Private equity firm the Carlyle Group has denied that its other areas of business will be affected by the collapse of Carlyle Capital Corporation, a publicly traded mortgage-backed securit
Private equity firm the Carlyle Group has denied that its other areas of business will be affected by the collapse of Carlyle Capital Corporation, a publicly traded mortgage-backed securities fund whose Class A shareholders have agreed to its winding up after the company was unable to meet escalating margin calls.
The Carlyle Group has pointed out that Carlyle Capital is a Guernsey-domiciled, Euronext Amsterdam-listed public company whose board contains a majority of directors independent of the US partnership.
The Carlyle Group does not own any shares in Carlyle Capital, although principals and other employees at Carlyle collectively own around 15 per cent of the public company. The two organisations are separate legal and business entities, although a group subsidiary, Carlyle Investment Management, acts as investment advisor to Carlyle Capital under a contractual arrangement.
The Carlyle Group says that since difficulties in the credit market arose last August – just a month after Carlyle Capital raised USD345.5m from its IPO in Amsterdam – the group has supported it through its liquidity problems, including the extension of a USD150m line of credit provided by the Carlyle Group general partnership.
However, the group says no funds to support Carlyle Capital came from its outside investors or any of Carlyle’s other 59 investment funds, none of which have investments in the publicly trade entity, and it believes its collapse will have no measurable impact on any other fund sponsored by Carlyle or any of its portfolio companies.
The group said in a statement: ‘When the Carlyle Group created Carlyle Capital Corporation in 2006, it was designed to provide attractive risk-adjusted returns for shareholders by investing in a diversified portfolio of fixed-income assets consisting of US government agency AAA-rated residential mortgage-backed securities and leveraged finance assets.
‘Due to the low-risk, low-return nature of the US government agency-backed securities, a large position (and thus a correspondingly large amount of leverage) was required to realise gains substantial enough to warrant the investment.
‘At the time, this approach was time-tested in the market for these types of assets. Unfortunately, extreme volatility and market movement during this liquidity crisis created a hostile environment for Carlyle Capital and similar types of vehicles.’
The Carlyle Group manages USD81.1 billion in 60 investment funds (including Carlyle Capital) in buyout, real estate, growth capital and leveraged finance strategies worldwide. Since 1987, the firm has invested USD43bn of equity in 774 corporate and real estate transactions for a total purchase price of USD229.3bn.