Wednesday, March 14, 2012

Carlyle's New Fee: Secondary Sales Tax

Bloomberg reported via SFGate:

Carlyle Group LP, the private equity firm planning to go public this year, is making its next fund more liquid by offering to help investors exit their stakes early if they wish.

The firm, based in Washington, will give clients the chance twice a year to sell all or part of their stakes in Carlyle Partners VI LP, according to a private placement memorandum, a copy of which was obtained by Bloomberg News. The firm is attempting to raise $10 billion for the fund.
Why the need to sell PEU stakes?  

Stock market declines (during the financial crisis) sent less-liquid private equity holdings over investors' target allocations, making it more difficult for them to meet capital calls from fund managers.

The Carlyle Group made $681 million in capital calls to CalPERS.  Fortunately, CalPERS ponied up, something Carlyle refused to do with Carlyle Capital Corporation, its first publicly traded entity.  CCC went bankrupt.

Who wants to buy stressed PEU holdings?  It's Goldman Sachs Private Equity Group, Credit Suisse Group AG, Coller Capital Ltd., Landmark Partners, Partners Group AG,and Carlyle itself, indicating it may also purchase as much as 33 percent of each available interest.

This program may well be a lick and a promise, aka puffery.

Secondary buyers can exit the program any time, and Carlyle can terminate it at any point, the firm said.
It may depend on how much ka-ching it earns for Carlyle:

The matching program limits the amount of interests that can be sold in any six-month period to 5 percent of the fund's commitments. Buyers can hold no more than 15 percent of commitments to the fund, and sellers are required to pay an administrative fee to Carlyle.
It's the golden age of private equity.  I expect the antidote for America's ills may be toxic in and of itself.  .