Carlyle reviews GMS unit on hedge fund woes

  • Global Market Strategies unit hit by commodity losses
  • Other GMS units such as CLOs, loans ramping up
  • Firm replaced head of unit in May

Carlyle Group is reviewing its Global Market Strategies unit in the face of disappointing fee-related earnings at the business, which houses troubled hedge funds currently managing nearly $6 billion.

But other GMS units, such as its collateralized loan obligations business, remain strong, while its energy mezzanine and distressed business continue to grow quickly. Its middle-market credit business housed within GMS is healthy as well, the firm said.

Co-CEO Bill Conway said the firm plans to build its loan programs overall.

“Generally, the ability to originate loans is a good skill set to have,” Conway said, according to a transcript of the firm’s quarterly conference call.

The Washington firm expects fee-related losses within its GMS unit for the rest of 2016 because of expected losses in its Claren Road Asset Management and Vermillion hedge funds and associated commodities products.

In the past 12 months, fee-related earnings for GMS fell 74 percent to $9 million from $34 million in the prior 12 months. The firm said it’s analyzing steps to tackle the losses.

During the quarter, its hedge fund partnerships returned $600 million in gross redemptions to their fund investors.  Looking ahead, Carlyle said its hedge fund partnerships expect to return $1 billion to $2 billion in additional redemptions to fund investors over the next several quarters.  Carlyle said total assets under management for its hedge funds ended the quarter at $5.8 billion.

The comment on Carlyle’s second-quarter earnings update came after the firm in May said Kewsong Lee will supervise GMS while maintaining his title as deputy chief investment officer. Mitch Petrick stepped down as managing director of global market strategies to become a senior adviser to the firm.

Overall, Carlyle said its second-quarter economic net income fell 12 percent to $158 million from $180 million in the year-ago quarter. Its ENI per adjusted unit of 35 cents a share beat the estimate of 31 cents a share in a survey by Thomson Reuters.

During the quarter, Carlyle raised $5 billion in capital, or $3.6 billion on a net basis after redemptions, across its platforms. Broken out, its private equity business drew in $300 million for its Asia growth fund and co-investment pools.

Action Item: Carlyle earnings,

David Rubenstein, co-founder and co-CEO of Carlyle Group, speaks at the Milken Institute Global Conference in Beverly Hills, California, on May 2, 2016. Photo courtesy Reuters/Lucy Nicholson