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Carlyle Group Spends Too Much Time Being A Private Equity Firm For Some People's Liking

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Eeevil conspiracy theory source The Carlyle Group filed for its IPO today, which makes sense because the best time to file for an IPO is during a global financial meltdown (better than filing in normal times and launching your roadshow into a meltdown, or not). The not so great news: they're too private equity-y for some people. Bloomberg reports:

Carlyle derived almost 70 percent of its profit in the first half from its mainstay business of buying and selling stakes in companies, more than double the amount at New York- based Blackstone, the world’s biggest private-equity firm by assets. Stock-market investors prefer more predictable sources of income, pushing both firms, along with KKR & Co. and Apollo Global Management LLC, to expand beyond debt-financed acquisitions of companies.

“The rules of the game are about generating stable and attractive cash flow going forward,” said Oliver Gottschalg, associate professor of strategy and business policy at HEC School of Management near Paris. “It means some level of diversification to make sure they are not overly reliant on one specific asset class.”

Wait, controlling the Bush and Bin Laden families isn't sufficient diversification?

That said there is some good news: Carlyle seems to be doing well at private equity. The filing reflects 2010 management fees of $574 million in the private equity business, on $38.9bn of fee-paying assets under management - or about 1.48% effective management fees, versus 1.39% for Blackstone and 1.15% for Apollo. More importantly, perhaps, Carlyle earned carry of 3.25% of its private equity assets in 2010, and 2.45% in the first half of 2011 - compared to 1.27%/0.85% and 4.74%/2.09% for BX and APO in their corporate private equity businesses.

Just for fun, if you assume that private equity firms get 20% of returns on their funds, then you can guess at the blended returns of Carlyle's private equity funds for the past few years - and they look pretty good. Here's indexed returns starting at January 1, 2008:

So investing in Carlyle stock won't diversify away private equity exposure - but investing in their funds seems like a decent way to get that exposure.

Carlyle Files for an I.P.O. [DealBook]


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