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Carlyle-backed hedge fund to liquidate

Just months after its Euronext-traded Carlyle Capital fund folded, the private equity firm is shutting down an affiliated hedge fund. It backed away from its previous hedge fund strategy, a fund of hedge funds, in 2003.

Carlyle-Blue Wave Partners Management, a multi-strategy hedge fund, has begun voluntarily liquidating positions and plans to shut down its operations, citing an inability to reach a critical mass of assets necessary to support the business’s infrastructure. The fund had a target of $1 billion (€642 million), but currently has just $600 million in assets under management.

“Though the funds’ equity-focused share class is up more than 2 percent in 2008, thereby beating the S&P 500 by nearly 14 percentage points, the funds launched in a challenging market and have not been able to achieve the critical mass of assets under management necessary to support a multi-strategy fund infrastructure,” The Carlyle Group said in a statement.

Carlyle owns 25 percent of the joint venture’s management company, while Blue Wave owns 75 percent. Most of the fund’s holdings were liquid public equities, but the fund also invested in credit products. Losses in the latter category drove down the value of the fund. 

The hedge fund started trading internally in March 2007, and is a partnership between Carlyle and former Deutsche Bank senior executives Rick Goldsmith and Ralph Reynolds, who founded Blue Wave in order to launch the partnership.

Goldsmith was most recently chief executive of Deutsche Bank’s absolute return strategies hedge fund and Reynolds was global head of proprietary trading.

The fund sought to generate a net return of 12 to 15 percent with annualised volatility of 5 to 8 percent, according to a California Public Employees’ Retirement System filing. CalPERS revealed last fall that it has a $75 million position in the fund. 

“This is an orderly liquidation to ensure fair and equitable treatment of all investors,” a Caryle spokesman told PEO.

This is the second hedge fund strategy Carlyle has shut down. In 2001, the firm hired Afsaneh Beschloss away from the World Bank to launch Carlyle Asset Management, a fund of hedge funds. Two years later the firm unwound its partnership with Beschloss.

Nonetheless, Carlyle remains open to launching another hedge fund platform in the future, the spokesman said.

This March, the firm shuttered another affiliated fund, Carlyle Capital Corporation. The mortgage-bond specialist, which was publicly traded on Euronext Amsterdam, took heavy losses during the credit crunch, and folded after negotiations with its creditors failed.

Carlyle’s core businesses remain active: the firm has completed 14 transactions this year, at an enterprise value of $16.2 billion.