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A gambit to raise cash for Carlyle Group’s latest buyout fund has come up short, in a sign of continuing fundraising difficulties at the global private equity group.

Carlyle has for months been pushing a complex deal that would raise money for its newest flagship vehicle while also giving investors in an older fund a chance to cash out. Investors got the chance to sell stakes in the earlier fund at a value of 81 cents on the dollar, on the condition that buyers ploughed half that amount into the new fund, known as Carlyle Partners VIII.

The tender offer was also designed to enable investors to cash out. But it has received only about $500mn in sales orders, or a participation rate of about 3 per cent of the $18.5bn current fund, according to people briefed on the matter. The process was originally expected to generate between $1bn and $2bn in orders from investors.

As a result, the process is likely to yield just a few hundred million dollars for the new vehicle, which has gathered just $14bn of a $22bn target after more than a year of fundraising. The fund raised $600mn in the final quarter of 2022, Carlyle said in its latest financial results.

The results of the tender offer, set to close in March, add to challenges at Carlyle as new chief executive Harvey Schwartz works to steady the buyout group after a period of leadership uncertainty and poor stock market performance. Carlyle declined to comment.

Carlyle struggled to raise new investor cash in the six months after the surprise departure of former chief Kewsong Lee in August. Earlier this year it asked investors for a fundraising extension on the new buyout fund, the Financial Times has reported.

Co-founder William Conway said on a February earnings call he expected the chief executive appointment to ease fundraising pressures, stating that the hiring had “taken away some uncertainty” and should have a “positive impact”.

But the firm continues to undergo changes. On Monday Carlyle said that Peter Clare, chief investment officer of its $105bn-in-assets private equity unit, will retire at the end of April.

Bankers said that typical tender offers will receive sales orders from about 10 per cent of a fund’s investors. The Carlyle deal’s relatively low level of participation reflected its marked-down value of 81 cents, which would have wiped out virtually all of investors’ gains.

Another deterrent was the requirement to invest half the deal’s value into Carlyle Partners VIII, said people briefed on the matter. Deals where more than a third of the value is invested into a new fund are “considered aggressive”, said senior bankers who specialise in such transactions.

Carlyle’s effort has angered some investors because it has established the discounted price of 81 cents for the fund. Others saw the objective of the deal as mostly a manoeuvre to raise cash for Carlyle’s latest fund.

“[This] establishes a market value for the stakes which is pretty low,” said one investor who chose not to sell their stakes.

The modest level of interest in the deal signals investor confidence in the value of Carlyle’s portfolio, said two people close to the firm, and it also showed that investors were not forced to sell their stakes at a time of stress in some illiquid markets.

The older fund that investors were invited to sell was established in 2018 and finished selecting a portfolio in October 2021. This left just a few months for its managers to sell assets before the war in Ukraine and rising interest rates unsettled financial assets.

The fund has sold off $1.4bn of investments and has a $21.5bn fair value, according to Carlyle’s fourth-quarter earnings results, meaning it is marked at a gain of 1.3 times. A sale at 81 per cent of its net asset value would wipe out virtually all of those gains, however.

Private capital firms Partners Group and LGT Capital Partners were the main buyers of stakes committed to be sold in the tender offer. The sales process, which started around August last year, was led by the investment bank Evercore, according to people briefed on the deal.

Bankers leading the deal had hoped for a better price, but the market for private equity fund stakes softened, said people briefed on the matter.

“This is a function of today’s market conditions,” said a rival banker of the deal’s pricing. “It doesn’t reflect on Carlyle, nor on its portfolio.”

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