Could Carlyle Ownership Hurt AlpInvest Co-Invest Opps?

If The Carlyle Group buys AlpInvest Partners, as has been widely reported, it would put the Washington, D.C.-based firm in the odd position of being an indirect investor in more than 100 private equity funds.

Many of these include mid-market funds managed by the likes of Catterton Partners, GTCR Golder Rauner and Sentinel Capital Partners. But it also includes some larger funds managed by firms that play in the same large deal market as Carlyle, such as Bain Capital, Blackstone Group, Hellman & Friedman and KKR.

Does that concern GPs? One executive at a firm that counts AlpInvest as an investor told Buyouts he and his partners have had a few informal discussions about the Carlyle-AlpInvest deal, as they did when Blackstone bought debt investor GSO Capital Partners.

He said they wouldn’t be concerned knowing that Carlyle is an owner of the fund-of-funds manager. “For LPs in the fund, we share confidential information with them, but I’m not sure it’s information that would be competitively damaging to us, even if Carlyle did get to it.”

This firm would, however, be more apprehensive about inviting AlpInvest to co-invest on a deal, a scenario in which AlpInvest would be privy to much more sensitive due diligence on a target. Similarly, this executive said his firm is less likely these days to call on GSO Capital to provide sub-debt for a transaction. “If word got to Carlyle, they could come in and buy the company,” the executive said. “I don’t think that would happen, knowing the people at AlpInvest. But it would give us pause in doing it.”

Carlyle, however, would undoubtedly try to alleviate that concern. A source familiar with the progression of talks between the firms suggested Carlyle would implement some sort of firewall structure to prevent conflicts of interest. “Establishing methods to avoid conflicts is standard practice on Wall Street and would certainly be employed here,” he said.

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