Carlyle Group Holds First Close for Asia Fund –

The Carlyle Group in late March held a first close on $450 million for Carlyle Asia Partners, L.P.

The firm is one of five buyout groups-including Chase Capital Partners, H&Q Asia Pacific, Newbridge Asia and Prime Enterprises-that have been out in the last nine months raising midsize funds for investments in Asia. With the possible exception of Chase, all of the five sponsors have had difficulty raising capital, say sources close to the fund raisings.

Last June, Carlyle launched its first Asia fund, setting a $1 billion goal; at the time it expected to wrap the vehicle by the end of 1998 (BUYOUTS April 20, 1998, p. 1). The firm now is projecting a final close this summer, six months later than expected and likely garnering a little less for the fund than anticipated.

However, Jim Griffin, a Carlyle vice president who is raising the fund, said he is not disappointed with the results. He describes the fund raising as successful and believes firms now raising capital for buyouts in Asia are ahead of the curve.

More L.P.s will be looking to invest in Asia a year from now in the same manner that they are now investing in buyout funds targeting Western Europe, Mr. Griffin said. Washington, D.C.-based Carlyle was one of the first U.S. firms to launch a buyout fund to invest in Europe when it raised the $1.1 billion Carlyle European Capital Partners, L.P. in 1997 and 1998 (BUYOUTS April 6, 1998, p. 8). “The chase around the world will be where people feel there are inefficiencies in the market,” Mr. Griffin said.

Interest Persists, In Spite of Problems

Even so, differences between the markets are obvious, not the least of which is that Europe has seen boom years recently while Asia overall still flounders and the historical private equity investments made in Asia have been for minority stakes.

Meanwhile, H&Q Asia Pacific launched H&Q Asia Pacific IV, L.P. in September setting a $700 million target (BUYOUTS Oct. 26, 1998, p. 6). The fund, however, has not attracted much interest, despite having Merrill Lynch & Co. as its placement agent. HarbourVest Partners, LLC, an anchor investor in its third fund, has decided not to commit to this effort, leading other potential investors to question the reason for its absence, several G.P.s who invest in Asia said. Partners at H&Q Asia Pacific did not return calls.

Donaldson, Lufkin & Jenrette has also had problems raising an Asian fund. It has backed Prime Enterprises, which, after more than a year, has only held an $88 million first close on the $200 million Prime Enterprises II, L.P.

Newbridge Asia-backed by Texas Pacific Group and Richard C. Blum & Associates, L.P.-launched a $250 million fund in 1997 (BUYOUTS Aug. 4, 1997, p. 3); Newbridge only now is preparing to wrap the fund at about $400 million. Newbridge Asia II, L.P. experienced delays after Managing Director Peter Kwok resigned to join a Hong Kong-based bank (BUYOUTS Nov. 24, 1997, p. 3).

G.P.s have a dilemma when setting targets for Asia private equity funds. Because of the currency crisis, G.P.s believe they need to acquire controlling positions in Asian companies so they can return companies to fiscal health. Yet, the large funds G.P.s believe they need to raise to acquire those positions, and to make up for the lack of debt available to finance buyouts in Asia, have the tendency to scare away potential investors.

“When we see a big number, we consider it to be a bit aggressive,” said Jay Fewel, the senior investment officer in equities at Oregon State Treasury. “The firm needs to justify why the target is that high, and it has to be a reasonable explanation to boot.”

Treading Lightly on Foreign Soil

L.P.s, like Oregon, are considering making investments in Asia but are doing so cautiously. “We don’t have much exposure to Asia, so we we’ll look at groups that have been in the region for some time,” he said, adding the pension has yet to commit to Carlyle, H&Q or Newbridge Asia but will consider those and other vehicles. He said the pension would consider committing capital to more than one buyout fund making investments in Asia.

Carlyle raised about half of its $450 million from non-U.S. investors, and almost all the L.P.s that have committed to the fund have been prior L.P.s in other Carlyle funds, Mr. Griffin said.

The firm made a move last month that could give comfort to some potential investors. Carlyle named long-time director Peter Claire a partner and transferred him to Hong Kong to help invest the fund. “Our direction with Peter Claire is importing the Carlyle LBO model to Asia,” Mr. Griffin said.

Carlyle is interested most in investing in Thailand and South Korea but will consider investments in the rest of Asia. Its investment team is led by Steven Orlins, former director of Lehman Brothers Asia, and the fund’s advisory board includes former President George Bush, former Philippines President Fidel Ramos and former Thailand Prime Minister Anand Panyarachun.

There are several groups that recently have dared to travel the dangerous Asia fund-raising path. Chase Capital Partners, for example, now is raising a $750 million vehicle targeting the region and has hired Monument Group to market its fund to institutional investors (see story, p. 1). Also, Capital Z Investments, L.P. is raising the $350 million Capital Z Asia Partners, L.P. (BUYOUTS Feb. 8, p. 4), while Unison Capital has started raising a $400 million fund to pursue buyouts in Japan (BUYOUTS March 8, p. 16)1