Carlyle Group is today benefiting from a major expansion of its credit investment platform by tapping into the rich deal environment spawned by the health crisis.
“Over the past three-and-a-half years, Carlyle made building out a credit strategy a top priority,” says Mark Jenkins, the firm’s head of global credit, speaking to sister publication Buyouts. “Now that we’ve entered a cycle that’s not very different from the financial crisis, a time of tremendous opportunity to make money, I’m feeling happy about where we’re positioned.”
Jenkins joined Carlyle in 2016 from Canada Pension Plan Investment Board, where he ran global private investments. A private debt specialist, he perhaps made his biggest contribution to CPPIB in developing a credit programme from scratch and leading the 2015 acquisition of lender Antares Capital.
Carlyle’s leadership, including chief executive Kewsong Lee, hoped Jenkins would undertake something comparably ambitious in the new job.
Carlyle’s goal, Jenkins says, was to turn a narrowly focused credit unit into an integrated, multi-strategy operation able to invest across the global market. This was to be achieved in part by accessing the firm’s broader networks and resources, including its private equity relationships.
Jenkins says he approached the task by drawing on his experience at CPPIB and “looking at it from an investor’s perspective”.
“Having a monolithic strategy was never going to work for Carlyle’s large institutional base. We needed to give our investors optionality in a strategy that could pivot across cycles and segments, doing any transaction we choose and delivering a range of performance opportunities.”
To do this, Jenkins and his team focused on overhauling the existing programme and adding capabilities.
Carlyle in 2017 recruited Alex Popov from HPS Investment Partners to co-head illiquid credit and design a new opportunistic strategy. The initiative, furthered by the hires of Oz Management’s Taj Sidhu and HPS’s Andreas Boye, led to the close last year of a $2.4 billion debut fund.
“We needed to give our investors optionality in a strategy that could pivot across cycles”
Carlyle is back in the market with a second opportunistic offering, targeting $3.5 billion, Bloomberg reported. Jenkins declines to comment on this.
The credit platform’s illiquid side also takes in mid-market direct lending, as well as distressed and special situations. Priority was given to expanding direct lending, Jenkins says, resulting in the appointment two years ago of Apollo Global Management’s Taylor Boswell as chief investment officer. Carlyle also developed, essentially from scratch, a real assets credit strategy. This was advanced with the 2018 acquisition of Apollo Aviation, a commercial aviation leasing firm rebranded as Carlyle Aviation Partners. The group manages assets of $5.9 billion.
In addition, Erik Savi was brought over from BlackRock to establish a first-time infrastructure credit group. Taken together, the initiatives since 2016 made the credit platform Carlyle’s fastest-growing platform, with managed assets nearly doubling from $29 billion to $50 billion.
Investing in crisis
Carlyle’s roll-out of a fully-fledged credit operation was fortunate in its timing. It came as the economy was contending with the fallout of the pandemic, with demand destruction and volatility creating severe liquidity challenges for businesses. Distressed debt also began to spike, thereby generating opportunities for private debt funds to snap up assets cheaply.
Jenkins says Carlyle’s global reach and “informational advantages” are being used to weigh opportunities. For the moment, Jenkins does not see a “big opportunity set on the distressed side,” at least outside certain vulnerable sectors. He also believes central banks helped alleviate the early liquidity issues of borrowers, leaving “their solvency issues” as a key focus for private debt.
Jenkins says Carlyle has $7 billion of dry powder to invest in the cycle, a significant portion of which will go into “transitional capital” opportunities.