Carlyle to shut DGAM hedge fund-of-funds unit

Mon Feb 22, 2016 10:11am EST
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(Reuters) - Alternative asset manager Carlyle Group LP (CG.O: Quote) said on Monday it would shut its hedge fund-of-funds manager Diversified Global Asset Management Corp (DGAM), two years after it added the unit to its investment platform.

Toronto-based DGAM, which manages funds that invest in other hedge funds, had more than $6 billion in managed and advised assets as of April 30, 2015.

"Unfortunately, the challenging market environment made it difficult to scale in fund-of-hedge funds and liquid alternatives," Chris Ullman, Carlyle's head of global communications, said in an emailed statement.

Carlyle in December replaced Jacques Chappuis as head of investment solutions – the business which includes DGAM along with buyout and real estate fund-of funds.

The business's distributable earnings, a measure of cash profit, tumbled roughly 70 percent in 2015, while overall distributable earnings fell 5.2 percent to $922.5 million.

It has been a difficult year for the U.S. leveraged buyout sector as the market for high-yield bonds and loans, the lifeblood of buyout deals, has almost ground to a halt, due to banks struggling to sell them.

Banks also are lending fewer of the riskiest junk-rated loans that fund buyouts, further tightening financing conditions.

The closing of DGAM "over the next several quarters" would mean Carlyle would incur modest wind-down costs over the next few quarters and a small goodwill charge in 2015, Ullman said.

But, closing DGAM would increase Carlyle's distributable earnings in its investment solutions segment in 2016, Ullman added.   Continued...

A general view of the lobby outside of the Carlyle Group offices in Washington, May 3, 2012.  REUTERS/Jonathan Ernst