UPDATE 4-Carlyle bulks up with Dutch AlpInvest buyout

Wed Jan 26, 2011 1:21pm EST

* AlpInvest to be sold to Carlyle Grp, AlpInvest mgmt

* AlpInvest vendors APG, PGGM to commit new funds

* Carlyle says deal will expand its product offerings (Adds comments from AlpInvest partner, background on Carlyle)

By Aaron Gray-Block

AMSTERDAM, Jan 26 (Reuters) - Private equity firm Carlyle Group [CYL.UL] said it would buy Dutch-based private equity fund of funds AlpInvest Partners, Europe's largest, to bulk up its product menu and attract more money from investors.

The deal would make Carlyle the world's largest private equity firm by assets under management, ahead of Blackstone (BX.N), and provide a springboard for AlpInvest to expand internationally.

Financial details of the deal were not disclosed.

"We can say to our own investors we have an array of products, not just our own funds, but we have AlpInvest funds," David Rubenstein, Carlyle's co-founder and managing director, told Reuters on Wednesday at a news conference in Amsterdam.

"A number of investors around the world have said sometimes they don't want to invest in our funds directly, they would like to go in a fund of funds, and asked who do we recommend ... and now we have somebody to recommend."

(For a factbox on AlpInvest, click on [ID:nLDE70P14P].)

Rubenstein, who trained as a lawyer and worked in the White House during the Carter administration, co-founded Carlyle in 1987.

Carlyle competes against mammoth rivals which at times have grabbed more of the limelight, such as Blackstone Group and Kohlberg Kravis Roberts & Co (KKR.N).

Large private equity houses have been broadening their menu of services to cater to large institutional investors who increasingly want to deal with just one asset manager for all their investments.

"Private equity houses, particularly those which are listed or will be listed, want to have a broad alternatives platform," said a person familiar with the situation.

"They want to do private equity, they want to do hedge (funds), they want to do fund of funds, fund of hedge funds -- they want to offer the whole gamut of alternative products to their institutions."

As a fund of funds, AlpInvest invests in other private equity funds, including those run by Blackstone, Bain Capital and KKR, rather than directly in companies and assets.

Such access had sparked industry concerns about possible conflicts of interest if Carlyle were to gain control of AlpInvest.

Rubenstein said that to avoid such conflicts, AlpInvest will no longer be allowed to invest in Carlyle funds, and there will be an "information firewall" between the two to prevent Carlyle from accessing information on its rivals.

Speaking on the sidelines of a Dow Jones conference in New York, AlpInvest partner Tjarko Hektor said that to avoid conflicts of interest, there would be no exchange of information on underlying investments.

"It has been an extremely crucial part for us in this whole transaction," Hektor said. "The arrangements that have been agreed have been watertight."

AlpInvest's existing investments with Carlyle will not be sold.

"The investments will just play out," Rubenstein said, adding that "all the information they get from anybody they invest with has to be kept within AlpInvest. We can't get access to it ... so nobody should be worried."

DUTCH PENSION GIANTS

Carlyle, which managed $97.7 billion in assets at end-September 2010, will take a 60 percent stake in AlpInvest, with AlpInvest management taking the other 40 percent.

AlpInvest has more than 40 billion euros in private equity funds and new commitments, including money for its current owners, APG and PGGM, two major Dutch pension fund managers who are selling their stakes in AlpInvest but who will continue to commit funds.

APG is the asset manager for ABP, the world's third-largest sovereign pension fund. PGGM is the asset manager for PFZW, the pension fund for the Dutch care and welfare sector.

AlpInvest Chief Executive Volkert Doeksen said the firm expects to attract an extra couple of billion euros in money in the next three to four years from large institutional investors as it takes advantage of Carlyle's global network.

Doeksen, a former Dresdner Kleinwort Benson partner and investment banker at Dillon Read and Morgan Stanley, helped start AlpInvest in 2000 and will stay on as AlpInvest CE0.

Both APG and PGGM said they will commit an additional 10 billion euros to AlpInvest's various investment programmes for the 2011-2015 period.

The deal with Carlyle, which is subject to regulatory approval, is expected to close in March.

The deal would significantly increase Carlyle's assets under management and allow it to diversify its businesses as it prepares to follow Blackstone and KKR to a potential public listing.

Carlyle, which has investments in companies such as Dunkin' Brands, may file papers to go public late this year, a source previously told Reuters.

But Rubenstein said there were no immediate plans for a listing and investors "should not hold their breath."

Credit Suisse and Catalyst Advisers acted as exclusive advisers to APG and PGGM on the deal. (Additional reporting by Simon Meads in London and Megan Davies in New York; Editing by Sara Webb and Jon Loades-Carter)

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