Carlyle Acquires AlpInvest

Leo Kolivakis's picture

Via Pension Pulse.

Robert Van Daalen and Paul Hodkinson of Dow Jones report in the WSJ, Pension Funds Sell Equity Arm to Carlyle:

AlpInvest
Partners, Europe's largest private-equity investor, has been sold to
Carlyle Group and the AlpInvest management in a move that looks set to
shake up Europe's buyout landscape.

 

Carlyle
and AlpInvest have entered into a joint venture that separates the
investor from its Dutch pension-fund owners, APG and PGGM, the parties
said Wednesday. A purchase price wasn't disclosed.

 

The sale
gives the pension-fund managers more room to invest their clients'
money in private-equity funds other than AlpInvest, PGGM Chief
Executive Martin van Rijn said. "We have multiple clients, and a sale of
AlpInvest gives us the opportunity to provide our clients with various
choices to invest in private equity," he said.

 

PGGM
and APG control the money of two of the Netherlands' largest pension
funds. They have committed an additional €10 billion ($13.68 billion)
in funds as part of the deal, Mr. van Rijn said.

 

"APG has
committed around €7 billion, while PGGM granted an additional €3
billion in investment mandates," he said. The funds will be granted in
the period from 2011 through 2015.

 

AlpInvest manages €32.3 billion in funds, mainly on behalf of APG and PGGM.

 

"Expanding
the scope of our global asset-management business will create new
opportunities for Carlyle investors who seek a proven fund-of-funds
platform," said David Rubenstein, managing director at Carlyle.

 

The transaction, which is subject to regulatory approval, is expected to close in March.

 

"Carlyle
is a strong, long-term partner for AlpInvest. This is critical given
the €32 billion in commitments we already manage today on our
investors' behalf," said AlpInvest Chief Executive Volkert Doeksen,
adding that Carlyle's global network and respected brand will help
AlpInvest broaden its investor base and product

scope.

 

With
about €265 billion of assets under management, APG is one of the
world's largest pension-asset managers. PGGM manages more than €100
billion of pension assets on behalf of some 2.3 million participants.

 

The AlpInvest board will comprise equal numbers of
members from Carlyle and AlpInvest's management. It will be chaired by
Mr. Doeksen and will include AlpInvest members Paul de Klerk and Tjarko
Hektor.

 

Some observers have questioned whether conflicts could
be an issue for the joint venture as AlpInvest has access to a large
amount of information on Carlyle's rivals.

 

However, the firms
said they have taken specific measures to ensure sensitive information
won't be shared. The firms have put in place a firewall that will mean
Carlyle executives will avoid having access to sensitive information on
firms, funds and specific deals. It means the Carlyle executives
sitting on AlpInvest's board will need to ensure the conversation is
kept to macro issues.

 

In addition, no Carlyle executives will sit
on AlpInvest's investment committees. This means AlpInvest's
management excluding Carlyle executives will have full independence in
deciding which firms to commit to, therefore lessening any ability
Carlyle might have in hurting rivals.

 

AlpInvest
has also agreed not to invest in Carlyle's future funds. This
effectively removes any problems that could arise if disagreements
arose between the firm and the investor on performance, strategy,
commitment defaults and a host of other areas.

 

Carlyle has
already contacted many of its rivals to gauge their reaction to such a
move, according to one source close to the process, and the rivals were
happy as long as the above safeguards were in place.

 

Other
mooted bidders for the operation had included U.S. fund of funds
HarbourVest Partners and U.S. fund of hedge funds Grosvenor Capital
Management.

Martin Arnold of the FT reports that Mr Rubenstein predicted that rival groups would follow Carlyle’s move into the fund-of-funds industry, adding that Goldman Sachs had shown how to invest both directly in deals and in rival funds without difficulty:

“Just
as Goldman Sachs runs a secondaries private equity fund as well as a
direct principal investment business, we are doing the same thing, and
there has never been a problem there,” Mr Rubenstein told the Financial
Times.

 

To address any conflict of
interest fears, he said AlpInvest would be banned from investing in
future Carlyle funds and from sharing any information with its new
parent that is provided by the other funds it backs.

 

The
deal, valuing AlpInvest at several hundred million dollars, cements
Carlyle’s position as the world’s biggest private equity group by
assets under management. Before the deal it managed $97.7bn of assets
in 76 different funds.

 

AlpInvest, which invests on behalf of
millions of Dutch civil servants, teachers and healthcare workers, has
secured a commitment from APG and PGGM to grant it €10bn of further
investment mandates over the next five years.

 

AlpInvest’s
managers, led by chief executive Volkert Doeksen, are investing their
own money to take a 40 per cent stake. The managers will split voting
rights 50:50 with Carlyle.

 

No Carlyle executives will sit on its investment committees.

 

PGGM and APG decided to sell AlpInvest last year after public criticism in the Netherlands over the high pay packages received by some of its top executives.

AlpInvest
paid €32.6m in salaries and wages to its 118 staff in 2009, of which
71 were investment professionals, after making €60m of revenues from
management fees and carried interest – a share of profits.

 

Carlyle has been expanding its product offering and last year it bought a 55 per cent stake in Claren Road Asset Management, a $4.5bn hedge fund.

 

The
Washington-based group – which once employed George H W Bush, the
former US president, and the former British prime minister John Major as
advisers – is expected to go public as early as this year, provided
market conditions improve.

 

APG and PGGM were advised on the deal by Credit Suisse and Catalyst Advisors.

So
what to make of this deal? In general, I'm not a big fan of hedge fund
of funds or private equity fund of funds. Double layer fees chew up a
lot of returns. Of course, AlpInvest
is one of the better managed fund of funds in Europe. Carlyle is
expanding its global presence to cash in when it goes public later this
year. Does this mean private equity is about to peak? Not necessarily
but they're obviously trying to time the markets right once they go
public. If all goes smoothly, Carlyle executives will make a mint off
the public offering. What remains to be seen is how well AlpInvest and
Carlyle investors fare in the future.