Carlyle, Energy Capital talks end without agreement

Carlyle had reportedly been in talks to acquire the New Jersey-based energy-focused firm, which closed its $4.3bn second fund in 2010.

Talks between The Carlyle Group and Energy Capital Partners have concluded without an agreement, a source familiar with the situation told Private Equity International. The “presumption” is the two sides will not engage in further discussions, the source said.

The New York Times had previously reported on the talks. Carlyle and Energy Capital Partners did not return calls for comment.

Energy Capital’s current portfolio contains several clean energy and natural gas assets. The firm’s $4.3 billion second fund, which focuses on infrastructure assets in the fossil fuel generation, renewable power generation, electric transmission and midstream gas sectors, closed last year.

The firm has performed well so far, according to two limited partners, one of whom expressed surprise the firm would want to sell itself. Energy Capital Partners I was generating a 6.64 percent internal rate of return since inception as of 30 September, 2010, according to performance information from the California State Teachers’ Retirement System. Fund II was producing an IRR of around 30 percent since inception, according to CalSTRS data.

“The firm is still young and those guys are having a lot of success. I’d be surprised if they were to sell out,” one LP told Private Equity International. “But at the right valuation, you never know.”

LPs would likely have had to approve a transaction in which the GPs sells itself, the LP said, who added Energy Capital Partners had not talked to them about a sale. “They would have to seek some consent or approval,” the LP said.

While the transaction would not be typical, the ECP LP said, situations in which GPs have sold themselves to larger organisations have occurred in the past. GSO Capital, for example, was acquired by The Blackstone Group in 2007 for almost $1 billion to expand the firm’s credit capabilities.

Carlyle has been on a buying spree recently, fueling speculation that it may be preparing to go public like rivals The Blackstone Group, Kohlberg Kravis Roberts and Apollo Global Management. In June, the Washington, DC firm purchased a 55 percent stake in emerging markets hedge fund Emerging Sovereign Group. Carlyle has also entered talks to acquire K2 Advisors, a hedge fund of funds, a source close to the firm said.

The David Rubenstein-led firm also acquired asset manager AlpInvest earlier this year, and bought a controlling interest in hedge fund Claren Road Asset Management in December. 

Carlyle has experience working with other energy-focused firms. The firm has had a long-standing partnership with Riverstone Holdings, a private equity firm that focuses exclusively on the energy and power sectors. The Riverstone/Carlyle Global Energy and Power IV fund raised $6 billion in 2009. Its 2006 predecessor raised $3.8 billion.

In 2009, the firms were hit with a combined $50 million in fines after settling with then-New York attorney general Andrew Cuomo over the state’s wide ranging pay-to-play scandal.

The firms will not be raising another fund together, a source familiar with the matter said.

Christopher Witkowsky contributed to this report.