Carlyle Group LP (CG:US), the second-largest buyout firm, bought commodities hedge-fund manager Vermillion Asset Management LLC, adding $2.2 billion in commodities assets as the firm expands beyond private equity.
Carlyle purchased 55 percent of Vermillion for a mix of cash, stock and performance-based payouts, effective Oct. 1, Carlyle said today in a statement. The price wasn’t disclosed.
Vermillion, created in 2005 by Drew Gilbert and Chris Nygaard, will be part of Carlyle’s Global Market Strategies business, headed by Mitch Petrick. That unit manages about $29 billion across 53 funds, and is a key component of the firm’s strategy to offer more products outside of traditional corporate buyout pools and win more commitments from investors worldwide.
“Our team looks forward to leveraging Carlyle’s global network and deep knowledge of local markets to better exploit trading opportunities and inefficiencies in the global commodities markets,” Gilbert said in the statement.
Gilbert and Nygaard will continue to oversee the day-to-day operations of Vermillion and remain co-chief investment officers of its funds. The New York-based firm has 43 employees. Vermillion focuses on investments spanning agricultural commodities, precious metals, freight and energy across three funds, according to the statement.
Viridian, Vermillion’s main fund, has posted an average annual gain of 6.9 percent since inception in June 2005 through July of this year, according to a letter sent to investors in August that was obtained by Bloomberg News. Commodity hedge funds broadly rose 9 percent a year over the same time period, according to the Newedge Commodity Trading Index.
The Viridian fund, which oversees $1.7 billion, rose 0.6 percent last year and fell 7 percent through July of 2012, according to the investor letter. The fund follows a relative value strategy of trying to spot situations in which commodities trade outside their normal range, according to the letter.
The acquisition is Carlyle’s third investment in a hedge fund in two years. It bought a 55 percent stake in New York- based Emerging Sovereign Group LLC in June 2011 after purchasing a majority holding of Claren Road Asset Management LLC in December 2010.
Commodities jumped 11 percent in the third quarter, the biggest gain since March 2011, as central banks and governments announced plans to promote growth. Money managers added $1.56 billion to commodity funds in the week ended Sept. 26, with $1.48 billion going to gold and precious metals, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows.
As part of the deal, Carlyle agreed to give Vermillion principals 1,439,788 shares over 4 1/2 years if certain performance targets are met. Those shares would be valued at $36.9 million at yesterday’s closing share price of $25.64.
Carlyle, based in Washington, has $156 billion in assets. Founded in 1987 by William Conway, Daniel D’Aniello and David Rubenstein, Carlyle trails only Blackstone Group LP as a so- called alternative-asset manager, as measured by assets under management.
Carlyle completed an initial public offering earlier this year, joining Blackstone, KKR & Co. and Apollo Global Management LLC (APO:US) as publicly traded private-equity firms.
All of those firms have sought to bolster assets and start or expand non-buyout businesses in part to satisfy public shareholders who value the shares on recurring fees.
Simpson Thacher & Bartlett LLP provided legal advice to Carlyle on the deal, while Sandler O’Neill & Partners LP and Katten Muchin Rosenman LLP advised Vermillion.
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