Alternative asset manager The Carlyle Group has agreed to purchase a 55 per cent stake in Claren Road, a long-short credit hedge fund with USD4.5bn in assets under management, in exchange for cash, an ownership interest in Carlyle and performance-based contingent payments.

Claren Road founders will reinvest substantially all of the initial cash proceeds from the transaction back into Claren Road funds.

Terms of the transaction, which is expected to close by year end, were not disclosed.
 
Mitch Petrick, managing director and head of Carlyle’s global credit alternatives business, says: “Claren Road has a track record of consistent, low-volatility, uncorrelated performance across varying market conditions during the last five years. This new partnership is an important addition to our expanding stable of credit product offerings. Claren Road’s long-short approach to investing in the credit markets globally is consistent with Carlyle’s views on the optimal strategy to exploit investment opportunities in credit over the long term.”
 
Brian Riano, Claren Road chief executive officer and co-founder, says: “We believe this partnership will benefit our investors, strengthen Claren Road and position us well for the future. We have an ability to recognise and identify under- and over-valued securities in the credit markets through fundamental research, combined with a broad understanding of pricing, technicals and liquidity. This partnership should benefit Claren Road by accessing Carlyle’s global network and industry expertise as well as its strong regulatory, compliance, legal and investor services capabilities.”
 
Citigroup, which seeded Claren Road in 2006, and the Goldman Sachs Petershill Fund, which bought a minority stake in Claren Road in 2008, will both monetise their economic interests in Claren Road as a part of this transaction.
 
Claren Road was established in 2005 by four former senior members of Citigroup’s credit trading department – Brian Riano, John Eckerson, Sean Fahey and Albert Marino – who will continue to manage the day-to-day operations (including all investment decisions) and, together with Carlyle, affect broader strategic decisions.