Thursday, October 4, 2012

Carlyle's Commodity Play

One item got little play in numerous stories about The Carlyle Group's investment in commodity player Vermillion Asset Management:

Today, Vermillion manages three commodities-focused strategies, including relative value, enhanced index and long-biased physical commodities. Each strategy utilizes Vermillion’s ability to make and take physical delivery, unique among its peer group.
Vermillion doesn't just sell commodity contracts/derivative bets.  It can physically hold commodities.  We've already heard about the European bacon shortage predicted for 2013.  Will Carlyle go for pork bellies via Vermillion?

Carlyle co-founder William Conway hates a level playing field.  How will Carlyle/Vermillion tilt the commodity field in its favor?

The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions.

Take the "million" out of Vermillion and substitute "min."  That spells vermin, which leads to the rat portion of Carlyle's growth.  Vermillion has $2.2 billion in commodity assets under management.  Carlyle wouldn't add TCW's $127 billion in assets to Carlyle's $156 billion.  Add the three together and it totals $285.2 billion under management.  How might Carlyle's financial muscle corner commodities?  Stay tuned.