On the Upcoming Carlyle Group IPO: Is the Juice Worth the Squeeze (Glencore Redux)

Surely I am unlikely to be the only one to write a post warning those of you considering buying the Carlye Group IPO, however, instead of boring you with any sort of complex financial and other analysis, I’m going to keep it simple, real simple, as I did when I explained some risks associated when the possibly most evil company on the planet went public last year. For a slightly more complicated take on investing in PE/alternative asset manager IPOs, this post from The Epicurean Dealmaker is a very good starting point (and includes links to other similarly excellent writeups).

1. While we’re not totally comparing apples to apples here, I’d like to present the following chart of the performance of publicly traded alternative investment management firms, without further comment (if you don’t get the point, I really can’t help you, its that obvious):

Ok, I’m adding further comment. When people whose job is to buy low and sell high – and who have done a pretty damn good job doing it – are selling, why the hell would you be buying??? Do you think you’re going to get a better return than they are? Best of luck!

2. Valuing some of Carlyle’s various investments its incredibly difficult, time consuming, and subject to much, oh, shall we say “educated guess work,” to put it nicely. Valuing the fund management company is even worse. This is even more the case given the way in which Carlyle is listing, not as a typical corporation, but as a fairly convoluted sort of – as a securities lawyer friend of mine commented – a “baby Limited Partnership,” as the NYT has so kindly (attempted to) explain for those lacking the time/expertise to read the full explanation in the registration statement. You’re basically giving them your money without getting any of the typical rights associated with so doing. Imagine not being able to sue a Doctor if he or she committed malpractice. Again, not apples to apples, but I think you get the gist of what I’m trying to get at.

3. Do you know every project/company in which Carlyle invests? While I’m no fan of “socially responsible investing,” some people who like to make their views held with their wallet might not want to own a public Carlyle. When your goal is to achieve tremendous investment returns, you don’t much care about the morality of an investment unless its actually a legal/regulatory/etc issue, and even then, those can sometimes be mitigated/hedged. If you own mutual funds or invest in stocks through your retirement/pension/endowment/etc funds, there’s a fair chance you’re going to end up owning a little bit of Carlyle, as managers inevitably try to buy (what’s perceived as) “best of breed” (which is another conversation for another time).

4. I haven’t even read more than a few pages of the S-1, let alone performed any real analysis, so for all I know maybe these (potential) reward outweighs these basic risks. Carlyle is one of the biggest, strongest PE firms in the world, something which is unlikely to change in the immediate future (although brain drain is certainly not impossible).


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About Jordan S. Terry

Founder & Managing Director, Stone Street Advisors LLC. Investment research and consulting for institutions, funds, family offices, wealthy individuals. Long/Short fundamental, value-oriented equity ideas as well as special situations (M&A, restructuring, strategic and leveraged recapitalization, pre-, in, and post bankruptcy). We like following corporate credit, particularly for special situations and short ideas.

6 thoughts on “On the Upcoming Carlyle Group IPO: Is the Juice Worth the Squeeze (Glencore Redux)

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