Carlyle’s next gen needs to be more than its CEO

By
Carlyle Group CEO Kewsong Lee speaks during a Reuters Newsmaker event in New York City, U.S., September 22, 2021.

NEW YORK, Aug 8 (Reuters Breakingviews) - Carlyle’s former Chief Executive Kewsong “Kew” Lee had big plans for the $14 billion asset manager. But what’s left of executing his blueprint will fall into someone else’s hands. The firm said Sunday that Lee had stepped down, effective immediately, before the end of his five-year contract. The setback in its leadership transition turns the screws on Carlyle’s next generation – and its founders, too.

The private equity firm opened its doors in 1987, a year before KKR’s (KKR.N) infamous deal to buy RJR Nabisco. Along with other leveraged buyout shops like Blackstone and Apollo Global Management (APO.N), Carlyle blazed the path for private equity. Founders of other firms, including KKR’s Henry Kravis and Apollo’s Leon Black, all led them until recently. Steve Schwarzman still sits atop the $123 billion Blackstone, the largest of its competitors by market capitalization.

Lee was the start of a transition away from the people who opened Carlyle’s doors. He took up his role in 2018 alongside co-head Glenn Youngkin. In July 2020, Youngkin stepped down, and later won a bid to become Virginia’s governor. Lee has been running the firm solo since then.

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Lee made strides to diversify Carlyle away from being too heavily into private equity, including taking a stake in insurance company Fortitude Re and expanding the credit practice. But shareholders haven’t seen a whole lot by way of results. Since the start of 2018, Carlyle’s shares including dividends have returned around 90%, about half that of KKR. Blackstone’s stock, including dividends, has more than quadrupled. Over the past two years, Carlyle’s shares have only narrowly beaten the S&P 500.

The stock fell 6% in midday trading on Monday, suggesting shareholders were annoyed that Lee and Carlyle couldn’t at least have come to an agreement that would have allowed him to finish up his five-year term. Now, one of Carlyle’s co-founders, Bill Conway, will lead it as they search for a new CEO. That in some regards is a step back. Conway is around 15 years Lee’s senior, and his appointment suggests there weren’t other candidates ready to go.

Transitional setbacks are natural after a company has been run by its founders for decades, and something similar could happen at any of Carlyle’s competitors. Still buyout shops are becoming broader in their scope and less flashy in the assets they manage and the fees that they charge. As the alternative asset management business starts to blend with traditional asset management, it becomes more competitive, and the environment more challenging. That means the firms, too, have to be less about their proud leaders, and more about finding a status quo.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

Private equity firm Carlyle said on Aug. 7 that its Chief Executive Kewsong Lee had stepped down with immediate effect months before the scheduled end of his five-year contract. The $14 billion private equity firm said in a statement it and Lee mutually agreed his contract would not be renewed. The contract was due to finish at the end of 2022.

Co-founder Bill Conway will be interim CEO while the search for a new candidate takes place.

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Editing by Jennifer Saba and Sharon Lam

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