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Revolutions and Disaster Don’t Rattle Carlyle’s Outlook

The Carlyle Group remains positive on investment opportunities despite the turmoil in the Middle East and North Africa and the environmental catastrophe in Japan.

While acknowledging that those events have dampened what would otherwise be a more bullish outlook, Peter Clare, co-head of the Washington, D.C-based global investment firm’s U.S. buyout group spelled out Carlyle’s rationale in an interview with Buyouts regarding Q1 deal activity.

“It’s really a combination of factors that get us to that view,” Clare said. “First is an environment where because of government actions around the world, there are low interest rates and high levels of government spending that can push some level of economic stimulus. Second, there are positive growth dynamics in emerging markets (such as China, India and Brazil). Third, in the more mature markets, there have been significant cost reductions and efficiency measures companies put in place during the Great Recession that are leading to record profits and creating the ability for those companies to invest again, which will further spur growth. And finally, we’re coming off of low levels of economic activity.”

Regarding Japan specifically, Clare pointed to the firm’s recent post-earthquake acquisition of steel ball manufacturer Tsubaki Nakashima Co. as evidence of Carlyle’s confidence in the country. “In the long run, Japan will return to a healthy state.”

The first quarter was the first in a while where Carlyle’s U.S. buyout group’s time was balanced between investing in new deals, making exits and working with companies in the portfolio, Clare said. By contrast, much of the group’s sweat in recent years was spent on shepherding investments through the recession. “The first quarter of 2011 was the first time we were back to a more normal course of operations,” Clare said.

Carlyle’s U.S. buyout team invested or committed about $2.87 billion in Q1 in three deals—the acquisitions of CommScope Inc. and Syniverse Technologies, and Carlyle’s partnership with various entities to buy more than $5 billion of shipping vessels.

On the exit side, the U.S. buyout group closed or announced deals in Q1 that would distribute about $3.1 billion to investors through the initial public offerings of BankUnited Financial Corp. and Kinder Morgan; the sale of UCI International, JMC Steel Group and the real estate assets of Manor Care Inc.; and stock offerings from SS& C Technologies and Hertz Corp.

But while deal activity was more balanced, Clare agreed with what many in the industry are saying: there was a drop off in new deal activity after a frenzied Q4 2010. Though the CommScope and Syniverse deals closed in Q1, Carlyle agreed to the deals in Q4 2010. “There was a reasonable level of activity but it was not robust. A lot of capital we invested in Q1 was committed in Q4.”

Speaking about Carlyle’s fund activity, Clare said the firm has invested about 60 percent of its $13.7 billion fifth fund, which the firm finished raising in January 2009. He declined to comment on the firm’s future fundraising plans.

Bernard Vaughan is a Senior Editor at Buyouts Magazine. Follow his tweets @BVaughanReuters. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at greg.winterton@thomsonreuters.com.