Wednesday, October 28, 2015

PEU Run on Carlyle's Claren Road

WSJ reported:

A struggling hedge-fund firm owned by Carlyle Group LP won’t immediately pay back about two-thirds of the nearly $2 billion that investors recently asked to withdraw, according to people familiar with the matter.
Investors badly want out of Carlyle owned hedge fund Claren Road.  Here's how Carlyle co-founder David Rubenstein characterized fleeing investors in the Q3 earnings call:

Well, I'd say first of all, over the last year -- it hadn't been a couple years, over the last year, the performance of hedge funds hasn't been what we hoped it would be, in either our emerging markets funds or in Claren Road -- that capital in the hedge fund business is not sticky capital. It depends usually on performance. A year or year and a half ago in Claren Road, they were turning money away, we were turning money away. And you get down and have a couple bad quarters and some people want their money back and that's part of the model. You given them their money back as best you can when that happens.

The last time Carlyle rolled up a hedge fund was July 2008.  That was four months after Carlyle stiffed a large number of investors with Carlyle Capital Corporation's bankruptcy.

It looks and smells like a PEU hedge fund run.  It's a dangerous time when the big money boys don't trust each other to pay back their debts.  That's when they turn to the little guy to make them whole.

Update 12-26-15:  Boxing Day finds Carlyle facing another $1 billion in Claren Road redemptions.