* Sells 30.5 mln units at $22 per unit
* Carlyle's valuation was already conservative
* Alternative asset management stocks difficult to value
By Greg Roumeliotis and Olivia Oran
NEW YORK, May 2 Private equity firm Carlyle
Group LP proved a tough sell with investors on Wednesday,
raising $671 million in an IPO that was slightly below a pricing
range already seen as modest and failed to live up to the hype
of the likes of Facebook Inc.
Carlyle, which has taken many of its portfolio companies
public since its founding in 1987, marketed the original range
of its own IPO as conservative and having to drop it further
made for a stark contrast with the excitement that surrounded
the Blackstone Group LP IPO five years ago.
But the performance of alternative-asset management stocks
has been lackluster since that IPO.
Blackstone's shares have tumbled 56 percent since its 2007
IPO, while Apollo Global Management LLC has declined 32
percent. Oaktree Capital Group LLC, which went public in
April, has fallen 6 percent.
Investors often complain that the balance sheets of these
firms are too hard to value and that their earnings can rely
excessively on carried interest, their cut of their funds'
investment profits - which is often both cyclical and volatile.
"Carlyle's pricing shows a lot about what the average
investor believes about private equity and the IPO market in
general -- it's a general lack of enthusiasm for an industry
that has an uncertain future," said Jeff Sica, president of SICA
Carlyle is selling 30.5 million units at $22 each, the
company said in a statement, adding that it granted underwriters
a 30-day option to purchase up to 4.575 million additional
common units at the IPO price less underwriting discounts. The
original price range was $23 to $25 per unit.
Units of Carlyle, which counts movie theater operator AMC
Entertainment, donut maker Dunkin' Brands and car rental company
Hertz among its investments, are set to begin trading on the
NASDAQ Global Select Market on Thursday under the 'CG' symbol.
Irrespective of trading on Thursday, one cornerstone
investor in Carlyle has already been burned. Abu Dhabi's
Mubadala bought a 7.5 percent stake in Carlyle for $1.35 billion
four years ago, valuing the private equity firm at $18 billion.
The IPO values Carlyle at about $6.7 billion, less than half
the market capitalization of Blackstone, even though their
assets under management are similar in size.
CalPERS, the California pension fund for public employees
and one of private equity's largest investors, has done better.
It took a 5.5 percent stake in the firm in 2001 and it valued
its initial $175 million investment at $436.1 million as of the
end of June 2011, according to its latest published data.
This would imply Carlyle's value has dropped from $7.9
billion at the end of June 2011 to $6.7 billion, although
CalPERS has more than doubled its investment based on the IPO
"Private equity firms have not been performing that well as
they're getting pressure from all sides," said Reena Aggarwal, a
professor of business administration and finance at Georgetown
University's McDonough School of Business in Washington.
"Fundraising has become somewhat of an issue. They are getting
pressure on the fee structure from limited partners."
Carlyle has diversified beyond buyouts into investments such
as credit, hedge funds and real estate. It boasts a total of 89
funds, although buyouts still account for a sizeable chunk of
Carlyle will issue new equity and its owners will not pocket
any cash from the IPO directly. Instead, the proceeds will be
used to pay down debt and finance operational needs,
acquisitions and new fund commitments.
Even before the lower the price range, KKR & Co LP
would have been valued at about twice as much as Carlyle, based
on the companies' 2011 distributable earnings - cash available
to pay dividends to unit holders. On the same basis, Blackstone
would have been over 2.5 times more expensive than Carlyle.
Carlyle, which has about $147 billion in assets under
management, returned a record $19 billion to its fund investors
in 2011 and reported a 152 percent year-on-year jump in
distributable earnings, as sales of several assets in its funds
Carlyle founders William Conway, Daniel D'Aniello and David
Rubenstein have recruited 21 banks to help market the IPO to
investors. J.P. Morgan Chase & Co, Citigroup Inc,
Credit Suisse Group AG and Bank of America Merrill
Lynch are among the underwriters of the IPO.