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Carlyle Group lays out some collusion case settlement details

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Dan Primack
Dan Primack
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By
Dan Primack
Dan Primack
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October 29, 2014, 11:32 AM ET
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The Carlyle Group (CGO) reported third-quarter earnings this morning, with hedge fund weakness causing a 15% loss in economic net income (before taxes) from Q3 2013. On the upside, the alternative asset giant beat analyst profit projections by a penny per share.

Three quick items from the earnings call:

1. Carlyle has secured around $600 million in LP commitments for its third Japan-focused fund, which is targeting $1 billion. It also is around 60% of the way toward a €500 million-targeted European tech fund. Firm co-founder David Rubenstein added that the firm’s new international energy fund will be its largest-ever first-time fund.

2. Fellow Carlyle co-founder Bill Conway said that the firm picked up 25% of a $115 million settlement that stemmed from a lawsuit accusing Carlyle and several other private equity firms of colluding on deals before the financial crisis. He did not break down how much of the remainder was covered by insurance, compared to the amount that was paid by limited partners — but did say that the LP portion represented around 1% of gains from the fund, bringing its net multiple of invested capital (MOIC) down from 1.98x to 1.96x. Conway added: “We thought the case was without merit. Once everyone else settlesd, we thought the risk to our fund investors and unit-holders was just too great to take… Nobody wants to pay this kind of settlement… clearly investors in the fund weren’t happy.”

3. Conway said that he was unaware of an SEC investigation into how private equity firms calculate average net returns, which was first reported on yesterday by Reuters. “It’s news to me, but it’s not surprising,” he added. According to Reuters, here’s the issue at hand: “Including the general partner’s money in the average net returns can inflate the fund’s average net performance figure, and the SEC is investigating whether private equity fund managers properly disclose whether they are doing that or not.” COnway didn’t specifically address the issue in regards to Carlyle, but a source familiar with Carlyle’s methods says that the firm does not include unpromoted commitments in net IRR calculations.

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