Carlyle Group Inc.,
one of the original private-equity powerhouses, has had a rocky stretch as a public company.The Washington, D.C., firm’s shares have significantly underperformed since its 2012 initial public offering. Though they have more than tripled over the period, based on a metric that takes dividends into account, the S&P 500 is up nearly fourfold. Meanwhile, shares of
Blackstone Group Inc.
are up more than 11 times,
Apollo Global Management Inc.
—more than nine times, and KKR & Co.—more than six times.
Carlyle’s stock has been held back by the company’s stumbles in its hedge-fund and other businesses, prompting it to exit them. Carlyle also focused on generating fees tied to investment performance, rather than on management fees, which are more highly prized by public investors for their steadiness and predictability. Its main rivals have raised more money than Carlyle, which was once known for its fundraising prowess and now manages about $250 billion. Chief Executive
55 years old, has made it his mission to clean up Carlyle’s problem areas and close the gap with competitors. The Albany, N.Y., native became the firm’s co-CEO in 2018 and its sole chief last year.
The State of Private Equity
He has simplified its sprawling fund structure and organized the firm into three distinct business units—private equity, credit and investment solutions, which helps clients build custom portfolios. Under his leadership, Carlyle has abandoned its partnership structure, which gave extra power to insiders via supervoting shares, and converted into a corporation, becoming the first of its peers to adopt a “one share, one vote” structure. And he has hired people to focus on areas like talent, fundraising, diversity and socially responsible investing. Now Mr. Lee is trying to position the 34-year-old firm for its next chapter of growth. At an investor event a couple of months ago, he outlined a strategy of “thinking bigger, performing better and moving faster.” In an interview, Mr. Lee said Carlyle’s strengths are its investment performance, global reach and culture. The challenge, he said, is preserving those elements while making needed changes, including improving communication among investment teams, streamlining global operations and encouraging more nimble decision-making. “Not a day goes by where I’m not always thinking about balancing the old with the new, and the stable with the need to progress,” he said. He has also set a goal of raising more than $130 billion in fresh capital by 2024. Investors will get an update on Carlyle’s progress with its first-quarter earnings report, scheduled for Thursday. Behind the fundraising target lies a worrisome reality. While trends have improved somewhat of late, Carlyle’s assets under management have grown much more slowly than those of its peers, even as the overall private-equity industry balloons.
‘Not a day goes by where I’m not always thinking about balancing the old with the new, and the stable with the need to progress.’
— Carlyle CEO Kewsong Lee
Globally, private-market assets under management have more than doubled since the end of 2012 to more than $9 trillion, according to data provider Preqin, as persistently low interest rates lead institutions to pour money into the asset class in a quest for yield. Yet the spoils haven’t been evenly distributed. At the end of 2012, Carlyle managed about $170 billion, roughly 80% of Blackstone’s total and significantly more than Apollo or KKR. By the end of 2020, Carlyle’s asset base represented less than 40% of Blackstone’s, and Apollo and KKR had both surpassed it. Meanwhile, firms that have elected to stay private, such as technology specialists Silver Lake and Thoma Bravo LP, have been raising bigger funds. There remains a question as to whether Mr. Lee’s plan will be enough to keep it relevant to institutional investors and investment talent in an increasingly crowded field of big funds. Most Carlyle employees appreciate the clarity of the new strategic direction under Mr. Lee, according to an internal survey the firm conducted, but a handful of senior investment professionals—some with tenures of two decades or more—have left amid the changes. When Mr. Lee joined Carlyle from rival Warburg Pincus LLC in 2013 to serve as deputy chief investment officer for the private-equity business, the firm was operating under the leadership of its three co-founders:
(Messrs. Rubenstein and Conway are now co-chairmen, while Mr. D’Aniello, who served for a period as chairman, is now a regular board member.) The three men had made most of the big decisions over the years, and they determined Carlyle’s investing would benefit from a fresh perspective, according to people familiar with their thinking. Mr. Lee’s arrival at the hidebound firm, however, immediately caused a stir. Mr. Conway, under whom Mr. Lee would be serving, hadn’t told
a Carlyle veteran and a hopeful for the position, that he planned to hire Mr. Lee, according to people familiar with the matter. Mr. Clare was so upset by the slight that he refused to come into the office until the founders coaxed him back, the people said. (Mr. Clare, now chief investment officer for private equity, among other titles, was elevated to Mr. Conway’s deputy alongside Mr. Lee in 2015.)
Mr. Lee has set a goal of raising more than $130 billion in fresh capital by 2024.
Mr. Lee successfully launched Carlyle’s long-term fund strategy, and in 2015, after he spoke passionately about the potential for the firm’s credit business, the founders granted him authority over its direction, too. The following year Mr. Lee orchestrated an exit from Carlyle’s struggling hedge-fund business and recruited
from Canada Pension Plan Investment Board to build and lead a stand-alone credit-investing platform, incorporating the credit-related strategies that were previously part of the hedge-fund unit. Carlyle’s credit assets under management have doubled to $56 billion since Mr. Lee assumed control of the business. He and Mr. Jenkins hope to double that again by 2024 by moving into new areas such as aviation finance and managing assets for insurance company Fortitude Re, which Carlyle and Japanese insurer
T&D Holdings Inc.
American International Group Inc.
last year. Mr. Lee has also overhauled the firm’s private-equity business. When he started, the firm had two dozen strategies, the product of its longtime practice of raising money around every investment opportunity that came along, no matter how limited. Previous Carlyle investors recall crowding into the Ritz-Carlton hotel in Washington for the firm’s annual meeting to hear Mr. Rubenstein pitch the latest offerings, which over the years included vehicles dedicated to investing in Ireland, Mexico and sub-Saharan Africa. Carlyle now has 16 strategies and has made investing in fast-growing companies a division of its flagship private-equity fund. The firm’s investment professionals now work with others who share their sector expertise and evaluate deals for both earlier-stage and established companies as an integrated team. “Kew has been very respectful of the founders and the past because it’s driven the success we’ve had today,” said
Carlyle’s co-head of U.S. buyout and growth. “He’s also not been afraid to make some changes. We need to keep evolving to be successful in the future.” Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
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