Carlyle joins hedge fund club

The Carlyle Group is almost set to hire a top banker from Deutsche Bank to manage a hedge fund for the firm, according to reports.

The firm plans to hire Ralph Reynolds, global head of proprietary trading in the New York office of Deutsche Bank, to lead a new hedge fund trading stocks and bonds, according to sources. Representatives from both Deutsche Bank and Carlyle declined to comment.

Carlyle founder and managing director David Rubenstein had announced earlier this year a plan to launch such a hedge fund, and had told news sources in February that the launch would happen in just a few weeks.

Carlyle is just the latest private equity firm to venture into hedge funds. In April, The Blackstone Group hired Manish Mittal from New York hedge fund Perry Capital to lead their new hedge-fund business. In February, Kohlberg Kravis Roberts announced plans to launch a new “distressed opportunities” vehicle out of its publicly held REIT, KKR Financial. Earlier that month Quadrangle Group, the New York-based firm headed by Steven Rattner, also announced a hedge fund initiative. And in 2004, Texas Pacific Group hired Dinakar Singh to start its TPG-Axon Capital hedge fund. Singh was previously head of in-house trading for Goldman Sachs Group. Today that fund manages about $5.5 billion (€4.3 billion).

This is not Carlyle’s first attempt to enter the hedge fund business. In 2001 the firm hired Afsaneh Beschloss, former treasurer and chief investment officer at the World Bank, to start a fund-of-hedge-funds business. However, Carlyle sold that business to Beschloss and her management team two years later.

As more money continues to flow toward private equity, many firms are looking for ways to diversify what they can offer LPs. Hedge funds have presented one such alternative. The size of Carlyle’s hedge fund vehicle is expected to be several billion, according to reports. The firm currently manages a total of $41.9 billion in 42 different funds.

However, private equity firms may see some resistance to their efforts, as more public investors are voicing concern that these firms could use the often proprietary information they obtain during the due diligence process to their advantage when investing in the public market. While PE executives have insisted that they will be careful to keep information obtained during due diligence separate from any hedge fund activity, the general knowledge and expertise gained during that process can still be used as leverage when making a public investment.