Carlyle ‘refocusing’ Solutions business on secondaries, managed accounts

  • Carlyle to wind down DGAM
  • Solutions ‘refocusing’ on secondaries, managed accounts
  • Solutions reported lower ENI last year

Carlyle Group will shutter its fund-of-hedge-funds Diversified Global Asset Management as it works to rebalance its Investment Solutions business unit.

Bloomberg was first to report that Carlyle decided to shutter Toronto-based DGAM, which the firm acquired in 2014. The unit oversees less than $2 billion of assets, Bloomberg said. When Carlyle acquired the business, it managed more than $6.7 billion, according to a press release at the time.

“Unfortunately, the challenging market environment made it difficult to scale in fund-of-hedge-funds and liquid alternatives,” a Carlyle spokesman said in an emailed statement on February 22.

Carlyle has four investment groups: Corporate Private Equity, Real Assets, Global Market Strategies and Investment Solutions.

The asset manager couched the closure of the hedge fund business as a “refocusing” of Investment Solutions, which had $49 billion of assets as of the end of the year.

“By refocusing the Investment Solutions segment, we are concentrating our efforts on areas where we see real momentum: private market secondaries, co-investment and managed account activities,” the spokesman said. Carlyle pursues those strategies across its AlpInvest Partners and Metropolitan Real Estate platforms, which are both housed under the Solutions umbrella.

Investment Solutions has had some challenges recently. The head of the unit, Jacques Chappuis, stepped back into a senior advisory role at year’s end after running the business since early 2013. Chappuis was replaced by Lauren Dillard, formerly chief operating officer and chief financial officer of the group. Chappuis was one of several executives to leave over the past few years.

AlpInvest pulled two funds off the market last year after receiving tepid interest from LPs, sources told Buyouts in previous stories. AlpInvest instead chose to work on the strategies, which included energy secondaries and mezzanine, through managed accounts, sources said at the time.

Investment Solutions reported a loss of $7 million in economic net income, which measures realized and unrealized gains and losses, for the fourth quarter, according to its year-end earnings report. For the full year, the group recorded ENI of $5 million, down from $45 million in 2014.

Performance has been positive. Investment Solutions funds in their commitment periods generated a combined 15 percent net internal rate of return as of December 31, according to Carlyle. Overall, funds in the group have produced a 1.5x multiple and a 12 percent net IRR since inception.

AlpInvest Secondaries Fund V, which closed on $750 million in 2013, produced a net 23 percent IRR as of December 30, Carlyle said in the earnings report.

AlpInvest is in the market raising its sixth secondaries fund targeting between $6 billion and $7 billion Buyouts previously reported. The total would include $2 billion externally raised, with the balance in contributions from AlpInvest’s former parents, Dutch pension funds APG and PGGM.

Metropolitan, meanwhile, closed its Metropolitan Real Estate Partners Secondaries & Co-Investments Program on $550 million earlier this month, beating its $450 million target, Carlyle said.

Action Item: See Carlyle’s 2015 earnings report here:

Photo: Carlyle Group Founder and CEO David Rubenstein participates in the Washington Ideas Forum in Washington, September 30, 2015. REUTERS/Jonathan Ernst