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Rubenstein: All Carlyle funds will hit their hard caps

  • Fundraising environment “strongest I’ve seen”: Rubenstein
  • Demand for new funds reduces pressure on fees
  • Firm plans to raise $100 bln by end of 2019

Carlyle Group expects its new real estate fund to its hard cap. So will energy business NGP Energy Capital Management’s next vehicle, along with Carlyle’s new mid-market debt fund and its financial services fund.

In fact, the $162 billion asset management firm is projecting that all its closed-end funds will hit their hard caps.

“I expect we’ll hit the cap of every single fund we have in market,” Co-Founder David Rubenstein said during a first-quarter earnings call on May 3. He called the current fundraising environment “the strongest I’ve seen.”

Investors aren’t seeing much in the way of returns from anywhere else in their portfolios, which has driven up demand for PE and other alternative strategies offered by Carlyle and its peers, Rubenstein said. As a result, the firm’s new fund offerings have often met high demand.

Furthermore, demand is such that many limited partners aren’t able to invest their preferred amounts, given the size and timing constraints on Carlyle’s recent fundraises. The average PE firm spent 14.2 months marketing its new fund before holding a final close in 2016, Preqin data shows. That’s the speediest average amount of time spent on the road since at least 2009.

Rubenstein said he expected the firm to reduce the number of closings its funds hold in the future, compared with prior generations.

“If you don’t come into the first close, you’re not going to get your full allocation,” Rubenstein said, relaying what Carlyle’s had to tell some of its longtime investors.

The breadth and depth of LPs’ demand for new funds removed some of the pressure alternative-investment firms faced regarding management fees and carried interest as well, Rubenstein said. PE and real estate funds are generally considered among the most expensive in the asset-management industry.

“Investors are focused less on the fees at this point than they are in getting access to the fund,” he said. “It may change. But the fees are pretty much being accepted at this point because they’re realizing the returns they’re getting” net of fees are pretty great.

At least some of the demand stems from newer entrants to the asset class, including certain family offices and sovereign-wealth funds, Rubenstein said. While U.S. public pensions continue to represent a significant part of Carlyle’s fund investor base — roughly 30 percent — their slice of the pie narrowed as sovereign-wealth funds and family offices direct more capital toward Carlyle.

“Family offices are proliferating, not in the U.S. only but around the world,” he said, adding, “You’re seeing a big influence and influx from the feeder funds” banks raise for high-net-worth individuals.

Last year, Carlyle said it planned to raise $100 billion for new funds between 2016 and the end of 2019. The firm’s PE platform will represent around a third of that total, with its real assets business, which includes real estate and energy funds, accounting for another third.

Carlyle finished the first quarter with its corporate private equity unit up 9 percent, contributing to the firm’s second strongest quarter for value creation since its public offering in 2012. “The long-term strength of the underlying portfolio supports our goal to raise $100 billion by the end of 2019,” Rubenstein said in a statement.

Action Item: Learn more about Carlyle: www.carlyle.com

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