Carlyle Launches $2.5B Domestic Fund, Europe Internet Effort –

The Carlyle Group today is set to launch its third U.S. buyout fund, which will boast a target of $2.5 billion-the year’s biggest in a comparatively quiet domestic fund market.

At the same time, the Washington, D.C., private equity group also will launch a fund to invest in European Internet ventures and has hired a top placement agent away from Merrill Lynch & Co.’s private equity group to aid that effort.

According to Jim Griffin, a vice president at Carlyle, Carlyle Capital Partners III, L.P. will look to invest in the same sectors targeted by the firm’s $1.33 billion second fund-namely the aerospace, defense, electronics, telecommunications and consumer products sectors. Carlyle’s Fund II held a final close in 1996 (BUYOUTS Sept. 30, 1996, p. 9).

Griffin declined to say if Fund III includes a cap.

Carlyle also will launch a separate venture capital fund today with a target of $250 million that will invest in Europe’s nascent Internet sector. Griffin described the sector as “virtually untapped,” adding Carlyle’s experience in Europe, as well as its experience running a $210 million U.S. venture capital fund, qualifies the firm for the effort. Carlyle already has tapped the manager of a large European company’s venture capital portfolio to head the fund, but Griffin declined to name him.

Last month Carlyle hired Merrill placement agent Thomas Fousse, who is based in London, to bolster the firm’s fund-raising capabilities among potential European limited partners.

Carlyle last year held a final close on its debut European buyout fund, rounding up some $1.1 billion (BUYOUTS April 20, 1998, p. 1).

“We are building an organization that has the capacity to reach around the world and touch fingers in terms of both fund raising and transactions,” Carlyle’s Jim Griffin said.

The current year has not seen the kind of mega-fund activity that took place in 1998. The only funds to rival the new Carlyle offering in size this year are two international funds from Kohlberg Kravis Roberts & Co. and former GE Capital Services Corp. chief executive Gary Wendt, which may garner as much as $3 billion each, and a technology buyout fund sponsored by Silver Lake Partners LLC which rounded up $2.25 billion.

Vestar Capital Partners also is currently in the market raising its third fund that has a $2 billion target (see story p. 4).

In 1998, buyout firms energized the fund market with no fewer than 15 mega-fund launches, most of which have a domestic focus. Industry observers have said the current lull is only natural after last year’s record-breaking pace. But sources also have said the end of 1999 and beginning of 2000 likely will see another flurry of mega-funds coming to market from groups such as Texas Pacific Group, Thomas H. Lee Co., Hicks, Muse, Tate & Furst Inc. and Apollo Advisors.

Two New Efforts Prime the Pump

A source close to Carlyle says the European Internet fund is only the first in a planned slew of private equity funds that will bear the Carlyle name-in the pipeline also are an Asia Internet fund, a Latin American buyout fund and a Japan buyout fund (BUYOUTS July 19, p. 1). The firm currently is raising a pan-Asia buyout fund that includes a cap of $1 billion, which Griffin said likely will close later this month.

“We are building an organization that has the capacity to reach around the world and touch fingers in terms of both fund raising and transactions,” Griffin said.

Carlyle’s near-perpetual fund marketing already has led the firm to establish a formidable in-house fund raising team. Earlier in the year, Carlyle enticed placement agents Lee Carson and Robert Brown away from Merrill with multi-million dollar contracts.

That Carlyle’s new fund has a target that is nearly double the amount raised for its second effort does not seem to concern some of the firm’s L.P.s. “They’ve built up an infrastructure which is quite capable of handling the additional capital,” said Frank Fernandez, the private equity portfolio manager at Florida State Board of Administration, which has a $200 million commitment to Carlyle’s second fund. Fernandez added Florida is giving “all due consideration” to re-upping with the firm.