Carlyle secured NAV loan worth more than €1bn on fifth Europe fund

Carlyle Group, the world’s fifth-largest private equity firm according to the PEI 300, took out a large NAV financing loan against assets held in one of its flagship Europe buyout funds, in a sign that such facilities are being increasingly used by alternative asset managers.

The Washington DC-headquartered firm secured the €1.25 billion loan against some portfolio assets of its 2018-vintage Carlyle Europe Partners V fund, according to three sources familiar with the matter.

The loan was agreed in the third quarter of last year and was secured against around 20 assets of CEP V, according to one of the sources.

The facility was arranged and distributed by Carlyle Capital Markets and Goldman Sachs in partnership, it is understood.

The proceeds are understood to have been used to accelerate distributions back to CEP V’s LPs. The fund has more than 300 investors from 37 countries, according to a statement. CPP Investments, National Pension Service of Korea, State of Michigan Retirement Systems and California Public Employees’ Retirement System are among LPs that backed the vehicle, PEI data shows.

Both Carlyle and Goldman Sachs declined to comment on the facility.

Industry participants note that the use of NAV facilities to generate interim liquidity for LPs is gaining traction in a tempered fundraising environment. A recent survey by Rede Partners found that more GPs are using NAV loans for the sole purpose of increasing DPI. Fully 83 percent of respondents said they’ve seen the volume of such transactions go up in 2022, compared with 2021.

The NAV loan market is expected to grow seven-fold to $700 billion by the end of this decade as sponsors and portfolio holders seek to grow their portfolios and generate interim liquidity for investors by taking on debt, market sources have told PEI.

News of the NAV facility comes after reports at the end of last year that Carlyle was running a secondaries process on its $18.5 billion Carlyle Partners VII fund to deliver cash back to LPs. In that process, known as a stapled tender offer, the firm offered LPs in Fund VII the option to sell their exposure to buyers, with the buyers expected to agree to commit capital to the firm’s Carlyle Partners VIII fund.

CEP V held a €6.4 billion final close in 2019, surpassing its initial target by almost €1 billion. The fund delivered a net internal rate of return of 13 percent and a 1.4x MOIC as of 31 March, according to Carlyle’s first-quarter 2023 results.

The fund’s investments include Belgian medical software provider MAK; Acrotec, a Swiss manufacturer of high-precision industrial applications for the watchmaking and medtech industries; Flender, a specialized supplier of mechanical and electrical drive systems; and UK menswear brand END, among others.

Carlyle is in market with several flagship vehicles including its sixth Europe buyout fund, which is said to be seeking as much as €7.5 billion; its eighth flagship fund, which gathered $14.4 billion as of the end of Q1 against a reported $22 billion initial target; and its latest pan-Asia vehicle Carlyle Asia Partners VI.

Carlyle chief executive Harvey Schwartz noted in April that the firm “was not pleased” with its Q1 2023 results. “The activity levels in investments, realizations and fundraising were more muted to our prior expectations.”

Capital raised by the firm in the 12 months to March nearly halved to $27.6 billion from the prior period, according to Q1 2023 results materials. CFO Curt Buser said on the earnings call that the firm expects fundraising dollars for its buyout vehicles to be lower than their predecessors.

Carlyle raised $69.7 billion between January 1, 2018, and March 31, 2023, according to the latest PEI 300.

– Adam Le contributed to this report.