Tuesday, March 29, 2005

NEWS: WSJ- Carlyle's $10 Billion Fund

The private-equity industry has its first $10 Billion Man: Carlyle Group.

The Washington, D.C.-based fund that invests in corporate buyouts today will take the wraps off its newest funds, having raised $7.85 billion for making U.S. investments and an additional $2.2 billion for European purchases, according to Carlyle officials. The U.S. fund is the largest buyout fund ever raised.

And Carlyle will be able to borrow about $45 billion against that $10 billion. That total is more than the combined market capitalizations of Nike Inc. and Ford Motor Co., with plenty of change to spare.

Ego and hubris are an inevitable part of this world, and the race to create the first $10 billion fund has become an industry parlor game. But the sheer size of recent deals is forcing the firms to become ever-bigger pools of capital. Finding the funding is no problem for the field's biggest names. Cash is streaming in, offered by big pension funds, institutions and very wealthy investors seeking returns that historically are touted as outpacing the overall stock market. Carlyle, in fact, turned away about $2 billion in prospective investments.

...For the largest deals, "You are at a competitive advantage to drive the transaction if you can lead the equity with a $1 billion commitment," says Michael Klein, head of global banking at Citigroup Inc.

..."The capital is there, the financing is there and the kinds of companies willing to consider it are there," Citigroup's Mr. Klein said.

...In all, an estimated $1 trillion in capital is available to the world's private-equity firms, a figure that factors in the amount of debt that banks are willing to lend against the firms' raised equity.
Such scale brings its own set of challenges. Private-equity firms are relatively tiny organizations, often staffed by just a few dozen people. As they do more -- and bigger -- deals, they will have to expand their infrastructure. And pursuing bigger targets means they will have to stage more "club deals" that bring in capital from a group of firms. That raises concerns about management control and whether returns from these firms will begin to look the same.



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