Alternative asset manager Carlyle Group LP said on Monday it would shut its hedge fund-of-funds manager Diversified Global Asset Management Corp (DGAM), two years after it added the unit to its investment platform.
Toronto-based DGAM, which manages funds that invest in other hedge funds, had more than $6 billion in managed and advised assets as of April 30, 2015.
“Unfortunately, the challenging market environment made it difficult to scale in fund-of-hedge funds and liquid alternatives,” Chris Ullman, Carlyle’s head of global communications, said in an emailed statement.
Carlyle in December replaced Jacques Chappuis as head of investment solutions – the business which includes DGAM along with buyout and real estate fund-of funds.
The business’s distributable earnings, a measure of cash profit, tumbled roughly 70 percent in 2015, while overall distributable earnings fell 5.2 percent to $922.5 million.
It has been a difficult year for the U.S. leveraged buyout sector as the market for high-yield bonds and loans, the lifeblood of buyout deals, has almost ground to a halt, due to banks struggling to sell them.
Banks also are lending fewer of the riskiest junk-rated loans that fund buyouts, further tightening financing conditions.
The closing of DGAM “over the next several quarters” would mean Carlyle would incur modest wind-down costs over the next few quarters and a small goodwill charge in 2015, Ullman said.
But, closing DGAM would increase Carlyle’s distributable earnings in its investment solutions segment in 2016, Ullman added.
The closing of DGAM will leave Carlyle with two fund-of-funds managers – Metropolitan Real Estate Equity Management, a manager of indirect investments in global real estate, and AlpInvest Partners, which advises clients to invest in third-party private equity funds.
(Reporting by Ankit Ajmera in Bengaluru; Editing by Savio D’Souza)