The Carlyle Group, one of the largest private equity funds, has decided to be counter-intuitive and create a new real estate fund in the face of the credit crunch. Their rationale is that having a strong hard money fund while everyone else is unable to borrow will allow them to capitalize on a weaker market and get deals that others will have to pass on.

This kind of thinking is why the Carlyle Group has had an internal rate of return in it’s funds of 38 percent over the past 9 years. And it is a reminder that even in times that seem bleak, for those that are prepared, fortunes can and will be made if you change the paradigm.

Carlyle Group, which has the most prominent fund-raising machine of any of the large private-equity groups, has just completed two funds — a $3 billion real-estate fund in the U.S. and a $7 billion fund for buyouts in Europe. In addition, it is expanding its expertise in financial services and soon might launch a fund dedicated to buyouts of financial-services firms.
The successful fund-raising indicates private-equity firms are confident they can ride out the turmoil in the credit markets — and are gravitating toward a more-traditional asset-management model.
It might be counterintuitive to raise either a real-estate or a buyout fund in the current environment. But Robert Stuckey, who runs the real-estate group at Carlyle, argues that the dislocations should create opportunities. “Because liquidity is less abundant,” he says, “we believe that the capital markets may underprice certain properties.”
Carlyle’s strategy is more modest than that of its rival, Blackstone Group, with its megadeals for Equity Office Properties Trust and Hilton Hotels Corp. But Carlyle’s track record in real estate is strong, with a 38% internal rate of return for its earlier funds over the past nine years. via the WSJ.com

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