Carlyle raises $2.55 billion fund

The Carlyle Group has raised a new fund to pursue private equity investments in the region, closing Carlyle Asia Partners III with $2.55 billion of commitments.

The fund, Carlyle's third in Asia-Pacific ex-Japan, is more than 40% larger than its predecessor fund, Carlyle Asia Partners II, and takes the total capital Carlyle has committed to the region to more than $5 billion.

The new fund attracted interest from large institutional investors worldwide, including the US, Europe, Middle East and Asia. "We had more commitments from Asian investors than earlier," said XD Yang, co-head of Carlyle Asia Partners, in an exclusive interview. "Many of them were first-time investors in private equity."

Carlyle established its Asian private equity operation in 1999, and Carlyle Asia Partners group has made 21 investments in the region. Media reports earlier this year said Carlyle was seeking to raise $4 billion, which suggests the current fundraising fell short of the target. However, Yang refuted that a target amount had been disclosed, highlighting instead that at $2.55 billion the current fundraising is the largest private equity fund in Asia.

The fund will invest across Asia ex-Japan and in Australia, but Yang stressed that China has been, and will continue to be, Carlyle's most important market. Private equity in China is expanding from a very low base but China has come out of a recession faster than other countries, creating attractive investment opportunities. With few control deals available in China, Carlyle will continue to pursue minority stakes in investee companies, but will ensure it plays an active role in the management of those companies.

Carlyle invests in local companies through a team of 40 local professionals across seven offices in Beijing, Hong Kong, Mumbai, Seoul, Shanghai, Singapore and Sydney.

Like other financial sponsors that are active in the region, Carlyle is also developing a strategy to raise and invest renminbi private equity funds. In January, Carlyle Asia Partners signed a memorandum of understanding with the Beijing Municipal Bureau of Financial Work to form a renminbi-denominated fund in Beijing. The renminbi fund will invest alongside CAP III, while also pursuing independent investments in large growth companies.

Some sources suggest that investors in private equity funds have had to reduce their return expectations because the leverage available to deliver earlier promised returns has dried up. However, Yang points out that Asian deals were never driven by high levels of leverage, rather they were driven by high growth which continues to be the norm. Further, leverage is still available in Asian markets such as Australia, Korea and Taiwan, as banks in the region are not grappling with the same balance sheet issues as their counterparts in the West.