Carlyle Group Inc. is retreating from bets on US consumer brands as the firm reorganizes its private equity business in the country around core sectors such as financial services and technology.
The alternative asset manager is dismantling its US consumer, media and retail investing team, according to people familiar with the matter. Carlyle also asked four dealmakers focused on those bets to leave in the past week, saying these investments are no longer central to its buyout strategy, one of the people said.
Carlyle’s private equity business will now focus its US strategy around health care, government services, industrials, technology and financial services.
The changes were “necessary to position our platform and team for the future,” especially given “increasingly challenging investment trends” in the US consumer sector, Americas Corporate Private Equity co-heads Sandra Horbach and Brian Bernasek said in a memo to employees last week.
The US consumer team invested in brands including skateboard and street wear business Supreme and headphone maker Beats Electronics, with a growing portfolio that gave the firm new cultural cachet. Still, Carlyle’s investments in buzzy companies that targeted a younger demographic spurred debate at a Washington firm better known for bets on chemicals, industrials and government contractors.
The decision to pull back from US consumer bets will result in job changes or eliminations for almost a dozen staff, the people said. While some will shift to other teams, others will remain to oversee existing consumer, retail and media investments. The firm will continue to make such investments in Europe and Asia.
Carlyle told staff the change was designed to boost returns.
Chief Executive Officer Harvey Schwartz, who took over in February, is imposing more cost discipline as he aims to improve the firm’s stock price. Carlyle is undertaking a “line-by-line review” of its entire business, he told shareholders in August.
Schwartz, 59, has been soliciting feedback from investors and asked business heads to determine where they should cut costs and headcount. The firm announced its third major leadership change under his watch on Monday, tapping a new head of investor relations.
Downsizing the US buyout team will align the group’s headcount with the amount of money it has to put to work going forward, said people familiar with the firm’s thinking.
Carlyle struggled to reach its fundraising ambitions for buyouts. Its flagship fund had its final close in August at about two-thirds of the $22 billion it targeted, said a person familiar with the matter. Leadership shifts made some big institutions more reluctant to pony up money for flagship buyout strategies, the person said.
While looking to cut costs and boost investment performance, Carlyle faces a balancing act of demonstrating to investors that key dealmakers remain to manage their money.
The firm elevated two senior partners in roles overseeing investments in technology and financial services. Will McMullan, who has focused on health care bets, will co-head financial services alongside Jim Burr. This team invests in insurers, wealth managers and other financial institutions, and it has been one of the best-performing strategies. Meanwhile, Anna Tye, co-head of growth equity, will also lead technology alongside Patrick McCarter.
--With assistance from Gillian Tan.
This article was provided by Bloomberg News.