Carlyle sued by Kuwaiti group over fundNovember 30 2009
A prominent Kuwaiti conglomerate is suing the Carlyle Group in a local court, alleging that the US private equity firm misrepresented the safety of its affiliate, Carlyle Capital Corp, a public debt fund that collapsed in March 2008.
The conglomerate, National Industries Group, invested $50m in CCC, which was marketed to many investors in other Carlyle funds as a safe fund that would invest largely in triple A mortgage-backed securities.
CCC raised about $600m from investors privately and an additional $340m when it listed.
CCC became one of the first casualties of the financial crisis, because of its high leverage, which made it highly sensitive to small moves in prices. Its investors lost all their money.
The episode has raised questions about how well private equity firms perform diversifying into asset management.
Carlyle and NIG declined to comment.
The implosion of CCC has damaged Carlyle’s reputation in the Middle East, where the affiliate raised most of its funding, according to people familiar with the matter. It is a personal setback for Carlyle’s co-founder and chief fundraiser, David Rubenstein, a frequent visitor to the Gulf.
“Arab money made Carlyle what it is,” said the head of the investment bank of one major financial institution in Dubai.
NIG’s decision came several months after a stormy meeting in Kuwait involving Mr Rubenstein and Saad Al Saad, the head of NIG and the patriarch of one of Kuwait’s wealthiest families.
The meeting was abruptly terminated after a young Carlyle staffer told the NIG executives to lower their voices, according to people familiar with the matter.
Mr Rubenstein had asked for the meeting in order to apologise formally for the loss.
Mr Rubenstein and his team told NIG that while Carlyle could not compensate NIG for the loss, they would allow NIG to invest $100m in any Carlyle fund without paying any of the customary management and performance fees. This was not acceptable to NIG.
NIG was also angry that the meeting was attended by the general manager of a fund that Carlyle was in the process of launching – the Hong Kong-based Asian Growth Fund.
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