Carlyle releases first public annual report(3)

The mega-buyout firm has revealed it booked $8.9 billion in returned equity and profits for LPs last year, while also addressing the failure of Carlyle Capital and the decline of the leveraged buyout boom.

The Carlyle Group has for the first time released its annual report to the general public. The rare window into the firm’s performance marks yet another move by the mega-buyout giant to bolster transparency and improve its public image, as well as compliance with the UK’s Walker report guidelines.

The 60-page document highlights Carlyle’s high volume of deal and exit activity in 2007, a year in which the Washington DC-based firm invested $17.6 billion in portfolio companies and reaped returns of $8.9 billion for its limited partners, its second highest annual return figure in the firm’s 20 year history.  In 2006, Carlyle returned a record $10.2 billion, according to the report.

The firm’s core corporate private equity division made 67 exits during the year, realising an average

Daniel D'Aniello

investor return of 3.2x committed capital.

Carlyle’s sales of forged metal manufacturer Firth Rixons and European plastics producer HT Troplast were among its most successful, reaping returns of 9.7x and 9.1x invested capital, respectively.

The review also revealed Carlyle’s shifting strategic imperatives in the wake of credit market dislocation.

“While 2007 was in many ways a record year for our firm and for our industry, it also witnessed a sea change in the global financial environment,” the firm’s founders, William Conway, Daniel D’Aniello and David Rubenstein, said in a letter accompanying the review.

Credit market turbulence had made highly-leveraged mega-buyouts untenable in the near term, they said, adding that Carlyle was “unlikely to participate in deals of this size until the credit markets recover”.

Carlyle will respond to the dearth of cheap leverage and the specter of a US recession with a renewed emphasis on recruiting more talent, expanding globally and investing in undervalued financial services businesses, they said.

The report also addressed Carlyle’s most high-profile failure of the past year, and possibly ever – the collapse of its publicly listed mortgage-backed securities fund, Carlyle Capital Corporation (CCC).

“We regret that CCC did not perform as planned,” read the letter. “We do not believe the events surrounding CCC will have a measurable impact on our other funds or investments.”

Despite the eye-catching return figures and the founders’ letter, the public release of the report is just as significant as its contents.

This is the first time Carlyle has published its annual review on its website, having only previously compiled the report for its limited partners over the past eight years.

It reflects a growing trend among non-listed private equity firms to provide greater public transparency surrounding their activities in a post-Walker report environment.

Completed in November of last year, the Walker Report recommended that private equity firms make public, either through their website or through published annual reports, their investment strategies and leadership model, as well as a business review for portfolio companies that highlights the main factors affecting that company’s current and future performance.

Some firms such as Terra Firma have gone above and beyond the Walker report recommendations, disclosing highly detailed information regarding portfolio company performance and executive compensation.