Boss of global private equity firm resigns

The chief executive of global private equity firm The Carlyle Group has stepped down reversing a process initiated five years ago to transfer leadership to a new generation.

Kewsong Lee’s exit was announced by the firm late on Sunday (Monday AEST). One of the firm’s founders, William Conway, current non-executive co-chairman, will step in as interim chief executive as Carlyle searches for a permanent successor.

Bloomberg reports that Lee stepping down was the culmination of growing tensions within the firm between an executive hand-picked to assume the mantle of Carlyle’s founders and clear the path for a new generation of leaders and the very people who had hand-picked him.

The uneasy relationship between the ambitious younger chief executive – Lee is now 56 – and the firm’s old guard reportedly reached breaking point last week as Lee pushed for a substantially larger pay package under his contract which was set to be renewed at the end of 2022.

The firm’s announcement of Lee’s departure gave no indication any tensions; it simply said the two sides had mutually agreed “the timing is right” to find a new chief executive.

This ends an attempt by some of the private equity world’s original titans to pass on control of their firm to a new generation, a process that is proving difficult across the industry.

Carlyle’s founders began their process by putting the firm under the control of co-chief executives, Lee and Glenn Youngkin, selected as having different but complementary strengths and styles. According to insiders, Lee, however, sidelined Youngkin who made a successful jump to politics earlier this year. He is now the Governor of Virginia.

Bloomberg says Lee has focused on consolidating businesses, cutting fat and putting resources into areas where he recognised opportunities to grow fee streams such as credit, which would appeal to the listed company’s shareholders. He was not seen to be deferential to Carlyle veterans and often sought out opinions of younger executives in investment committee meetings.

Credit now represents 38% of Carlyle’s assets, up from 22% in the second quarter of last year, reflecting Lee’s drive to diversify revenue. He has also guided the business into insurance, emulating some competitors, but persuaded the board to take a minority rather than majority stake in Fortitude Re. This limited regulatory costs while still gaining the firm around $US48 billion ($69 billion) in insurance assets.

Supporters, including many current and former employees, saw Lee as a shrewd leader with the kind of investing smarts that Carlyle needed to move beyond its roots as a privately financed leveraged buyout firm to compete with more diversified listed peers.

While the founders had achieved notable successes, they had also made investments that did not pay off. The firm had taken stakes in hedge funds Emerging Sovereign Group and Claren Road Asset Management only to exit them. Lee inherited some of the mess from past missteps and played a large role in the clean-up.

Founders Conway, Daniel D’Aniello and David Rubenstein had always sought to foster a tight triumvirate leadership and prided themselves in being collegial and building consensus, observers said.

Increasingly, some members of the board, which still includes the founders who collectively still hold more than 25% of the company, worried that Lee was eroding Carlyle’s genteel values, risking the alienation of investors and employees.    

The company has recently seen some high-level departures but, according to insiders, the board was advised that this turnover of talent was not unusual historically.

Meanwhile, Carlyle’s shares have lost value, and lost more than some of its closest rivals. At the end of last week (5 August) the stock was down 31% this year, worse than Apollo Global Management Inc., KKR & Co. and Blackstone Inc.

Some of Lee’s attempts to grow the firm have also introduced new risks. A purchase of collateralised loan obligations from CBAM Partners earlier this year made Carlyle a major manager of those bundles of loans; it also exposed the firm to a sell-off that ensued.

Fundraising for Carlyle’s flagship strategy has also been going slower than expected. The firm told investors in June that it had to date gathered commitments of around $US15 billion for its new buyout and growth fund. That is less than the $US17 billion it had anticipated collecting by roughly mid-year on the way to a target of $US22 billion. Lee had in 2020 slashed the Carlyle team responsible for raising money from the largest institutional investors such as pensions, sovereign wealth funds and endowments.

 Lee’s assertive style worked for dealmaking but increasingly aggravated the founders who he encouraged to step back from involvement in running the firm. Most likely, Lee’s demand for a new pay package was the final straw.

According to the Financial Times, citing people with knowledge of the matter, Lee was seeking as much as $US300 million over five years. The three founders would not even consider the proposal, the Financial Times said, and Lee resigned.

Image: Carlyle’s now ex-chief executive Kewsong Lee.