Carlyle releases first public annual report

The mega-buyout firm has revealed its private equity real estate business returned $1.3 billion to investors last year from 38 exits.

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 (€11 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, realizing an average investor return of 3.2x committed capital, and its real estate division managed to exit 38 investments, returning $1.3 billion to investors.

“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.

The group invested in 99 real estate transactions in Asia, Europe and the US, together worth more than $10.9 billion. During the year, it launched its fifth real estate fund  Carlyle Realty Partners V, garnering $3 billion of commitments and its third in Europe, which closed at the start of June this year on $2.2 billion.

Carlyle’s real estate business accounted for 13 percent of assets under management, with corporate private equity commanding 72 percent and alternative assets 15 percent.

During the year, it established its first Latin America real estate team. The 10-member team, co-headed by managing directors Jaime Lara and Eduardo Machado is based in Mexico City and São Paulo and advises Carlyle Latin America Real Estate Partners.

It also continued to expand internationally, opening offices in Madrid and establishing a team in Mumbai.

In 2007, Carlyle made a total of 27 real estate acquisitions in Europe, with a total capitalization of €3.8 billion, and exited nine investments, the report also reveals.

Meanwhile, in Asia it has been equally active. Carlyle has been acquiring shopping centers in Japan through a joint venture with its local operating partner, SOW, and has aggregated a portfolio worth approximately $250 million. The joint venture, which invests primarily in mid-sized retail properties in regional cities across Japan, acquired nine shopping centers.

In 2007, Carlyle also began investing in the senior housing sector in Japan, forming a strategic partnership with Tokio Marine Nichido Samuel, a leading senior housing operator in the country. The partnership acquired five senior housing properties in 2007 with a total value of $165 million.

In China, Carlyle made five investments in 2007 for $495 million.

Carlyle’s openness 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.

additional reporting by Robin Marriott