Carlyle Group Targets First Buyout Fund Close as $200 Billion Fundraising Push Takes Shape

Carlyle Group NASDAQ: CG expects its next U.S. buyout fund to reach an initial close this quarter or next, as the firm prepares for a busy fundraising cycle across private equity, credit and secondaries, Co-President and Head of Private Equity John Redett said.

Redett said he felt good about the prospects for the fundraise, although raising private equity capital remained more difficult than it was five years ago. The timing of a first close depends in part on when several large limited partners commit, he said.

His comments came as the firm pursues a previously discussed $200 billion fundraising target over three years. The operator said $40 billion of that target was expected to come from wealth channels.

Capital Returns and Fund Performance

Redett said Carlyle was returning capital globally at a rate closer to 18% of net asset value, compared with roughly 12% for the private equity industry. In the U.S., Carlyle’s rate was above 20%, he said.

He attributed part of the difference to Carlyle’s diversified portfolio and its avoidance of an excessive concentration in software investments. Industrywide, slower returns of capital have made it harder for some limited partners to allocate money to private equity, he said.

Redett acknowledged that Carlyle’s CP VII fund had not met the firm’s expectations, but said management had outlined a path forward to investors. He did not directly address the likelihood of the fund generating carried interest.

By contrast, he said CP VIII, which is 75% invested, was positioned to be a strong fund. “We do not have” one or two companies in the portfolio that raise the concerns typically seen at that stage, he said.

Defense and Energy Opportunities

Carlyle is raising its first defense and industrial fund, focused on the U.S. and Europe, as well as a global energy fund. Redett said defense, energy, health care, financial services and industrials were areas of opportunity for the firm.

The defense fund will target more middle-market opportunities than Carlyle’s large U.S. buyout fund, he said. Redett identified cybersecurity, data protection, shipbuilding and conventional defense capabilities as areas of interest. He said drones were less attractive because of the large number of manufacturers and the difficulty of identifying a sustainable platform.

Redett also said Carlyle had announced its first deal for the defense fund, Secturion, which provides encryption for data in transit.

AlpInvest and Wealth Expansion

Redett highlighted a structured transaction led by Carlyle’s AlpInvest business that earmarked $5 billion for the current U.S. buyout vintage while providing liquidity to some fund investors. He said the response from limited partners was positive and that Carlyle was considering whether the structure could apply elsewhere.

AlpInvest’s market data and relationships have become more closely integrated with Carlyle’s investment businesses, he said. Redett also expects growth in credit secondaries, which he estimated at about $25 billion, compared with a $250 billion equity secondaries market.

In wealth management, Carlyle’s private equity product, CPEP, recently crossed $1 billion, Redett said. It went live on its first wirehouse platform a couple of months ago, with additional platforms expected in 2027 and 2028. He cautioned that growth in private markets products for individual investors would take time, particularly amid recent bumps on the credit side.

Margins and European Buyouts

Redett said he expects fundraising and asset growth to drive expansion in Carlyle’s fee-related earnings margin toward 50% or higher. Automation could help at the margin, he said, but growth rather than cost efficiencies would be the principal driver.

In Europe, where Carlyle has faced buyout challenges, Redett said the firm had changed leadership and rebuilt the team. He estimated the transition was about 90% complete and noted that the latest European fund would be substantially smaller than its predecessor.

About Carlyle Group (NASDAQ:CG)

The Carlyle Group Inc is a global alternative asset manager that invests on behalf of institutional and individual clients. Its business includes private equity, credit and investment solutions, including portfolios of private equity funds and related investments.

Founded in Washington, DC, in 1987, Carlyle has grown into an international firm with investment activities and offices across North America, Europe and Asia, among other regions. Its strategies span a range of industries and markets, and it works with businesses at different stages of development.

Harvey Schwartz became Carlyle's chief executive officer in 2023.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.