Carlyle Liquidating Blue Wave

NEW YORK (Reuters) – Carlyle Group CYC.UL, the big private equity firm, said on Thursday it is liquidating its only hedge fund, Carlyle-Blue Wave Partners Management LP, after the fund failed to achieve “critical mass.”

Carlyle started the multi-strategy fund in April 2007 with two former Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) executives, Rick Goldsmith and Ralph Reynolds. But the fund, which traded debt and equity and held about $900 million at its peak, was hurt by widespread turmoil in the credit markets and posted losses in 2007.

While it posted returns of about 2 percent in 2008 in a subsequent equity-only strategy, beating the S&P 500 index .SPX, Carlyle said it could not sustain the cost of the staff and infrastructure, so it chose to liquidate the fund.

“This is an orderly liquidation to ensure fair and equitable treatment of all investors,” said Chris Ullman, a Carlyle spokesman.

The fund liquidation is a setback for Carlyle, which like other large private equity firms has sought to diversify its “alternative asset” strategies in recent years to better appeal to institutional investors.

The fund had a staff of about 40 people, which is large for the size of its assets under management, which is now about $600 million. Carlyle is a minority partner in the firm.

But other firms, including Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz) and TPG, have been more successful with their hedge funds.

Blackstone owns a $23 billion credit hedge fund, GSO Capital, along with a raft of other hedge fund entities, while TPG partly owns TPG Axon, an $16 billion-plus hedge fund managed by former Goldman Sachs top trader Dinakar Singh.

Ullman said the liquidation in coming months is not affecting its main private equity business, which has made investments worth $16 billion in enterprise value this year alone in 14 transactions. Carlyle is among the largest private equity firms with some $83 billion under management.

The liquidation comes amid tough times for the hedge fund industry, hurt along with other investment firms by slumping equity and credit markets. The industry posted a loss of nearly 1 percent in the first half, according to Hedge Fund Research, a research group.

(Reporting by Dane Hamilton; editing by Jeffrey Benkoe)

(Reuters email: dane.hamilton@thomsonreuters.com. 646 223 6161)