Carlyle Eyes First Close for Next U.S. Buyout Fund in $200 Billion Push

Carlyle Group (NASDAQ:CG) expects its next U.S. buyout fund to reach an initial close this quarter or next, Co-President and Head of Private Equity John Redett said. The timing anchors a wider plan: a $200 billion fundraising target across private equity, credit and secondaries over three years, with $40 billion expected from wealth channels.

Redett said he felt good about the prospects for the fundraise, while conceding that raising private equity capital remained more difficult than it was five years ago. A first close depends in part on when several large limited partners (investors in private funds) commit, he said.

How fast is Carlyle returning cash to investors?

The firm is returning capital globally at a rate closer to 18% of net asset value, compared with roughly 12% for the private equity industry, Redett said. In the United States, Carlyle's rate sits above 20%. He credited the firm's diversified portfolio and its avoidance of excessive concentration in software investments for part of the gap.

The industry figure matters beyond bragging rights. Industrywide, slower returns of capital have made it harder for some limited partners to allocate money to private equity, Redett noted. Cash that never comes back cannot be recycled into the next vintage. Carlyle, on this telling, is solving that problem faster than most.

The record is not spotless. Redett acknowledged that Carlyle's CP VII fund had not met the firm's expectations, though management has outlined a path forward to investors. He did not directly address the likelihood of the fund generating carried interest (the share of profits paid to the manager).

CP VIII, which is 75% invested, tells a different story. "We do not have" one or two companies in the portfolio that raise the concerns typically seen at that stage, Redett said. He called the fund positioned to be a strong one.

What is new on the defense and energy side?

Carlyle is raising its first defense and industrial fund, focused on the United States and Europe, alongside a global energy fund. Redett identified defense, energy, health care, financial services and industrials as areas of opportunity.

The defense vehicle will target more middle-market opportunities than Carlyle's large U.S. buyout fund. Within it, the shopping list includes:

• cybersecurity
• data protection
• shipbuilding
• conventional defense capabilities

Drones did not make the list. Redett said they were less attractive because of the large number of manufacturers and the difficulty of identifying a sustainable platform. A crowded field, in other words, is not a thesis.

The fund has already announced its first deal: Secturion, a provider of encryption for data in transit. It is an early marker for a strategy that is new territory for the firm.

What role do AlpInvest and the wealth channel play?

Redett highlighted a structured transaction led by Carlyle's AlpInvest business that earmarked $5 billion for the current U.S. buyout vintage while providing liquidity to some fund investors. The response from limited partners was positive, he said, and Carlyle is considering whether the structure could apply elsewhere.

AlpInvest's market data and relationships have also become more closely integrated with Carlyle's investment businesses, Redett said. He expects growth in credit secondaries, a market he estimated at about $25 billion, against a $250 billion equity secondaries market.

In wealth management, Carlyle's private equity product, CPEP, recently crossed $1 billion. It went live on its first wirehouse platform a couple of months ago, with additional platforms expected in 2027 and 2028. Redett cautioned that growth in private markets products for individual investors would take time, particularly amid recent bumps on the credit side. Retail capital, it seems, arrives on its own calendar.

Where do margins and Europe stand?

Redett expects fundraising and asset growth to drive expansion in Carlyle's fee-related earnings margin toward 50% or higher. Automation could help at the margin, he said, but growth rather than cost efficiencies would be the principal driver.

Europe remains a rebuilding site. Carlyle has faced buyout challenges there, and Redett said the firm had changed leadership and rebuilt the team. He estimated the transition was about 90% complete. The latest European fund, he noted, will be substantially smaller than its predecessor. Prudence, presumably, qualifies as progress.

Carlyle, founded in Washington, DC, in 1987, invests across private equity, credit and investment solutions for institutional and individual clients, with offices across North America, Europe and Asia. Harvey Schwartz has served as chief executive officer since 2023.