Carlyle credit hedge fund suffers $2bn in outflows

A large wave of redemption notices have been submitted to Claren Road. The Carlyle-controlled firm is a long/short credit hedge fund which has already suffered a run of redemptions which hit Carlyle’s second quarter results.

Claren Road Asset Management, a credit hedge fund in which The Carlyle Group owns a 55 percent stake, has revealed that investors submitted redemption notices totalling $2 billion up to 16 August, the cut off for giving notice this quarter. The total represents 48 percent of Claren Road’s assets under management (AUM), the firm revealed in a filing by Carlyle with the Securities and Exchange Commission. 

In the filing Carlyle said that lower earnings contributions from Claren Road as a result of lower management fees in the wake of the redemptions would not materially impact the firm’s liquidity or debt covenants. 

Carlyle also noted in the filing that an assessment of impairments in preparation for its second quarter earnings report revealed a $216 million potential impairment relating to Claren Road which was judged to be recoverable. 

Claren Road has suffered an outflow of capital as performance dropped. Carlyle reported hedge fund outflows of $2.5 billion over the last 12 months in its second quarter results. The outflows, and resultant lower management fees hit the alternatives manager’s fee-related earnings, which recorded a $2 million loss for the quarter ending 30 June, down from $17 million in the same period a year earlier. Asset weighted hedge fund performance was minus 4.3 percent in the second quarter of 2015.

The firm noted that credit hedge fund AUM continued to fall and that fund depreciation had also hit the numbers. 

Asked about the impact of the poor performance of hedge funds and if Carlyle might fundraise for its hedge funds suffering from outflows, Carlyle co-chief executive Bill Conway, referring to the Claren Road outflows said: “The best way to grow is to have the hedge fund perform … You perform, people are happy; they give your more money. You don't perform, the opposite happens.”

Carlyle bought a 55 percent stake in Claren Road Asset Management in 2006. It is a long/short credit hedge fund that was founded by Brian Riano, John Eckerson, Sean Fahey and Albert Marino.