apollo and Blackstone.

“Carlyle’s goal is not be an asset gatherer,” Jenkins said. “We see performance as being more important than size.” He did not disclose the strategy’s return target.

Jenkins oversees more than 160 investment professionals located worldwide. Other senior team members include Shary Moalemzadeh and Ian Jackson, who lead the distressed unit, and Pat Boroian, a PE professional who this year joined from LNK Partners to run illiquid credit origination.

Another hire was made in the program’s third pillar, liquid credit, headed by Linda Pace. Earlier in 2020, Lauren Basmadjian was recruited from Octagon Credit Investors to focus on US structured credit.

Action item: Check out Mark Jenkins’ biography here.