Carlyle Sells Emerging Sovereign Stake Back to Original Partners

Aug 24 2016 | 10:58pm ET

Global alternative asset manager Carlyle is exiting its position in $3.5 billion emerging markets hedge fund manager Emerging Sovereign Group LLC.

The partners of ESG have agreed to buy back the majority stake in their firm, according to Reuters. The firm was founded by former Morgan Stanley executives Kevin Kenny, Mete Tuncel and Jason Kirschner in 2002 with backing from Tiger Management’s Julian Robertson.  Carlyle acquired 55% of the firm in 2011. 

The transaction is expected to close in the third quarter, according to Bloomberg citing an ESG investor letter. No terms have been disclosed, although ESG’s AUM has grown from $1.25 billion at the time of the Carlyle acquisition to $3.5 billion now. 

Equity-focused ESG is one of several hedge fund stakes Carlyle took between 2010 and 2012 to diversify its concentration in private equity strategies. Others included credit manager Claren Road Asset Management and commodities manager Vermillion. None of these positions have worked out quite as expected, with both Claren Road and Vermillion (now named Carlyle Commodity Management) under pressure from poor performance, executive departures and investor redemptions.

Earlier this year, Carlyle also shuttered a hedge fund-of-funds business, Diversified Global Asset Management, which it acquired in 2014.

Tiger will reportedly continue to have an ownership interest in ESG after the deal closes, according to the letter cited by Bloomberg, and Carlyle will manage some of its profit for a period of time.

Carlyle, traditionally a private-equity firm, has recently been concentrating more on credit-oriented strategies such as direct lending and distressed debt. The New York-based firm is one of the world’s largest alternative asset managers, with $176 billion of assets under management as of June 30, 2016 deployed across 128 distinct funds and 170 fund of funds vehicles.

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