Carlyle calls 2008 a "humbling experience"

PHILADELPHIA (Reuters) - Private equity firm The Carlyle Group CYL.UL gave a blunt assessment of 2008, calling the year a "humbling experience" as it saw three of its portfolio companies enter bankruptcy protection or administration.

In addition to the bankruptcy or insolvency of German auto parts maker Edscha, energy company SemGroup, and Hawaiian Telcom. Carlyle also saw its debt fund, Carlyle Capital Corp, collapse and its Blue Wave hedge fund liquidated.

In its annual report, Carlyle told investors "the year 2008 was a humbling experience for us and most of the financial services industry. After several years of unprecedented growth, product innovation, geographic expansion, capital deployment and investment gains, our world changed dramatically."

Carlyle said the private equity business has changed, as well.

"Deal flow has slackened, exits are fewer, investors are hesitant to commit fresh capital, stock prices are down, and debt and equity valuations have been hard hit," the firm said.

Looking forward, Carlyle took a cautious view and told investors to expect lower returns.

"In 2008, the financial landscape change -- and it will remain changed for the foreseeable future," Carlyle said in the annual report.

"Operating conditions for our portfolio companies will remain challenging. Transactions will be fewer and smaller. More equity will be required and debt terms will be less favorable. And hold periods will increase while returns will decrease."

Carlyle, which has numerous funds invested in areas from energy to infrastructure, said "our firm is strong. We believe that we our global portfolio is in relatively good shape."

The private equity firm said that during the financial crisis, it responded by cutting costs and restructuring its portfolio companies. It also said it drew down credit lines to increase liquidity.

Despite the economic crisis, Carlyle has been successful at raising new funding. The firm recently raised $500 million for its first Middle East and North Africa fund, and raised $553 million for its second mezzanine investment fund.

"Our mission is clear: we must deploy our resources to protect the investments we have already made while seeking ways to profit from the extraordinary opportunities that exist in the new environment," the firm said.

The private equity firm has over 900 professionals in 20 countries manage $85 billion in 64 funds.

(Reporting by Jessica Hall)

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