CalPERS Notches 2.9x Gain On 2001 Carlyle Investment

David Rubenstein, Carlyle Group co-founder

The $237 billion California Public Employees’ Retirement System has reaped a 2.9x gain from its 4.2 percent stake in The Carlyle Group upon the firm’s initial public offering on Thursday, according to an exclusive analysis by Buyouts, peHUB’s sister magazine, based on a California Public Records Act request.

The CalPERS gain from its Carlyle stake is redemption of sorts for the giant pension, especially since its 9 percent stake in Apollo Global Management (one of the two other private equity firms that CalPERS directly invested in) has been a disappointment since going public in March 2011, losing 30 percent of its value.

Carlyle, a Washington D.C.-based private equity firm with $147 billion in assets under management, went public on Thursday morning. The firm, which was founded in 1987 by David Rubenstein, Daniel D’Aniello and William Conway Jr., is listed on the Nasdaq stock market under the symbol “CG.” Carlyle was trading at $22.33 in early trading on Thursday, close to its $22 offering price, giving it a market capitalization of $6.8 billion.

In 2001, CalPERS, which had been a long-time investor in Carlyle funds, decided to buy a 5.5 percent stake in the firm for $175 million. CalPERS had been one of two outside investors that owned pieces of the private Carlyle, the other being Mubadala, a sovereign wealth fund in Abu Dhabi, which currently owns a 7.7 percent Carlyle stake.

Since 2001, the CalPERS stake in Carlyle has been reduced to 4.2 percent, but after talking with spokesmen at both Carlyle and CalPERS, neither would say how or why the Carlyle stake shrank in proportion to when it initially invested in the firm. CalPERS owns 12.7 million shares in Carlyle, according to the firm’s offering prospectus.

Through a California Public Records Act request, Buyouts has learned that over the last 11 years, CalPERS received $225.2 million in carry, fees and distributions from its Carlyle stake. By adding these distributions to the $284.1 million current public value of CalPERS’s shares, CalPERS nets a combined, nominal value for its investment of $509.2 million. That figure represents a cash-on-cash multiple over its initial $175 million investment of 2.9x, and an IRR of between 12 and 13 percent over CalPERS’s 11 year ownership period.

CalPERS has also invested in 26 Carlyle funds since 1996, making commitments exceeding $4 billion, far more than the $175 million ownership investment in the firm.

By contrast, shares in Apollo have lost 30 percent of their value since the day the firm went public in March of 2011, when it closed at $18.20 a share. Apollo shares currently trade at $12.65, representing a loss in value for CalPERS of $167 million since the firm went public. CalPERS, which bought its 9 percent Apollo stake for $600 million in 2007, is currently prevented from selling its 30 million shares due to a two-year lock up provision. CalPERS can sell its shares in Carlyle after a 180-day lock up.

A third firm that CalPERS owns a stake in is Silver Lake Partners, the technology buyout specialist. CalPERS owns a 9.9 percent stake in that firm, but Silver Lake has not indicated that it intends to join Carlyle and Apollo among the small group of listed private equity firms. In 2010, CalPERS estimated that the value of its Silver Lake stake was worth $198 million.

Gregory Roth is a senior editor at Buyouts Magazine and peHUB. Follow his tweets @RothReuters. Follow Buyouts tweets @Buyouts.

Image Credit: Reuters/Fred Prouser

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