Carlyle hedge fund facing redemptions

Date: Saturday, November 17, 2007
Author: Dane Hamilton, Reuters

 NEW YORK, Nov 14 (Reuters) - Private equity giant Carlyle Group [CYL.UL] is facing challenges with its first hedge fund, Carlyle-Blue Wave Management Partners, a $700 million fund built as part of a diversification strategy, people familiar with the fund said this week.

New York-based Blue Wave is facing investor redemptions after credit trades went awry and the multi-strategy fund failed to achieve a goal of raising $1 billion, or more from investors, the sources said.

Details on the fund's performance and the level of investor redemptions could not immediately be learned.

Carlyle spokesman Chris Ullman declined to comment on the fund's performance, except to say the fund continues to trade.

"Despite challenges in current market, Carlyle Blue Wave is actively investing the portfolio," said Ullman.

Blue Wave was launched last spring and is headed by two former senior Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research) traders -- Ralph Reynolds and Richard Goldsmith. The firm hired Scott Davidson, a former structured credit trader at collapsed hedge fund Amaranth Advisors, for its credit strategies.

Now, some investors are demanding their money back, even though the firm is less than a year old and held by one of the world's most prominent buyout firms, with about $75 billion under management.

 One industry consultant said performance issues at Blue Wave are not likely to affect any long-term efforts by Carlyle to expand in hedge funds, assuming it goes that route.

"Carlyle obviously is a group of very smart individuals," said Bob Hering, managing director of Cogent Alternative Strategies, which tracks the hedge fund industry.

"Their success to this point has not come by accident. Even though they are going through some difficulties with their initial offering in the hedge fund world, their history tells you that they will figure it out."

Blue Wave is the first Carlyle-owned hedge fund, but the Washington, D.C.-based firm previously established a hedge fund-of-funds, or fund that invests in hedge funds, called Carlyle Asset Management Group (CAMG).

CAMG was later sold to Afsaneh Beschloss, the former chief investment officer of the World Bank, who founded the firm with Carlyle and later renamed it Rock Creek Group.

Blue Wave's performance could be a setback in Carlyle's efforts to branch out more into hedge funds. Like rivals Blackstone Group LP (BX.N: Quote, Profile, Research), TPG Capital LP [TPG.UL] and others who have hedge fund operations, Carlyle is seeking to present itself as a fully diversified alternative asset manager. (Reporting by Dane Hamilton; additional reporting by Michael Flaherty; editing by Jeffrey Benkoe/Andre Grenon) (Reuters email: dane.hamilton@reuters.com +1 646 223 6161))