CARLYLE INVESTMENT MANAGEMENT L.L.C.
- Advisory Business
- Fees and Compensation
- Performance-Based Fees
- Types of Clients
- Methods of Analysis
- Disciplinary Information
- Other Activities
- Code of Ethics
- Brokerage Practices
- Review of Accounts
- Client Referrals
- Investment Discretion
- Voting Client Securities
- Financial Information
The Carlyle Group Carlyle, founded in 1987, is one of the world’s largest and most diversified multi-product global investment firms, offering specialized investment funds and other investment vehicles that invest across a range of industries, geographies, asset classes and investment strategies. Carlyle operates its business, through CIM and several other Carlyle-affiliated investment advisers, across four segments: (i) Corporate Private Equity, (ii) Real Assets, (iii) Global Credit, and (iv) Investment Solutions.
Carlyle Investment Management L.L.C. CIM, a Delaware limited liability company formed in 1996, is registered with the SEC as an investment adviser. It provides investment advisory services, either directly or through co- and sub-advisory arrangements, to various Carlyle-sponsored investment vehicles and managed accounts (each an “Advisory Client”1). In the context of Carlyle’s structured credit investment activities, CIM generally provides advisory services directly to the investment vehicle as collateral/investment manager. Various entities affiliated with The Carlyle Group L.P. (Nasdaq: CG), an affiliate of CIM (the “Public Company”), directly and indirectly own and control CIM. TC Group, L.L.C. is the primary direct owner of CIM. Carlyle Group Management L.L.C. is the sole general partner of the Public Company and may be deemed to indirectly control the Public Company’s business for regulatory purposes. CIM does not hold any economic interest in the Public Company, although certain of its officers and supervised persons hold common units representing limited partnership interests in the Public Company (the “Common Units”) and have the ability to control TCG Carlyle Global Partners L.L.C., an entity that holds a special voting unit issued by the Public Company. Public unitholders hold 100% of the economic interests in the Public Company. As of December 2018, the Public Company indirectly held approximately 32% in Carlyle Holdings I, L.P., Carlyle Holdings II L.P. and Carlyle Holdings III L.P. (collectively, “Carlyle Holdings”), which entities operate and control all of the business and affairs of Carlyle and its affiliates; the remaining limited partnership interests in Carlyle Holdings were held by senior Carlyle professionals, affiliates of Mubadala Development Company and their respective related persons.
Carlyle Group Management L.L.C. is managed by a Board of Directors (Carlyle’s founders, William E. Conway, Jr., Daniel A. D’Aniello, and David M. Rubenstein represent a majority in interest of the membership interests in Carlyle Group Management L.L.C. and, accordingly, have the ability to appoint and remove the members of the entity’s Board of Directors, subject to the 1 “Advisory Client” means any account or fund for which CIM directly or indirectly provides investment advice and/or places trades on a discretionary or nondiscretionary basis. The investors and other persons who invest in CIM’s Advisory Clients are generally referred to herein as “investors.” Unless otherwise expressly stated herein, the term “Advisory Clients” does not include “investors”, and the term “investors” does not reference public unitholders of the Public Company. terms of its limited liability company agreement). Carlyle has formed a group of senior management professionals that establishes the management structures and policies and procedures for the operation and development of the firm (the “Executive Group”), guided by the strategic direction set by the Board of Directors. Together with Messrs. Conway, D’Aniello and Rubenstein, Glenn A. Youngkin and Kewsong Lee, Carlyle’s Co-Chief Executive Officers, Peter J. Clare, Carlyle’s Co-Chief Investment Officer, Jeffrey W. Ferguson, Carlyle’s General Counsel, and Curtis L. Buser, Carlyle’s Chief Financial Officer, comprise the Executive Group. Carlyle also has formed a committee responsible for reviewing and considering significant operational or financial matters (the “Management Committee”). Comprising members of the Executive Group and other members of senior management, the Management Committee serves as a resource to the Executive Group.
As of December 31, 2018, CIM managed approximately $134.5 billion of assets in respect of which CIM has full investment discretion (subject to the Advisory Client’s established investment guidelines). As of December 31, 2018, CIM also managed approximately $1.2 billion of assets in respect of which CIM does not have full investment discretion. Although CIM is a separately-registered investment adviser that generally operates independently of other Carlyle-affiliated investment advisers, CIM acts as a co-investment adviser with certain affiliated investment advisers (e.g., AlpInvest Partners). Further, its status as part of the larger Carlyle organization raises certain actual and potential conflicts of interest, as discussed more fully in Item 10. CIM also acts as a sub- or co-investment adviser with unaffiliated investment advisers for certain investment vehicles that are joint ventures between Carlyle and unaffiliated entities, for example, its joint ventures with Riverstone Holdings, LLC (“Riverstone”) with respect to certain legacy energy and renewables funds. Through a series of delegation agreements, CIM provides portfolio management services with respect to certain private investment funds that are managed by CIM Europe S.à r.l. (the “CIM AIFM”), an affiliated alternative investment fund manager licensed with the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) under the Directive (as defined below). In providing its services to each Advisory Client, CIM and its related persons provide advice with respect to the investment and reinvestment of each Advisory Client’s assets, and may assist in coordinating reports to investors. CIM manages the assets of each Advisory Client in accordance with the terms of the governing documents (or investment management agreement in the case of a separately managed account) applicable to such Advisory Client. Interests in Carlyle-sponsored investment vehicles advised by CIM are privately offered only to eligible investors pursuant to exemptions available under the United States Securities Act of 1933, as amended (the “Securities Act”), and the regulations promulgated thereunder. Such investment vehicles, including parallel and co-investment vehicles, are not registered with the SEC as investment companies based on specific exclusions from the United States Investment Company Act of 1940, as amended (the “1940 Act”). Typically, interests in such investment vehicles are offered to institutional investors and high net worth individuals. Additionally, Carlyle, its affiliates and equity owners, and certain of their respective professionals typically invest in or alongside Advisory Clients. Other qualified individuals who generally are not employees of Carlyle, but who have business relationships with Carlyle or industry expertise in the sector in which a particular Advisory Client may be investing (including, without limitation, operating executives, operating advisors, consultants, former employees, senior advisors, and other similar professionals) also may invest in or alongside Advisory Clients. Some of these outside investors and industry experts are current or former executives of portfolio companies in which an investment vehicle will invest. The Carlyle Group Business Segments As noted above, Carlyle operates its business, through CIM and several other Carlyle-affiliated investment advisers, across four segments: (i) Corporate Private Equity, (ii) Real Assets, (iii) Global Credit, and (iv) Investment Solutions.
Corporate Private Equity
Carlyle established its private equity business in 1990 with its first U.S. buyout fund, and expanded it in 1997 to include growth capital funds, and continues to pursue a wide variety of corporate investments of different sizes and growth potentials. In addition to the U.S., Carlyle also sponsors corporate private equity funds in Europe, Asia, Japan, Middle East and North Africa (“MENA”), Sub-Saharan Africa and South America. Carlyle’s Corporate Private Equity Advisory Clients (which include funds advised by CIM) are organized and operated by geography or industry, and are advised by professionals who typically live and work in the markets where they invest. These teams closely analyze investment opportunities in a wide range of companies, from small-cap growth companies to market-leading, large-cap companies across their core industries (including, aerospace, defense and government services, consumer and retail, financial services, healthcare, industrial, telecom, media and technology and transportation).
Buyout. Carlyle’s buyout teams advise a diverse group of Advisory Clients that invest in buyout transactions that typically focus either on a particular geography (e.g., United States, Europe, Asia, Japan, MENA, Sub-Saharan Africa, or South America) or a particular industry (e.g., financial services). Carlyle’s buyout platform also includes a longer-duration global buyout fund.
Middle Market and Growth Capital. Carlyle’s middle market and growth capital Advisory Clients are advised by regionally-focused teams in the United States, Europe and Asia, with each team seeking private equity investments in middle market and lower middle market investment opportunities consistent with specific regional investment criteria. The investment mandate for Carlyle’s middle market and growth capital funds is to seek out companies with the potential for growth, strategic redirection and operational improvements. These funds typically do not invest in early stage or venture-type investments. CIM, either directly or indirectly, advises the Corporate Private Equity Advisory Clients. Real Assets Carlyle’s real assets investment program, established in 1997 with Carlyle’s first U.S. real estate fund, focuses on investments in real estate, infrastructure, and energy and natural resources (including power) companies and projects, and includes investment funds advised by NGP Energy Capital Management, LLC (“NGP”), a separately-registered investment adviser based in Irving, TX. The real assets business segment seeks investment opportunities in tangible assets, such as residential and retail properties, senior-living facilities, industrial properties, self-storage properties, office buildings and hotels, oil and gas exploration and production, midstream, refining and marketing, power generation, pipelines, wind farms, refineries, airports, toll roads, transportation, water utility and agriculture, or similar assets, and in the companies providing services or otherwise related to the foregoing. Carlyle owns certain economic interests in NGP. Carlyle does not control NGP or its current funds. NGP is separately registered as an investment adviser under the Advisers Act. For the purposes of this Brochure, references to CIM do not include references to NGP. Real Estate. Carlyle’s real estate investment team pursues real estate opportunities in Europe and the United States, generally focuses on acquiring single-property assets (rather than large- cap companies with real estate portfolios), and has historically pursued primarily an opportunistic real estate investment strategy. CIM’s activities also include a core-plus real estate investment strategy, seeking what CIM identifies as more stable, relatively low volatility equity investments in the U.S. as compared to its opportunistic investment strategy. In the U.S., Carlyle continues to focus on single asset transactions in its opportunistic and core-plus investment strategies. Outside the U.S., Carlyle continues to invest opportunistically in the European market.
Energy and Natural Resources. Carlyle’s energy and natural resources activities focus on buyouts, growth capital investments and strategic joint ventures in the midstream, upstream, energy and oilfield services sectors, the renewable and alternative sectors and the power and infrastructure industries around the world.
o International Energy. In 2013, Carlyle engaged an investment team, primarily through Atlas NV, an unaffiliated investment adviser, and supplemented such team with additional Carlyle investment professionals to develop its international energy platform. The international energy team focuses on a full range of energy assets outside of North America, including oil and gas exploration and production, midstream, oilfield services and refining and marketing in Europe, Africa, Latin America and Asia. Through Atlas NV, certain of the Atlas-associated investment professionals also manage an existing international energy platform with active portfolio companies. Carlyle does not control or manage this platform or its underlying portfolio companies. Atlas NV is an “Exempt Reporting Adviser” under the exemption from the SEC’s investment adviser registration requirements set forth in Rule 203(m)-1 under the Advisers Act. For purposes of this Brochure, references to CIM do not include references to Atlas NV. In addition, the international energy team formed Regalwood Global Energy, a special purpose acquisition company (“SPAC”) that intends to invest in oil and gas assets. o North American Energy. NGP is primarily responsible for Carlyle’s North American energy investment strategy; however, CIM does not control the investment decisions of any NGP funds. NGP focuses on investments across a range of energy and natural resource assets in North America, including oil and gas resources, oilfield services, pipelines and processing. CIM and Riverstone Investment Group L.L.C., a separately registered and unaffiliated investment adviser, jointly advise several legacy energy and renewable resources funds. Carlyle and Riverstone have mutually decided not to pursue additional jointly managed funds.
o Power. Carlyle’s power investment team focuses on investment opportunities in the North American power generation sector. Leveraging the expertise of the operating professionals at Cogentrix Energy L.L.C., a Carlyle portfolio company, the power investment team seeks investments where it can obtain direct or indirect operational control to facilitate the implementation of technical enhancements.
o Infrastructure. In 2016, Carlyle launched a global infrastructure fund focused on infrastructure assets, business and investments in global developed markets with strong commercial systems and rule of law. Previously, Carlyle’s infrastructure business invested solely in North American infrastructure companies and assets.
CIM, either directly or indirectly, advises or co-advises the Real Assets Advisory Clients (which, for the avoidance of doubt, do not include current funds advised by NGP, or previous investments of Atlas NV).
Global Credit Carlyle’s Global Credit business segment (formerly known as Global Market Strategies, “Global Credit Group” or “Global Credit”), established in 1999 with Carlyle’s first high yield fund, advises a group of private fund, separately managed account and business development company advisory clients that pursue investment strategies including loans and structured credit, direct lending, opportunistic credit, energy credit, distressed credit, and aviation finance. As discussed previously, in 2018, Carlyle acquired a 19.9% interest in Fortitude Re, a Bermuda domiciled reinsurer, and added Carlyle Aviation Partners to Global Credit. CIM, Carlyle Global Credit Investment Management L.L.C. (“CGCIM”), and Carlyle Aviation Securities Partners LLC (“Carlyle Aviation Securities Partners”) are the primary investment advisers that provide advice to Global Credit advisory clients. For the purposes of this Brochure, references to CIM do not include references to CGCIM or Carlyle Aviation Securities Partners. The Global Credit team includes investment professionals located in the United States, Europe and Asia. Loans and Structured Credit: Carlyle’s U.S. structured credit investment team focuses on investments primarily in performing senior secured bank loans through structured vehicles and other investment vehicles. With the exception of one CGCIM advisory client, CIM and its relying adviser, Carlyle CLO Management L.L.C. (“Carlyle CLO”), advise U.S. structured credit Advisory Clients. Carlyle’s European structured credit funds are independently advised by CELF Advisors LLP (“CELF”), an affiliated investment adviser authorized and regulated by the UK Financial Conduct Authority. CELF is an “Exempt Reporting Adviser” under the exemption from the SEC’s investment adviser registration requirements set forth in Rule 203(m)-1 under the Advisers Act.
Direct Lending: Carlyle’s direct lending business includes its business development companies (“BDCs”) that invest primarily in middle market first-lien loans and second- lien loans of middle market companies that lack access to the broadly syndicated loan and bond markets (including TCG BDC Inc., which became a publicly-traded BDC in June 2017). CGCIM acts as the investment adviser to advisory client affiliates of CIM, which have elected to be treated as BDCs under the 1940 Act, and additional middle market finance advisory clients. CGCIM also acts as a sub-advisor to a registered investment company, OFI Carlyle Private Credit Fund.
Opportunistic Credit: Carlyle’s opportunistic credit team invests primarily in highly- structured and privately-negotiated capital solutions supporting corporate borrowers through secured loans, senior subordinated debt, mezzanine debt, convertible notes, and other debt-like instruments, as well as preferred and common equity in such borrowers. The opportunistic credit team also considers investing in special situations and market dislocations. In the first quarter of 2018, the investment adviser to these funds changed from CIM to CGCIM; however, the opportunistic credit investment team did not change.
Energy Credit: Carlyle’s energy credit team seeks to invest primarily in privately- negotiated mezzanine debt investments in North American energy and power projects and companies. In the first quarter of 2018, the investment adviser to these funds changed from CIM to CGCIM; however, the energy credit investment team did not change.
Distressed Credit: Carlyle’s distressed credit investment team focuses on investments in liquid and illiquid securities and obligations, including secured debt, senior and subordinated unsecured debt, convertible debt obligations, preferred stock and public and private equity of financially distressed companies in defensive and asset-rich industries. In certain investments, these funds may seek to restructure pre-reorganization debt claims into controlling positions in the equity of reorganized companies. In the first quarter of 2018, the investment adviser to these funds changed from CIM to CGCIM; however, the distressed credit investment team did not change. Aircraft Financing and Servicing. Carlyle Aviation Partners is a multistrategy investment platform that is engaged in commercial aviation aircraft financing and investment and providing investment management services related to the commercial aviation industry. Carlyle Aviation Partners includes Carlyle Aviation Securities Partners, an investment adviser registered with the SEC. Capital Solutions. Carlyle Capital Solutions (“CCS”) is a loan syndication and capital markets business that Carlyle launched in 2018. The primary focus of CCS is to underwrite, originate and syndicate loans and underwrite securities of third parties and Carlyle portfolio companies, through TCG Capital Markets a broker-dealer affiliated with CGCIM, and TCG Senior Funding. Please see Item 10 for additional information regarding CCS. Investment Solutions Carlyle’s Investment Solutions segment primarily operates through AlpInvest Partners, B.V. (“AlpInvest”) and Metropolitan Real Estate Equity Management, LLC (“Metropolitan”), and to a lesser extent, certain CIM personnel, and offers private equity and real estate investment programs focused on funds of funds, secondary purchases of existing portfolios and managed co-investment programs. AlpInvest is the private equity asset manager in the Investment Solutions segment, and Metropolitan is the private real estate asset manager in the Investment Solutions segment2.
Each of AlpInvest, Metropolitan and CIM may act as an investment adviser to certain advisory clients within Carlyle’s Investment Solutions business. Advisory services may include making recommendations to such advisory clients regarding overall investment strategy or allocation, including recommended allocations of capital to certain investment vehicles sponsored by AlpInvest, Metropolitan or Carlyle.
Carlyle owns 100% of the equity interests of AlpInvest, an investment adviser separately registered under the Advisers Act. AlpInvest is the private equity asset manager and adviser in the Investment Solutions business segment, and provides investment advisory services to pooled investment vehicles sponsored by AlpInvest and customized separately managed accounts. AlpInvest invests globally across the private equity spectrum (including buyout, growth capital, venture, subordinated private debt and distressed debt) through direct subscriptions for interests in private equity and mezzanine funds, co-investments in single portfolio companies alongside private equity and mezzanine funds, and secondary market purchases of interests in private equity funds and private operating companies. For the purposes of this Brochure, references to CIM do not include references to AlpInvest.
Carlyle owns 100% of the equity interests of Metropolitan, an investment adviser separately registered under the Advisers Act. Metropolitan is the private real estate asset manager and adviser in the Investment Solutions business segment and provides investment advisory services to pooled 2 Carlyle has substantially wound down the Diversified Global Asset Management Corporation (“DGAM”) business, a Toronto-based affiliate of CIM and global manager of hedge funds, acquired by Carlyle in February 2014. In connection with the wind down of its operations, DGAM has surrendered its investment fund manager and portfolio manager licenses, and retained an exempt market dealer license with the Ontario Securities Commission to facilitate certain marketing activities in Canada for advisory clients. investment vehicles sponsored by Metropolitan and customized separately managed accounts. Metropolitan invests globally through direct subscriptions for interests in private equity real estate funds, secondary purchases of interests in private equity real estate funds and private real estate investments, and co-investments in single real estate investments alongside sponsors of private real estate funds. For the purposes of this Brochure, references to CIM do not include references to Metropolitan. please register to get more info
CIM or its affiliates3 generally receive management fees and carried interest or similar profit allocations from Advisory Clients. Advisory Clients frequently also indirectly incur or generate other fees payable to CIM or its affiliates, depending on the nature of their portfolio activities. CIM or its affiliates, for example, earn fees and other compensation from prospective and actual portfolio companies, purchasers, sellers and other parties as compensation for services (collectively, “Service Fees”). These Service Fees can include project, structuring, topping, termination, break-up, directors’, organizational, set-up, investment banking, underwriting, syndication, closing, commitment, advisory, consulting, and other similar fees in connection with the purchase, monitoring, or disposition of underlying investments or from unconsummated transactions. In general, the specific legal and/or organizational documents of the relevant Advisory Client, the investment management agreement between CIM (or an affiliate) and such Advisory Client or the agreements in respect of the portfolio investments describe the basic fee structure relevant to the investors in such Advisory Client. To the extent provided in such organizational documents or investment management agreement, CIM’s management fees from Advisory Clients generally are reduced (offset) by a specified portion of the Service Fees that arise out of such Advisory Client’s investment activities. The Service Fees can be and often are substantial, and if not fully offset pursuant to organizational documents will be indirectly borne by investors.
Certain fees are excluded from the definition of “Service Fees” and not subject to a management fee offset. For certain Advisory Clients, fees earned by broker-dealer affiliates of CIM who are U.S.-registered broker-dealers (or affiliates providing similar services with respect to loans) conducting a financial services, loan origination, structuring, placement or other similar business as a broker, dealer, distributor, syndicator, arranger or originator of securities or loans are not considered “Service Fees” subject to any management fee offset. These affiliated broker-dealer fees include offering, placement, syndication, underwriting, solicitation or similar fees in connection with activities for an Advisory Client such as an initial public offering of securities and the distribution of debt or equity securities of a portfolio company, or similar activities with respect to loans. In addition, fees attributable to co-investors or internal or external coinvestment vehicles 3 For the purposes of this Brochure, references to “CIM or its affiliates” or “CIM and its affiliates” do not include references to Carlyle-affiliated advisers, such as CGCIM, AlpInvest, Metropolitan, and Carlyle Aviation Securities Partners, unaffiliated advisers, such as Atlas NV and NGP, or any Carlyle portfolio companies, including portfolio companies that are investment advisers registered with the SEC (e.g., Content Partners LLC, or the separately registered investment advisers affiliated with The TCW Group, Inc.). and fees eligible to be treated as expenses of an Advisory Client may also be excluded from “Service Fees” and not subject to a management fee offset. Other than transactions expressly permitted by the governing agreements of the relevant Advisory Client, any fees paid to CIM or its affiliates by a portfolio company or an Advisory Client are required to be on an arm’s-length basis on terms that are no less favorable to the Advisory Client or portfolio company than would be obtained in a transaction with an unaffiliated party, are no less favorable than market terms, or approved by the relevant members of a committee of third-party investors with Carlyle (an “Investor Advisory Committee”). Among the measures CIM uses to mitigate such conflict is involving outside counsel to review and advise on such agreements and provide insights into commercially reasonable terms.
Moreover, Carlyle and its personnel can be expected to receive certain intangible and/or other benefits and/or perquisites arising or resulting from their activities on behalf of Advisory Clients that will not be subject to the management fee offset or otherwise shared with the Advisory Clients, investors and/or portfolio companies. For example, airline travel or hotel stays incurred as Advisory Client expenses typically result in “miles” or “points” or credit in loyalty/status programs, and such benefits and/or amounts will, whether or not de minimis or difficult to value, inure exclusively to Carlyle and/or such personnel (and not the Advisory Clients, investors and/or portfolio companies) even though the cost of the underlying service is borne by the Advisory Clients, investors and/or portfolio companies. On occasion, Carlyle employees may be asked to serve on the boards of directors of companies in which an Advisory Client has fully exited its ownership interest. Such companies are not portfolio companies and therefore, to the extent the Carlyle employee is offered standard board compensation for their services post-exit, such standard board compensation is not subject to the management fee offset or otherwise shared with the Advisory Clients, investors and/or portfolio companies. On occasion, former Carlyle employees may be asked to serve on the boards of directors of companies in which an Advisory Client continues to have an ownership interest. To the extent the former Carlyle employee is offered standard board compensation for their services, depending on the facts and circumstances, including the duration of the separation from Carlyle, such standard board compensation may not be subject to the management fee offset or otherwise shared with the Advisory Clients, investors and/or portfolio companies. Advisory Clients also typically bear certain out-of-pocket expenses incurred by CIM or its affiliates in connection with the services provided to such Advisory Clients. The following sections discuss the most common fees and expenses in more detail. Common Types of Fees Management and Administration Fees For most Advisory Clients that are pooled investment funds, the annual management fee is typically in the range of 1.0-2.0 percent of third-party investors’ committed capital during the relevant Advisory Client’s investment period. After such investment period, the fee percentage is typically applied only to the amount of third-party capital remaining in investments that have not yet been exited, and the fee percentage also may be reduced (e.g., 0.6 - 2.0 percent of remaining third-party capital). However, if the fee base changes during a period for which fees have been called in advance, any excess fees paid generally are not returned to the investor. For certain separately managed accounts and certain longer-dated carry funds, management fees generally range from 0.2 to 1.5 percent of contributions for unrealized investments or the current value of the investment. For services provided to certain separately managed accounts, the Advisory Client may pay a management fee to CIM or one of its affiliates, which fee may be in addition to any fees charged by pooled investment funds in which such managed account makes an investment. In some situations, an Advisory Client pays management fees based on net asset value of the investments held by such Advisory Client.
Within Global Credit, for CLOs, management fees generally range from 0.4 to 0.5 percent based on the total par amount of assets or the aggregate principal amount of the notes in the CLO and are due quarterly or semi-annually. Management fees for the CLOs/structured products are governed by indentures and collateral management agreements, and are paid until redemption of the securities issued by the CLOs, which is generally five to ten years after issuance.
Management fees are generally paid by or on behalf of an Advisory Client by (i) requiring investors in such Advisory Client to make capital contributions in respect of such fees, or (ii) withholding the amount of such fees from investment proceeds that would otherwise be distributable to the investors of such Advisory Client. In addition, CIM or its affiliates often have the ability to cause an Advisory Client to borrow money for the payment of such fees. Management fees are negotiable and, depending on the Advisory Client, may be paid in advance or in arrears and may vary for different third-party investors, typically based on commitment size. If management fees with respect to an Advisory Client are assessed in advance, they are generally required to be returned to the investors in such Advisory Client should CIM’s and its affiliates’ management services to the Advisory Client be terminated prior to the end of the period in respect of which the fees have been paid (including, for example, situations where the final distribution by an Advisory Client occurs prior to the end of a period for which management fees have already been paid). In general, the amount of such fees to be returned is calculated based on the number of days remaining in the applicable period. Certain Advisory Clients are also charged a flat annual administration fee to cover a portion of Carlyle’s internal administration costs, which are paid (and rebated if necessary) in a similar fashion as management fees. The amounts of any such fees are set forth in the agreements under which an Advisory Client was established. Performance-Based Arrangements4 Distributions to investors in most Advisory Clients are subject to some form of carried interest or similar profit allocation for the benefit of an affiliate of CIM. Generally, these profit allocations represent a share of distributions made by an Advisory Client in excess of the relevant investors’ 4 See also Item 6 – “Performance-Based Fees and Side-By-Side Management”. invested capital, and allocable fees and expenses. Performance-based profit allocations may be applied each time an investment is realized or on an annual (or more frequent) basis with respect to certain Advisory Clients. Performance fees or carried interest profit allocations are subject to regulation under Section 205 of the Advisers Act and Rule 205-3 thereunder. Therefore, CIM seeks to ensure that any Advisory Client or investors in an Advisory Client that are directly or indirectly assessed performance fees or are subject to carried interest profit allocations satisfy the qualifications of Rule 205-3 under the Advisers Act and have been advised of such fees or allocations and their risks. For any Advisory Client, performance fees or carried interest allocations generally do not exceed 20% of profits, and may be subject to certain preferred return hurdles, catch-up allocations and high water marks. In the case of open-ended fund Advisory Clients, the incentive allocation is generally calculated on a basis that includes unrealized appreciation of the Advisory Client’s assets. The manner of calculation and application of performance fees or carried interest profit allocations are disclosed in the offering documents for, and detailed in the governing agreements of, each Advisory Client. Management fees and carried interest or similar profit allocations are subject to modification, waiver or reduction in connection with an investment in one or multiple Advisory Clients. Furthermore, Carlyle, its affiliates and equity owners, and certain of their respective professionals typically invest in or alongside Advisory Clients. Other qualified individuals who generally are not employees of Carlyle, but who have business relationships with Carlyle or industry expertise in the sector in which a particular Advisory Client may be investing (including, without limitation, operating executives, operating advisors, consultants, former employees, and other similar professionals), also invest in or alongside Advisory Clients. Fees assessed or profit allocations on such investments may be substantially reduced or, as is more typical, waived altogether for these investors. Other Fees
To the extent CIM or an affiliate thereof is entitled to receive fees from portfolio companies of an Advisory Client, a portion of such Advisory Client’s share of such fees paid to CIM or such affiliate (e.g., in general, 100% in the case of Carlyle’s recently formed Advisory Clients and 65- 80% in older Advisory Clients) typically reduces the management fees otherwise payable to CIM. The governing agreement (or investment management agreement in the case of a separately managed account) of each Advisory Client sets forth the basis on which such fees reduce management fees. Such fees are described below. Acquisition and disposition fees are one-time fees paid to CIM or one of its affiliates in connection with an investment or disposition by an Advisory Client. Such fees are generally paid by portfolio companies, but in limited circumstances are paid directly by an Advisory Client. Such fees are common to some, but not all Advisory Clients. With regards to certain portfolio companies, including Corporate Private Equity portfolio companies, CIM or its affiliates receive a fee in connection with consulting, monitoring or other ongoing services provided to the portfolio company. In the case of fees related to consulting, business transition, advisory or monitoring, these may be payable as fixed dollar amounts or may be calculated as a percentage of EBITDA (or other similar metric). The terms of a monitoring agreement may in certain instances provide for an acceleration of fees paid to CIM or its affiliates upon termination following certain milestones, such as an initial public offering or sale, and where the lump-sum termination fee may be calculated as the present value of hypothetical foregone future payments (which in some cases may extend past the term of the fund and may be based on an assumed growth in EBITDA or other metric used to calculate the fee) and be calculated using a discount rate as low as the risk-free rate, as determined by CIM. Alternatively, such fees may continue after a public offering or sale while Carlyle continues to have a board seat of until the Advisory Client’s ownership level falls below a given threshold. In the case of fees related to business transition services (which may be called “transaction fees” in certain situations), often times these will be calculated as a percentage of the total enterprise valuation of the transaction, which is generally the aggregate amount of funds raised (including invested capital, rolled-over equity and debt assumed or financed by the Advisory Client and/or the portfolio company and its subsidiaries and affiliates). In the context of real estate pooled investment funds, CIM or an affiliate from time to time charges project fees for providing bona fide asset management (e.g., property management), development, disposition or other similar services, and such project fees are not subject to offset of management fees. As a general matter, the portion of fees received from portfolio companies that is allocable to capital invested by internal and external co-investment vehicles will be retained by Carlyle and will not be applied to reduce the management fees paid by an Advisory Client fund (even if the governing agreements of such co-investment vehicles provide for lower or no management fees for the investors or participants therein). Investors in external co-investment vehicles may also be charged a one-time fee, an ongoing management fee and/or an administrative fee in connection with such co-investment activity. Furthermore, in the event break-up or topping fees are paid to an Advisory Client in connection with a transaction that is not ultimately consummated, external co- investment vehicles that invest alongside an Advisory Client will generally not be allocated any share of such break-up fees or toppings fees. Similarly, such external co-investment vehicles generally do not bear any portion of broken deal expenses (such as reverse termination fees, extraordinary expenses such as litigation costs and judgments and other expenses) for unconsummated transactions; such amounts are borne by the applicable Advisory Client fund. CIM engages and retains operating executives, operating advisors, consultants, former employees, senior advisors, and other similar professionals, in all cases, who are not employees of CIM (“Operating Professionals”). Operating Professionals receive payments from, or allocations with respect to, portfolio companies (as well as from Advisory Clients) for their services (including for serving on a portfolio company’s board of directors). In such circumstances, such payments from, or allocations with respect to, portfolio companies and/or Advisory Clients will not, even if they have the effect of reducing any retainers or minimum amounts otherwise payable by CIM, be deemed paid to or received by CIM (nor will such amounts be deemed paid to or received by affiliates or personnel of CIM) and such amounts will not be subject to the management fee offset provisions described in Item 5 (meaning that such compensation received from the portfolio company will be indirectly borne by the Advisory Client without any offset to such Advisory Client’s management fee). To the extent Operating Professionals are engaged through a retainer agreement with CIM, Carlyle may elect to bear the expense of base retainer fees. These Operating Professionals may have the right or may be offered the ability to co-invest without fees or carry alongside or in Advisory Clients, including in those investments in which they are involved, receive in-kind payments such as stock or stock options, or otherwise participate in equity plans for management of any such portfolio company (which may have the effect of reducing the amount invested by and returned in respect of an Advisory Client investment). Additionally, and notwithstanding the foregoing, these Operating Professionals may be (or have the preferred right to be) investors alongside or in other Advisory Clients. Operating Professionals may be compensated (including pursuant to retainers and expense reimbursement) by CIM, an Advisory Client and/or portfolio companies or otherwise uncompensated unless and until an engagement with a portfolio company develops. Certain Operating Professionals may be subject to contractual obligations to exclusively provide certain services to CIM. CIM may have a conflict of interest to the extent that it has an opportunity to earn a fee from an investment held by an Advisory Client. However, CIM believes that applicable management fee offset provisions described above and the substantial equity commitment by CIM and its affiliates in Advisory Clients substantially mitigates this potential conflict. Other than transactions expressly permitted by the governing agreements of the relevant Advisory Client, any fees paid to CIM or its affiliates by a portfolio company or an Advisory Client are required to be on an arm’s-length basis on terms that are no less favorable to the Advisory Client or portfolio company than would be obtained in a transaction with an unaffiliated party, are no less favorable than market terms, or approved by the Investor Advisory Committee. Among the measures CIM uses to mitigate such conflict is involving outside counsel to review and advise on such agreements and provide insights into commercially reasonable terms.
Common Types of Expenses
Expenses that are typically borne by Advisory Clients (or their respective portfolio companies) generally include, without limitation (i) organizational expenses, (ii) expenses associated with redemptions, admissions and ongoing marketing, (iii) fees, costs and expenses (including indemnification costs and expenses) for administrators, custodians, depositaries, advisors, attorneys, accountants, tax advisors, consultants, appraisers, brokers, deal finders, agents, valuation experts, data providers (including data subscriptions, related systems and services from such data providers and data management software), other advisors and professionals (including audit and certification fees), operating executives, operating advisors, former employees, and other such professionals (to the extent such individuals are not Carlyle employees and are performing duties for a specific Advisory Client or a portfolio company, including but not limited to, service as a member of the portfolio company board of directors), (iv) costs incurred in preparing, printing and distributing reports physically and/or electronically to investors (including related information management systems whether maintained at Carlyle or otherwise), (v) all out-of-pocket fees, costs and expenses related to developing, sourcing, bidding on, evaluating, negotiating, structuring, obtaining regulatory approvals for, acquiring, purchasing, trading, settling, maintaining custody of, holding, operating, monitoring, financing, refinancing, accounting and disposing of actual or proposed investments (including related information management and trading systems, whether maintained at Carlyle or otherwise, and travel expenses, which includes, without limitation, meals, business or first class air travel, first class lodging, private car transportation, and may include the use of chartered travel or private air travel, as appropriate and in accordance with travel policies, and any financing, legal, accounting, loan administration, advisory and consulting expenses in connection therewith (to the extent not reimbursed by an entity in which the Advisory Clients have invested or propose to invest or other third parties) and any costs and expenses arising from any foreign exchange or other currency transaction, specialty and custom software (including software for monitoring risk, compliance and the overall portfolio), as well as related development costs, group purchasing programs for portfolio companies, and any insurance, indemnity or litigation expense), (vi) broken deal expenses (including expenses that would have been borne by co- investment vehicles), to the extent not reimbursed by an entity in which the Advisory Clients have invested or propose to invest, or other third parties, (vii) brokerage commissions, prime brokerage fees, custodial expenses, agent bank fees and other bank service fees, travel and related expenses and other investment costs, fees and expenses incurred in connection with actual investments, (viii) costs of litigation, D&O liability or other insurance and indemnification or extraordinary expense or liability relating to the affairs of the Advisory Clients, including indemnification obligations to any placement agents and finders in connection with the offer any sale of interests in the Advisory Clients, (ix) out-of-pocket expenses incurred in connection with complying with provisions in side letter agreements, including “most favored nations” process and provisions, (x) out of pocket expenses incurred in connection with legal, tax, regulatory and statutory compliance with U.S. federal, state, local, non-U.S. or other law or regulation (including, without limitation, regulatory filings of CIM and its affiliates relating to an Advisory Client and its activities, including reporting on and compliance with Form PF, DAC 6, FATCA and CRS (defined below) and any comparable legislation or regulations published by any other relevant jurisdiction, and reports, disclosures, filings and notifications prepared in accordance with and with respect to the organization or maintenance of any entity used in connection with compliance by an Advisory Client (or its related vehicles) with the Directive (defined below) as well as any travel and accommodation expenses related to such entity; the salary and benefits of any personnel reasonably necessary for the maintenance of such entity; or other related overhead expenses), (xi) fees, costs and expenses related to the organization, operation or maintenance of any intermediate entity or similar administrative structure used to acquire, hold, dispose, or otherwise facilitate an Advisory Client’s investment activities (including, without limitation, any related travel and accommodation expenses, salaries and benefits of any personnel reasonably necessary for the operation or maintenance of such intermediate entities, or other related overhead expenses), (xii) expenses of dissolving, winding up and terminating the Advisory Clients and intermediate entities, (xiii) any taxes, fees or other governmental charges levied against the Advisory Clients or payable by the Advisory Clients and all expenses incurred in connection with any tax audit, investigation, settlement or review of the Advisory Clients; (xiv) out-of-pocket costs and expenses, if any, associated with any third-party examinations or audits (including similar services) of the Advisory Clients, the CIM AIFM, or CIM that are attributable to the operation of such Advisory Clients or requested by one or more investors in an Advisory Client, (xv) costs and expenses of any lenders, investment banks and other financing sources (including principal and interest and fees and other expenses arising out of borrowings made by Advisory Clients, including, but not limited to, the arranging thereof and any related expenses and professional fees incurred in connection with any procedure reports for lenders and any indemnification obligations and agent servicing fees), (xvi) the out-of-pocket and legal and other expenses of the Investor Advisory Committee (including, but not limited to, travel-related expenses for members and certain observers of certain Investor Advisory Committees), (xvii) certain expenses associated with any meeting or conference of the Advisory Clients (including meetings or conferences attended by investors in the Advisory Clients), (xviii) out-of-pocket expenses associated with completed transactions that are not reimbursed by the seller or capitalized as part of the acquisition price of the transaction, and (xix) to the extent not paid by an intermediate entity or its investors, the expenses of such intermediate entity or its investors (which expenses may in the general partners’ (or similar managing fiduciary’s) discretion be specially allocated to the investors with a direct or indirect interest in such intermediate entity). Certain Advisory Clients are also required to bear the allocable compensation and other direct expenses of in-house accountants, administrators, legal, tax, compliance, leveraged purchasing, ESG (environmental, social and governance), IT system-support professionals, and other professionals whose roles with respect to the Advisory Client include the preparation of financial statements, investor reports, tax returns, the administration of assets and any expenses incurred in connection with the Advisory Client’s (and any related feeder funds’) legal and regulatory compliance with U.S. federal, state, local, non-U.S. or other law and regulation, or the support of the related IT systems. In connection with such expenses, the general partner of an Advisory Client may have a conflict of interest in allocating certain expenses among investors of the Advisory Client as well as among each Carlyle-sponsored investment vehicle and any co-investment vehicles.
In addition, CIM from time to time engages one or more fund administrators or similar service providers to perform certain functions in relation to an Advisory Client, including but not limited to, coordination of the Advisory Clients’ legal entity management function, execution and recordkeeping associated with applicable tax elections and filings, review of Advisory Client marketing materials, initial and ongoing reviews of current or potential investors in support of anti- money laundering or know-your-customer requirements, support for the Advisory Clients’ valuation process and support of certain investor correspondence, investor data management and reporting requests as well as data collection required for various regulatory reporting that the Advisory Clients are obligated to comply with. Certain employees of certain of such service providers dedicate substantially all of their time to Advisory Clients and spend all or a significant majority of their business time at the Carlyle offices. These expenses are borne by the Advisory Clients. In certain circumstances, advisors and service providers, or their affiliates, may charge different rates or have different arrangements for services provided to Carlyle, the general partner (or similar managing fiduciary), CIM or their affiliates as compared to services provided to the Advisory Clients and their portfolio companies, which may result in more favorable rates or arrangements than those payable by the Advisory Clients or such portfolio companies. Moreover, Carlyle or the Advisory Client may not be in a position to verify the risks or reliability of such service providers. The Advisory Client may suffer adverse consequences from actions, errors or failure to act by such third parties, and will have obligations, including indemnity obligations, and limited recourse against them. Carlyle has designed a group purchasing program whereby portfolio companies are afforded the option to participate in group purchasing arrangements with Carlyle, its affiliates and other portfolio companies. Companies that participate in the program are able to take advantage of group discounts which have been negotiated with various vendors and service providers. Portfolio companies voluntarily participate in the program, and Carlyle allocates aggregate ongoing third- party administration costs for the program among the applicable Advisory Clients (and Carlyle). Carlyle and its affiliates also participate in the program, are allocated a portion of the ongoing third-party administration costs, and receive substantially the same benefits and discounts as portfolio companies, and such benefit is not subject to any offset. From time to time, Advisory Clients may recruit a management team to pursue a new “platform” opportunity expected to lead to the formation of a future portfolio company. In other cases, Advisory Clients may form a new portfolio company and recruit a management team to build the portfolio company through acquisitions and organic growth. In both cases the Advisory Client will bear the expenses of the management team or portfolio company, as the case may be, including any overhead expenses, employee compensation, diligence expenses or other related expenses in connection with backing the management team or the build out of the platform company. Such expenses may be borne directly by the applicable Advisory Client as partnership expenses or indirectly as the Advisory Client bears the start-up and ongoing expenses of the newly-formed platform portfolio company. None of these expenses will offset any Advisory Client management fees.
Expenses frequently will be incurred by multiple Advisory Clients. Carlyle allocates aggregate costs among the applicable Advisory Clients (and, in certain cases, among Carlyle and applicable Advisory Clients) in accordance with allocation policies and procedures which are reasonably designed to allocate expenses in a fair and reasonable manner over time among such Advisory Clients. However, expense allocation decisions can involve potential conflicts of interest (e.g., an incentive to favor Advisory Clients that pay higher incentive fees, conflicts relating to different expense arrangements with certain Advisory Clients, or allocations of certain in-house personnel expenses). Under its current expense allocation policies, Carlyle generally allocates the expense among the Advisory Clients on a pro rata basis based on assets under management. Carlyle may, however, use other methods to allocate certain expenses among the Advisory Client if it deems another method more appropriate based on the relative use of a product or service, the nature or source of the product or service, the relative benefits derived by the Advisory Clients from the product or service, or other relevant factors. Nonetheless, the portion of a common expense that Carlyle allocates to an Advisory Client for a particular product or service may not reflect the relative benefit derived by Advisory Client from that product or service in any particular instance. For example, certain expenses may be allocated across all investment vehicles comprising an Advisory Client regardless of whether each investment vehicle is directly incurring the expense. Carlyle’s expense allocations often depend on inherently subjective determinations and, accordingly, expense allocations made by Carlyle in good faith will be final and binding on the Advisory Clients. Brokerage Expenses Expenses paid to third parties in connection with the acquisition or disposition of investments are borne by the Advisory Clients. These expenses include brokerage commissions (direct or in the form of a spread), prime brokerage and other account fees, custodial expenses, agent bank and other bank service fees, travel and related expenses and other investment costs, fees, and expenses incurred in connection with completed investments. These fees and expenses are also discussed in more detail in Item 12 – “Brokerage Practices”. Organizational/Offering Expenses Typically, legal, accounting, filing and other expenses incurred in connection with organizing and establishing an Advisory Client, its general partner (or similar managing fiduciary), the general partner (or similar managing fiduciary) of the general partner, any entity established in connection with Carlyle’s side-by-side commitment and its general partner or managing member, any vehicle formed to receive carried interest and its general partner or managing vehicle, as applicable, and the associated advisory arrangements with the investment adviser and its sub-advisers and the marketing and offering of interests in an Advisory Client (including travel and accommodation expenses, filing fees and expenses and printing costs or other similar amounts incurred by the general partner (or similar managing fiduciary) or its affiliates in connection with the offering of and subscription for interests in an Advisory Client) are borne by the investors in such Advisory Client. Often, the expenses borne by an Advisory Client are capped in the governing documents for the Advisory Client and any excess would offset future management fees. With respect to certain Advisory Clients, such expenses, up to the amount of any applicable cap, are borne solely by the third-party investors in such Advisory Clients that are not affiliated with Carlyle and any excess is borne by Carlyle. In addition, Carlyle may engage placement agents and finders (whether independent or employed by Carlyle) in connection with the offer and sale of interests to certain investors, but the fees due to such placement agents and finders, except to the extent paid to locally licensed intermediaries, representatives or distributors that an Advisory Client is legally required to engage in order to offer interests in such Advisory Client in particular jurisdictions or as otherwise disclosed to investors, either will be borne by Carlyle or to the extent paid by an Advisory Client will be treated as excess organizational expenses and will be subject to an offset against management fees. Broken Deal Expenses
Investors in Advisory Clients generally are required to bear out-of-pocket costs and expenses incurred in connection with developing, negotiating and structuring deals that are not ultimately completed. Typically, these expenses include (i) legal, accounting, advisory, consulting or other third-party expenses (including, without limitation, amounts payable to Operating Professionals and other third parties) in connection with making an investment that is not ultimately consummated, and any related travel and accommodation expenses (whether incurred by third parties or by Carlyle), although, in some cases, CIM and its affiliates may be required to bear travel and accommodation expenses, (ii) all fees (including commitment fees), costs and expenses of lenders, investment banks and other financing sources in connection with arranging financing for a proposed investment that is not ultimately made, (iii) any amounts paid to an individual or group pursuing a business plan that is not successfully implemented, (iv) any break-up, reverse break- up, topping, termination and other similar fees payable by an Advisory Client in connection with investments are that are not ultimately made and (v) any deposits or down payments of cash or other property which are forfeited in connection with a proposed investment that is not ultimately made (in each case, to the extent such investment is not ultimately made by another Advisory Client). While Carlyle’s internal co-investment vehicles that invest alongside our Advisory Client funds are allocated a portion of expenses, including, but not limited to, broken deal expenses, all other co-investment vehicles (particularly those formed to invest alongside an Advisory Client fund in a single investment) generally will not share in broken deal expenses. Investing in an Advisory Client does not give investors any rights, entitlements or priority to co-investment opportunities. please register to get more info
CIM currently acts as investment adviser or collateral manager to Advisory Clients, and related persons typically act as general partners (or similar managing fiduciaries) with respect to such Advisory Clients. As discussed in Item 5, CIM and its affiliates may receive carried interest allocations and management fees and other fees in connection with advisory and other services provided to Advisory Clients. The relationship of CIM, the manner of calculation and application of management fees and carried interest profit allocations or other performance-based fees, as applicable, with respect to CIM, the affiliated general partner (or similar managing fiduciary) or other affiliates and known or reasonably anticipated conflicts of interest involving CIM or its affiliates, are disclosed in the offering documents of the applicable Advisory Client provided to potential investors prior to their investment.
Each Advisory Client typically has a specified investment objective defined by geography, industry, type of investment, investment strategy, investment size, risk/reward profile, projected hold period and/or other parameters. Investment opportunities that satisfy the investment objective of a particular Advisory Client typically will be allocated to that particular Advisory Client, although may be allocated among multiple Advisory Clients with overlapping investment objectives in accordance with the firm’s investment allocation policies. The Co-Chief Investment Officers and the investment committee of the relevant Advisory Client have the discretion to construct what, in their business judgment, constitutes an appropriate investment portfolio for that Advisory Client. As such, in determining what they believe to be an appropriate portfolio for a particular Advisory Client, they may give consideration to factors in addition to those outlined above. As a result, it may not be desirable for an Advisory Client to participate in an investment opportunity or acquire all of an investment opportunity.
Generally, external co-investment vehicles are only allocated investment opportunities if CIM determines there is excess capacity in respect of a particular investment opportunity. In certain cases, however, an investment opportunity may be appropriate for more than one Advisory Client. As discussed in more detail in Item 11, these investment opportunities are allocated in accordance with CIM’s written investment allocation policies and procedures, taking into account the applicable provisions of the Advisory Client’s governing agreement (or investment management agreement in the case of a separately managed account). In allocating investment opportunities, there could be incentives to favor Advisory Clients with higher potential performance fees or carried interest allocations over Advisory Clients with lower potential performance fees or carried interest allocations5. Additionally, as described in Item 8, carried interest allocations may create an incentive for the general partner (or similar managing 5 For example, if one Advisory Client is in a net loss position and another Advisory Client is in a net gain position, the Advisory Client in the net loss position will either (i) not generate a carried interest from such investment, or (ii) generate less carried interest from such investment to the extent profits are required to make up for previous losses. fiduciary) of a Carlyle-sponsored investment vehicle advised by CIM to make riskier or more speculative investments on behalf of such investment vehicle than would be the case in the absence of this arrangement. To seek to reduce the effect of such incentives, CIM has adopted written investment allocation policies pursuant to which it seeks to allocate investment opportunities among Advisory Clients in a fair and equitable manner, bearing in mind, among other things, the size, investment objectives, mandate or policies, risk tolerance, return targets, projected hold periods, diversification considerations, permissible and preferred asset classes, and liquidity needs of each Advisory Client. CIM’s policies prohibit the allocation of investment opportunities based solely on anticipated compensation or profits to Carlyle, CIM, any affiliates or their professionals, and require the review and approval of CIM’s Allocation Committee (comprising senior CIM personnel) for allocations of opportunities that may be appropriate for multiple Advisory Clients. Each Advisory Client typically has its own investment guidelines, governing agreements, and geographical and industry focus that must be taken into account when making investment allocation determinations. Final allocation decisions are under the purview of CIM. please register to get more info
The vast majority of CIM’s Advisory Clients are pooled investment vehicles. CIM also provides advisory services on a separately managed account basis to, among others, entities associated with non-U.S. and U.S. state and local governments and their instrumentalities. CIM and its affiliates typically require that each third-party investor in an Advisory Client be an “accredited investor” as defined in Regulation D under the Securities Act and a “qualified purchaser” as defined in the 1940 Act. Typically, a minimum investment amount is imposed on third parties investing in the investment vehicles for which CIM acts as investment adviser or collateral manager. This minimum often is set at $5-10 million, but can be subject to a reduction upon prior agreement by CIM or an affiliate (subject to applicable legal requirements). A minimum investment amount can also be established pursuant to the laws of the jurisdiction in which the investment vehicle was established. please register to get more info
Methods of Analysis and Investment Strategies CIM uses a range of methods to identify, analyze and assess potential and existing investment opportunities, descriptions of which are included in the applicable offering documents and other governing documents. This may include arrangements with affiliated or unaffiliated advisers for purposes of obtaining analyses that would assist the applicable investment committees in their investment decision-making process. More specific descriptions are provided below regarding the investment strategies and investment processes, as they pertain to each investment group within CIM. As a general matter, analytical methods used by the investment teams can include gain/loss forecast models, cash-flow models, other financial modeling and simulation, risk sensitivity analyses, charting, and fundamental, technical and cyclical analysis. Corporate Private Equity CIM Corporate Private Equity Advisory Clients seek to make privately-negotiated equity or equity-related investments, focusing on buyout and growth capital transactions in a specified geographic region or industry. To a lesser extent, CIM Corporate Private Equity Advisory Clients may also be permitted to make certain debt investments, including debt investments in portfolio companies. In its leveraged buyout transactions, the Advisory Clients seek to (i) acquire portfolio companies primarily in Carlyle’s core industries; (ii) finance acquisitions using leverage from debt incurred by such companies; (iii) motivate and incentivize management of such portfolio companies in an effort to increase shareholder value; and (iv) sell their interests in each portfolio company when the value of the business has significantly increased. In its growth capital transactions, the Advisory Clients seek out companies with the potential for growth, strategic redirection and operational improvements. These funds typically do not invest in early-stage or venture-type investments. In considering potential investment opportunities in the corporate private equity setting, a number of analytical methods are utilized in an effort to achieve a thorough and in-depth assessment of the potential investment. Typically, these analyses focus on the (i) reputation of shareholders and management; (ii) company size and sensitivity of cash flow generation; (iii) operational, marketing, legal, tax, labor, environmental and accounting factors; (iv) business sector and competitive risks; (v) industry competition, both domestically and abroad; (vi) portfolio fit; (vii) exit alternatives; and (viii) other key factors highlighted by the investment team. Where appropriate, third-party consultants may be engaged to assess business and market conditions, competition, physical and environmental concerns, and other factors deemed to be relevant to the evaluation of the investment. Real Assets CIM’s real assets investment focus is on opportunities in tangible assets, such as retail and residential properties, senior-living facilities, industrial properties, self-storage facilities, office buildings and hotels, oil and gas exploration and production, midstream, refining and marketing, power generation, pipelines, wind farms, refineries, airports, toll roads, transportation, water utility and agriculture, or similar assets, and in the companies providing services or otherwise related to them. The principal features of the real assets investment strategy are to seek to acquire high- quality, well-located assets that are under-appreciated, under-managed or under-valued at prices that represent a discount to replacement costs; seek to improve the valuation and enhance the current yield through new management, operational strategy or improve the physical attributes or capital structure of such assets; seek to capitalize on secular and cyclical trends that contribute to changes in the relevant market; and seek operating partners with significant operational expertise or deal sourcing capability. CIM has expanded its platform to include a core-plus real estate investment strategy, seeking what CIM identifies as more stable, relatively low volatility equity investments in North America as compared to its opportunistic investment strategy. Within real estate, the investment approach includes pursuing single-asset transactions, working with strong joint venture partners or managers, sourcing deals directly, focusing on sector-specific strategies, actively managing the investments and timing of exits, across its opportunistic and core-plus strategies. Within energy and natural resources, the investment activities focus on international energy, North America (through NGP), power generation and global infrastructure. Investments that are operating companies are pursued after completing analyses that typically include: (i) reputation of the target’s management team; (ii) industry and/or market dynamics; (iii) physical and environmental concerns; (iv) competitors and competing technologies; (v) the quality of the target’s underlying assets, products and services; (vi) the target’s competitive position and strategy; (vii) the target’s financial statements, off-balance sheet and contingent liabilities, debt capacity and financing needs; (viii) equity and debt market perspectives; (ix) environmental, political and regulatory risks; and (x) economic risk, exit alternatives and return potential. Where appropriate, third-party consultants, industry experts and/or other advisors may be engaged to assist with aspects of the diligence process, or to assist with other areas relevant to the potential transaction and/or evaluation of the potential investment.
Global Credit Those Global Credit investments managed by CIM or its relying adviser, Carlyle CLO, primarily focus on credit opportunities in loans and structured credit. CIM’s investment goals through Global Credit include generating attractive current income, risk-adjusted returns, and capital appreciation, while avoiding defaults, maximizing recoveries, and preserving principal. Each of CIM’s Global Credit teams seeks to use its specialized expertise to identify investment opportunities by employing fundamental and technical analysis subject to eligibility criteria, Advisory Client objectives and investment guidelines.
The structured credit Advisory Clients primarily invest in loans. The investment decisions for these Advisory Clients are overseen by a credit committee comprising senior investment professionals of Carlyle. The credit committee reviews credit, liquidity, interest rate risk and compliance with the conditions of the funds’ underlying indentures (such as concentration limitations, collateral quality and collateral obligations). The credit committee also reviews general economic and market conditions, political events, industry trends and changes in interest rates. The structured credit team closely monitors investments through regular meetings and communication with management and equity sponsors. The structured credit team also conducts internal ongoing reviews of individual credits, market activity and the current trading environment.
The direct lending, opportunistic credit, energy credit, and distressed credit investment teams primarily manage advisory clients for CIM’s affiliated investment adviser, CGCIM. For additional information regarding the methods of analysis, investment strategies and risk of loss of CGCIM, please see Part 2 of Form ADV for CGCIM, available at: http://www.adviserinfo.sec.gov/ . Investment Solutions The Investment Solutions business primarily operates through AlpInvest and Metropolitan (as well as certain Carlyle personnel associated with CIM). AlpInvest seeks to provide attractive investment returns through carefully selected portfolios of private equity and mezzanine investments within the parameters of its investment mandates. Metropolitan seeks to provide attractive investment returns through carefully selected portfolios of real estate investments within the parameters of its investment mandates. The core investment strategies employed by each of AlpInvest and Metropolitan are primary fund investments, secondary investments and co- investments. Investments for Investment Solutions’ advisory clients are typically managed on a discretionary basis and are selected opportunistically by and among the aforementioned affiliated investment advisers from the range of investment strategies appropriate for the particular advisory client. For additional information regarding the methods of analysis, investment strategies and risk of loss of any of AlpInvest or Metropolitan, please see Part 2 of Form ADV for each investment adviser, available at: http://www.adviserinfo.sec.gov/ . Investment Risks
An investment in any Advisory Client involves a high degree of risk, and is suitable only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in such Advisory Client and for which such Advisory Client does not represent a complete investment program. There can be no assurance that the investment objective of any Advisory Client will be achieved, that any Advisory Client will otherwise be able to successfully carry out its investment program, or that an investor will receive a return of its capital contributed to any Advisory Client. The discussion below enumerates certain, but not all, risk factors that apply generally to an investment in any Advisory Client.
Prior to making any investment in an Advisory Client, investors should carefully review the applicable offering documents for a more complete description of the risk factors and conflicts of interest relating to such Advisory Client.
No Assurance of Investment Return
There can be no assurance that any Advisory Client will (i) be able to generate returns for its investors or that the returns will be commensurate with the risks of investing in the type of investments in which such Advisory Client participates or (ii) make any distribution to its investors. Accordingly, an investment in an Advisory Client should only be considered by persons for whom a speculative, illiquid and long-term investment is an appropriate component of a larger investment program and who can afford a loss of their entire investment. Past performance is not necessarily
indicative of future results and all investors should be prepared to lose the value of their
investment. There can be no assurance that projected or targeted returns for any Advisory
Client will be achieved.
Role of Carlyle and its Professionals
The success of each Advisory Client will depend in part upon Carlyle’s ability to attract and retain talented investment professionals, the skill and expertise of the investment professionals and, where applicable, the management of portfolio companies or other investments. There can be no assurance that such professionals will continue to be associated with Carlyle throughout the life of any Advisory Client and a loss of the services of key personnel could impair Carlyle’s ability to provide services to an Advisory Client. There is ever-increasing competition among alternative asset firms, financial institutions, private equity firms, investment managers and other industry participants for hiring and retaining qualified investment professionals. There can be no assurance that Carlyle personnel will not be solicited by and join competitors or other firms and/or that Carlyle will be able to hire and retain any new personnel that it seeks to maintain or add to its roster of investment professionals. In addition, members of the investment team or investment committee of a particular Advisory Client will work on other projects for Carlyle. Conflicts may arise in allocating management time, services or functions, and Carlyle’s ability to access other professionals and resources within Carlyle for the benefit of a particular Advisory Client may be limited. Such access may also be limited by the internal compliance policies of Carlyle, including, without limitation, information barrier policies, or other legal or business considerations. Although Carlyle’s founders remain committed to Carlyle’s business, they and other key personnel are not obligated to remain employed by Carlyle. If they were to depart from Carlyle it could have an adverse impact on certain of Carlyle’s future operations.
Reliance on the General Partner (or Similar Managing Fiduciary) and Investment Adviser
or Collateral Manager of the Advisory Client
The general partner (or similar managing fiduciary) and investment adviser or collateral manager of an Advisory Client will have exclusive responsibility for an Advisory Client’s activities, and, other than as may be set forth in Advisory Client’s governing documents, investors will have no opportunity to control the day-to-day operation of an Advisory Client or make investment, disposition or any other decisions concerning the management of an Advisory Client.
Material Risk Relating to Methods of Investment Analysis
CIM seeks to conduct reasonable and appropriate analysis and due diligence of its investments based on the facts and circumstances applicable to each investment. The objective of such analysis and due diligence is to identify attractive investment opportunities based on the facts and circumstances surrounding an investment, to identify possible risks associated with that investment and, in the case of private equity, infrastructure and certain power, energy and natural resources investments, to prepare a framework that may be used from the date of an acquisition to drive operational achievement and value creation. When conducting due diligence and making an assessment regarding an investment, CIM relies on available resources, including information provided by the target of the investment and, in some circumstances, third-party investigations. As a result, the due diligence process may at times be subjective. Accordingly, CIM cannot be certain that due diligence investigations with respect to any investment opportunity will reveal or highlight all relevant facts (including irregular accounting, employee misconduct and other fraudulent practices) that may be necessary or helpful in evaluating such investment opportunity, including the existence of contingent liabilities. In the event of fraud by any Advisory Client portfolio company or any of such portfolio company’s managers or affiliates, an Advisory Client may suffer a partial or total loss of capital invested in such portfolio company, and there can be no assurance that any such losses will be offset by gains (if any) realized on an Advisory Client’s other investments. CIM will generally negotiate the pricing of transactions, establish the capital structure of an investment and the terms and targeted returns of such investment on the basis of financial, macroeconomic, and other applicable projections. Estimated operating results will normally be based primarily on investment professional or management judgments, or third-party advice and reports. In all cases, projections are only estimates of future results that are based upon assumptions made at the time that the projections are developed. There can be no assurance that the assumptions will be accurate or that the estimated results will be achieved, and actual results may vary significantly from the projections. General economic, political and market conditions, which are difficult to predict, can have an adverse impact on the reliability of such projections. Assumptions or projections about asset lives; the stability, growth, or predictability of costs; demand; or revenues generated by an investment or other factors associated therewith may, due to various risks and uncertainties including those described herein, differ materially from actual results. Other participants in the industry may disagree with the feasibility of projections and investors should make their own determination about the prospects of any Advisory Client.
Effect of Substantial Losses on the Operations of CIM and the General Partner of Each
If, due to extraordinary market conditions or other reasons, an Advisory Client or any of its affiliates were to incur substantial losses, the revenues of CIM and its affiliates may decline substantially. Such losses may hamper CIM and its affiliates’ ability to (i) retain employees and (ii) provide the same level of service to such Advisory Client as it has in the past.
Misconduct of Carlyle Personnel; Third-Party Service Providers
Misconduct by employees or by third-party service providers could cause significant losses to an Advisory Client. Employee misconduct could include, among other things, binding an Advisory Client to transactions that exceed authorized limits or present unacceptable risks and other unauthorized activities or concealing unsuccessful investments (which, in either case, may result in unknown and unmanaged risks or losses), or otherwise charging (or seeking to charge) inappropriate expenses to an Advisory Client or Carlyle. In addition, employees and third-party service providers may improperly use or disclose confidential information, which could result in litigation or serious financial harm, including limiting the Advisory Client’s business prospects or future activities. Furthermore, because of Carlyle’s diverse businesses and the regulatory regimes under which they operate, misdeeds by a Carlyle entity (or its personnel) may result in foreclosing an Advisory Client’s ability to conduct its activities in the manner otherwise intended. It is not always possible to deter misconduct by employees or service providers, and the precautions the Carlyle takes to detect and prevent this activity may not be effective in all cases.
Lack of Operating History
Each Carlyle-sponsored investment vehicle advised by CIM will initially be a newly-formed entity which has not commenced operations and therefore will have no operating history upon which an investor may evaluate its performance. The prior experience of CIM, the investment professionals or the performance of any other Carlyle investment does not provide assurance of future investment performance or returns.
Uncertainty in the U.S. and Global Financial Markets
In recent years, the U.S. and global financial markets and the broader current financial environment have been and continue to be characterized by uncertainty, volatility and instability. Lending and the global credit markets continue to experience substantial volatility, disruption, liquidity shortages and, to some extent, financial instability. There can be no assurances that conditions in the U.S. and global financial markets will not worsen or adversely affect one or more of an Advisory Client’s portfolio companies or other investments, its access to capital or leverage, its ability to effectively deploy its capital or realize investments on favorable terms or its overall performance.
Continuation of Trends and Conditions
The investment strategies of Advisory Clients and the availability of opportunities satisfying Advisory Clients’ risk-adjusted return parameters may rely in part on the continuation of certain trends and conditions observed in the financial markets and in some cases the improvement of such conditions. Trends and historical events do not imply, forecast or predict future events and, in any event, past performance is not necessarily indicative of future results. There can be no assurance that the assumptions made or the beliefs and expectations currently held by CIM will prove correct and actual events and circumstances may vary significantly.
Market Conditions and Financial Market Fluctuations
A combination of lack of liquidity and regulatory constraints on the amount of debt banks may extend for transactions in the capital markets may make it significantly more difficult for sponsors such as Carlyle to obtain favorable financing for investments, and the financing that is available may be on significantly less favorable terms than had been prevailing in the past. Carlyle may be required to finance transactions with a greater proportion of equity relative to prior periods. General fluctuations in the market prices of securities may affect the value of the investments held by an Advisory Client. Instability in the securities markets may also increase the risks inherent in an Advisory Client’s investments. The ability of Advisory Client investments to refinance debt securities may depend on their ability to sell new securities in the public high-yield debt market or otherwise, or to raise capital in the leveraged finance debt markets, which historically have been cyclical with regard to the availability of financing.
Highly Competitive Market for Investment Opportunities
The activity of identifying, completing and realizing attractive investments is highly competitive, and involves a high degree of uncertainty.
Potential competitors include, without limitation, other investment partnerships and corporations, business development companies, strategic industry acquirers, sovereign wealth funds, domestic and international public pension plans, the public debt and equity markets, individuals and other financial investors investing directly or through affiliates. Some of these competitors may have more relevant experience, greater financial and other resources and more personnel than Carlyle. It is possible that competition for appropriate investment opportunities may increase, which may also require certain Advisory Clients potentially to participate in auctions more frequently. The outcome of these auctions cannot be guaranteed, thus potentially reducing the number of opportunities available to such Advisory Clients and potentially adversely affecting the terms, including price, upon which investments can be made. To the extent that the Advisory Clients encounter competition for investments, returns to investors may decrease. Further, it is possible that private equity sponsors unaffiliated with Carlyle may be reluctant to present financing opportunities to certain Advisory Clients because of their affiliation with Carlyle. Advisory Clients may incur bid, legal, due diligence and other costs on investments which may not be successful. There can be no assurance that an Advisory Client will be able to locate, consummate and exit investments that satisfy its target equity range, rate of return objectives or realize upon their values or that it will be able to invest fully its committed capital.
In addition, Carlyle’s investment strategies in certain sectors depend on its ability to enter into satisfactory relationships with joint venture partners or Operating Professionals. There can be no assurance that Carlyle’s current relationship with any such partner or Operating Professional will continue (whether on currently applicable terms or otherwise) with respect to the Advisory Clients or that any relationship with other such persons will be able to be established in the future as desired with respect to any sector or geographic market and on terms favorable to the Advisory Clients.
Illiquid and Long-Term Investments
Investment in an Advisory Client may require a long-term commitment with no certainty of return. Many of an Advisory Client’s investments will be highly illiquid, and there can be no assurance that an Advisory Client will be able to realize such investments (in whole or in part) in a timely manner. An Advisory Client’s ability to realize an investment can be dependent on the public equity markets (e.g., demand for new public offerings and security sales) and investments in publicly-traded securities are subject to restrictions under relevant securities laws (e.g., Section 16 of the U.S. Securities Exchange Act of 1934, as amended). Although investments may occasionally generate some current income, the return of capital and the realization of gains, if any, from an investment generally will occur only upon the partial or complete disposition or refinancing of such investment. Even with respect to strategies in which investors have certain liquidity rights or rights to request redemption or withdrawal during the life of the fund, for example, core-plus real estate investment strategy, pursuant to the terms of the fund, the general partner (or similar managing fiduciary) still has significant discretion to limit or restrict such liquidity rights, and therefore, no assurance can be given that investors can redeem or withdraw their investments.
Investments Longer than Term
Each Carlyle-sponsored investment vehicle may make investments that may not be advantageously disposed of prior to the date that the winding up of such investment vehicle commences, either by expiration of its term or otherwise. In addition, there can be no assurances with respect to the time frame in which the winding up and the final distribution of proceeds of the liquidation of the remaining assets to investors will occur.
Risk of Limited Number of Investments
An Advisory Client may participate in a limited number of investments and, as a consequence, the aggregate return of such Advisory Client may be substantially adversely affected by the unfavorable performance of even a single investment. In addition, other than as set forth in the applicable Advisory Client’s governing documents (or investment management agreement in the case of a separately managed account), investors have no assurance as to the degree of diversification of an Advisory Client’s investments, either by geographic region, industry or transaction type.
Confidential or Material, Non-Public Information
By reason of their responsibilities in connection with other activities of Carlyle, certain Carlyle investment professionals may acquire confidential or material, non-public information concerning an entity in which Advisory Clients have invested, or propose to invest, and the possession of such information may limit the ability of CIM to buy or sell particular securities of such entity on behalf of Advisory Clients, thereby limiting the investment opportunities or exit strategies available to the Advisory Clients. In addition, holdings in the securities of an issuer by Carlyle or its affiliates may affect the ability of Advisory Clients to make certain acquisitions of or enter into certain transactions with such issuer. Separately-registered investment advisers affiliated with CIM may acquire commercially- sensitive, confidential or material, non-public information concerning an entity in which Advisory Clients of CIM have invested, or propose to invest, and the possession of such information may limit the ability of CIM to buy or sell particular securities of such entity on behalf of certain of its Advisory Clients, thereby limiting the investment opportunities or exit strategies available to the Advisory Clients of CIM. Certain information barriers have been introduced to limit the flow of such material, non-public information; however, this risk still exists, including in the context of advisory clients within Global Credit. Carlyle has erected an information barrier to segregate the flow of material, non-public information between Global Credit and the rest of Carlyle. The purpose of this information barrier is, among other things, to insulate material, non-public information, such that the investment activities of Global Credit, on the one hand, and the rest of Carlyle, on the other hand, are not otherwise restricted because one business unit may have material, non-public information that would be imputed to the other business unit in the absence of an information barrier. From time to time Carlyle may permit an investment professional within Global Credit to participate in certain Carlyle-related investment advisory activities outside of Global Credit. To the extent such investment professional acquires material, non-public information in connection with such activities, Global Credit may be restricted from making certain investments. The establishment and maintenance of the information barrier discussed above means Global Credit will generally not be able to use, act on or otherwise be aware of confidential information otherwise known by or in the possession of the rest of Carlyle (and vice-versa), and collaboration between personnel associated with Global Credit, on the one hand, and personnel of the rest of CIM and Carlyle, on the other hand, may be limited, reducing potential synergies. Carlyle has also erected an information barrier between CCS and the rest of Carlyle (the “CCS Information Barrier”). The CCS Information Barrier is designed to address similar risks as the Global Credit Information Barrier including failure to secure the flow of confidential between CCS and the rest of Carlyle, including Global Credit. At the same time, as discussed more fully in Item 10, (with the exception of an information barrier affecting Carlyle Aviation Securities Partners) within Global Credit, there is no information barrier between supervised persons of CIM and supervised persons of other Carlyle-affiliated advisers that are part of the group. Therefore, CIM may in some cases be unable to trade on behalf of certain Advisory Clients because all of Global Credit is restricted from trading. Carlyle also has erected a one-way information barrier between Investment Solutions (which includes AlpInvest, Metropolitan, and certain CIM personnel) and the rest of Carlyle. Due to this information barrier, Carlyle generally will not be able to use, act on or otherwise be aware of certain non-public, commercially sensitive investment information otherwise known by or in the possession of Investment Solutions. From time to time, the various Investment Solutions investment managers will cause an advisory client of such manager to hold, when otherwise permitted under its investment restrictions, interests in one or more Carlyle advisory clients. Any such investment will be made on arm’s-length terms, subject in any case to the information barrier between the firms and the confidentiality restrictions arising from particular fund or vehicle agreements. Carlyle has established and is expected to continue to establish, additional information barriers as- needed, including with regards to certain investments of CIM’s Advisory Clients in the financial services sector.
Compliance with Anti-Money Laundering and Know Your Customer Requirements
In response to increased regulatory concerns with respect to the sources of funds used in investments and other activities, the general partner of an Advisory Client may request investors to provide additional documentation verifying, among other things, such investors’ identity and source of funds used to purchase the interests of such Advisory Client. The general partner of an Advisory Client may decline to accept a subscription on the basis that such information that is provided or if this information is not provided. Requests for documentation and additional information may be made at any time during which an investor holds an interest in an Advisory Client. Such general partner may be required to provide this information, or report the failure to comply with such requests, to appropriate governmental authorities, in certain circumstances without notifying the investors that the information has been provided.
Currency and Exchange Rate Risks
A portion of an Advisory Client’s investments, and the income received by an Advisory Client with respect to such investments, may be denominated in foreign currencies. However, unless otherwise provided in an Advisory Client’s governing documents, the books of an Advisory Client generally will be maintained and capital contributions to and distributions from such Advisory Client generally will be made, in U.S. dollars. Accordingly, changes in currency exchange rates may adversely affect the dollar value of investments, interest and dividends received by an Advisory Client, gains and losses realized on the sale of investments, and the amount of distributions, if any, to be made by an Advisory Client. Interests in Advisory Clients may be denominated in different currencies. For example, a U.S. dollar-denominated Advisory Client and a Euro-denominated Advisory Client may invest in the same European transaction. Because currency-exchange rates can be volatile and fluctuate sharply, one Advisory Client may benefit from an exchange rate fluctuation, while another may not, creating the potential that one Advisory Client may benefit more from the same investment relative to another Advisory Client denominated in a different currency. Similar considerations apply in respect of a parallel or feeder fund of an Advisory Client that is denominated in a different currency than the main fund of an Advisory Client. Similarly, investors from any country in which U.S. dollars are not the local currency should note that changes in the rate of exchange between U.S. dollars and such currency may have an adverse effect on the value, price or income of the investment to such investor. It should be noted that the fees, costs and expenses incurred by an investor in converting their local currency to U.S. dollars (if applicable) in order to meet capital calls will be borne solely by such investor and will be in addition to the amounts required by such capital call (and will not be part of or otherwise reduce an investor’s capital commitments and/or unfunded capital commitments, as applicable).
Carlyle may enter into hedging transactions designed to reduce such currency risks with respect to an Advisory Client. There may be foreign exchange regulations applicable to investments in foreign currencies in certain jurisdictions. Further, such hedging transactions could result in diminished returns (or increased losses on capital) to the extent overall returns are less than an Advisory Client’s costs or losses associated with such hedging transactions.
Risks Associated with Hedging Transactions
In connection with the acquisition, holding or disposition of certain investments, an Advisory Client may employ hedging techniques designed to reduce certain risks, including, among others, adverse movements in interest rates, securities prices and currency exchange rates. While an Advisory Client may benefit from the use of these hedging mechanisms, unanticipated changes in interest rates, securities prices or currency exchange rates, or the transactional fees associated with such mechanisms may result in a poorer overall performance for such Advisory Client than if it had not entered into such hedging transactions. These arrangements may also require the posting of cash collateral at a time when the Advisory Client has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires the sale of assets at prices that do not reflect their underlying value. Moreover, these hedging arrangements may generate significant transaction costs, including potential tax costs, which may reduce the returns generated by the Advisory Client. Managers of certain pooled investment vehicles with exposure in commodity interests may be required to register with the U.S. Commodity Futures Trading Commission (“CFTC”) as commodity pool operators (“CPOs”) and/or commodity trading advisors (“CTAs”) and become members of the National Futures Association (the “NFA”). In connection with their hedging/risk management (and other) swap activity, applicable Advisory Clients and their related general partners generally seek to rely on an exemption from registration available to entities with de minimis levels of swap exposure. However, to the extent that such swap activity exceeds these de minimis thresholds (or the Advisory Clients and their general partners otherwise fail to file for an applicable exemption), CIM, as the investment manager with respect to such Advisory Clients, may be required to register with the CFTC. In addition, as a result of their hedging/risk management (and other) swap activity, certain Advisory Clients or related entities also may be subject to a wide range of other regulatory requirements, such as: (i) potential compliance with certain commodities interest position limits or position accountability rules; (ii) administrative requirements, including recordkeeping, confirmation of transactions and reconciliation of trade data; (iii) mandatory central clearing and collateral requirements; and (iv) initial and variation margin requirements for uncleared swap transactions. Furthermore, any determination to cease or to limit investing in interests which may be treated as “commodity interests” in order to comply with the regulations of the CFTC and/or available exemptions may have an adverse effect on an Advisory Client’s ability to implement its investment objectives and to hedge risks associated with its operations.
Interest Rate Risks
In order to seek to reduce the interest rate risk inherent in an Advisory Client’s underlying investments and capital structure, an Advisory Client may enter into interest rate transactions, including but not limited to, interest rate swaps and caps. Depending on the state of interest rates in general, an Advisory Client’s use of interest rate transactions could enhance or harm the overall performance of the Advisory Client.
The London Inter-bank Offered Rate (“LIBOR”) and certain other interest rate "benchmarks" are the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could negatively impact Advisory Clients.
Pay-to-Play Laws, Regulations and Policies
In light of controversies and highly-publicized incidents involving money managers, a number of states and municipal pension plans have adopted so-called “pay-to-play” laws, regulations or policies which prohibit, restrict or require disclosure of payments to (and/or certain contacts with) state officials by individuals and entities seeking to do business with state entities, including investments by public retirement funds. The SEC also has adopted rules that, among other things, prohibit an investment adviser from providing advisory services for compensation with respect to a government plan investor for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates. Carlyle has adopted policies and procedures to account for these pay-to-play laws, regulations or policies, and to comply with the New York Attorney General's Public Pension Fund Reform Code of Conduct (the “Pension Fund Reform Code”), which governs Carlyle’s interactions with U.S. public pension funds. If CIM, the general partner of an Advisory Client or their respective employees or affiliates fail to comply with the Pension Fund Reform Code or such pay-to-play laws, regulations or policies, such non- compliance could have an adverse effect on an Advisory Client by, for example, providing the basis for the withdrawal of the affected government plan investor.
Legal, Tax and Regulatory Risks
Legal, tax and regulatory changes could occur during the term of a Carlyle-sponsored investment vehicle that may adversely affect such Advisory Client (or term of the applicable investment management agreement in the case of a separately managed account). The regulatory environment for private investment funds continues to evolve, and changes in the regulation of private investment funds may adversely affect the value of investments held by an Advisory Client and the ability of such Advisory Client to effectively employ its investment and trading strategies. Increased scrutiny and newly-proposed legislation applicable to private investment funds and their sponsors may also impose significant administrative burdens on CIM and may divert time and attention from portfolio management activities. For example, the interest payments on the indebtedness used to finance Advisory Client investments have historically been deductible expenses for income tax purposes, subject to limitations under applicable tax law and policy, and under December 2017 U.S. tax law changes (defined below as the “Tax Act”), the availability of the deduction of certain interest expenses may be limited. Any change in such tax law or policy to eliminate or substantially limit these income tax deductions, as has been discussed from time to time in various jurisdictions, including the U.S., would reduce the after-tax rates of return on the affected investments, which may have an adverse impact on the financial results of affected Advisory Client investments.
There is a material risk that regulatory agencies in the United States, Europe, Asia, or elsewhere may adopt burdensome laws (including tax laws) or regulations, or changes in law or regulation, or in the interpretation or enforcement thereof, which are specifically targeted at the alternative asset management (including private equity) industry, or other changes that could adversely affect alternative asset management firms, private equity firms and the funds they sponsor, including an Advisory Client. In addition, and in particular light of the changing global regulatory climate, Advisory Clients may be required to register under certain foreign laws and regulations, and need to engage distributors or other agents in certain non-U.S. jurisdictions in order to market to potential investors, which may generally limit an Advisory Client’s ability to raise capital and/or increase the costs and expenses borne by the investors in such Advisory Clients. Furthermore, the OECD, as defined below, has proposed changes to numerous long-standing principles through its base erosion and profit shifting project. Several of the proposed measures, including measures covering treaty abuse, the deductibility of interest expense, local nexus requirements, transfer pricing and hybrid mismatch arrangements are potentially relevant to investment structures and could have an adverse impact on each Advisory Client and investors. In March 2018, the U.S. imposed an additional 25% tariff under Section 232 of the Trade Expansion Act of 1962, as amended, on steel products, including stainless steel, imported into the U.S. These new tariffs, or other changes in U.S. trade policy, have resulted in, and may continue to trigger, retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. Others are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to further increase costs, decrease margins, reduce the competitiveness of products and services offered by current and future portfolio companies and adversely affect the revenues and profitability of companies whose businesses rely on goods imported from outside of the U.S.
Actions of the Committee on Foreign Investment in the United States
The actions of the Committee on Foreign Investment in the United States (“CFIUS”), an inter- agency committee authorized to review transactions that could result in control of a U.S. business by a non-U.S. person, may adversely impact the prospects of a portfolio company in the context of mergers with, or acquisitions by, a non-U.S. person. CFIUS may recommend that the U.S. President block such transactions, or CFIUS may impose conditions on such transactions, certain of which may materially and adversely affect an Advisory Client’s ability to execute its investment strategy. In addition, a set of reform measures known as the U.S. Foreign Investment Risk Review Modernization Act (“FIRRMA”), was enacted into U.S. law, which broadens the jurisdiction of the CFIUS with respect to certain investments, including investments in certain companies that do not confer potential control over a U.S. business by a non-U.S. person. Such legislation could impact the participation in an Advisory Client’s investments by non-U.S. investors, which in the aggregate may hold a significant portion of the interests in such Advisory Client. FIRRMA could expand the ability of CFIUS to review an Advisory Client’s acquisition or disposition of certain investments. The reforms enacted by FIRRMA include (i) a requirement of mandatory disclosures to CFIUS of all transactions in which a non-U.S. government owned or controlled entity proposes to acquire a substantial interest in a U.S. business active in critical infrastructure, critical technologies, or which has access to sensitive personal data of U.S. citizens if such data might be exploited in a manner that threatens national security, and (ii) jurisdiction for CFIUS to review any investment (other than truly passive investment) by a non-U.S. person in the same types of companies regardless of the percentage ownership interest of the non-U.S. person. While the precise contours of CFIUS’s expanded jurisdiction will be defined by the formal regulatory rule- making process, FIRRMA may increase the number of transactions involving an Advisory Client that would be subject to CFIUS review and investigation and the timing and substantive risks described above. Although the outcome of the CFIUS process may be difficult to predict, there is no guarantee that, if applicable to a portfolio company, the decisions of CFIUS would not adversely impact an Advisory Client’s investment in such company. An Advisory Client’s governing document may include certain provisions that may require investors that are, or are instrumentalities of, a non-U.S. government to be excluded from participating in an investment that may be deemed sensitive from a national security perspective.
Government entities may exercise their discretion to change or increase regulation of a portfolio company’s operations, or to implement laws, regulations or policies affecting the portfolio company’s operations, separate from any contractual rights they may have, in a manner that causes delays or adversely affects the operation of the business of such portfolio companies and/or the applicable Advisory Client’s ability to effectively achieve its investment objectives. A portfolio company (or project) also could be materially and adversely affected as a result of statutory or regulatory changes or judicial or administrative interpretations of existing laws and regulations that impose more comprehensive or stringent requirements on such company. Governments have considerable discretion in implementing regulations, including, for example, the possible imposition or increase of taxes on income earned by a portfolio company or gains recognized by an Advisory Client on its investment in such portfolio company that could impact a portfolio company’s business as well as such Advisory Client’s return on investment with respect to such portfolio company. There can be no assurance that a portfolio company will be able to: (i) obtain all required regulatory approvals that it does not yet have or that it may require in the future; (ii) obtain any necessary modifications to existing regulatory approvals; or (iii) maintain required regulatory approvals.
Cybersecurity Breaches, Identity Theft, Privacy Breaches, and Other Threats
Cybersecurity incidents and cyber-attacks have been occurring globally at a more frequent and severe level and will likely continue to increase in frequency in the future. As part of its business, CIM processes, stores and transmits large amounts of electronic information, including information relating to the transactions of the Advisory Clients and personally identifiable information regarding investors, employees, and portfolio companies. Similarly, service providers of CIM or an Advisory Client, especially an administrator, may process, store and transmit such information. Carlyle’s, its Advisory Clients’ and its portfolio companies’ information and technology systems may be vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunication failures, security threats (including ongoing cybersecurity threats to and attacks on our information technology infrastructure), infiltration by unauthorized persons and security breaches, usage errors by their respective professionals, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes, typhoons, earthquakes, wars, terrorist attacks and other similar events. Measures designed to manage risks relating to these types of events cannot provide absolute security. The techniques used to obtain unauthorized access to data, disable or degrade service or sabotage systems change frequently and may be difficult to detect for long periods of time. If these systems are compromised, become inoperable for extended periods of time or cease to function properly, an Advisory Client and/or a portfolio company and/or issuer may have to make a significant investment to fix or replace them. The failure of these systems and/or of disaster recovery plans for any reason could cause significant interruptions in Carlyle’s, its Advisory Client’s and/or a portfolio company’s operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to investors, employees, and portfolio companies. A cybersecurity incident or data privacy breach could have numerous material adverse effects, including on the operations, liquidity and financial condition of an Advisory Client. Cyber threats and/or incidents or data privacy breaches could cause financial costs from the theft of Advisory Client assets (including proprietary information and intellectual property) as well as numerous unforeseen costs including, but not limited to: costs related to regulatory intervention or fines (including under the European General Data Protection Regulation (the “GDPR”)), litigation costs, preventative and protective costs, remediation costs and costs associated with reputational damage, any one of which could be materially adverse to an Advisory Client. The costs related to cyber or other security threats or disruptions or data privacy breaches may not be fully insured or indemnified by other means. The service providers of Carlyle and its Advisory Clients are subject to the same information security threats as Carlyle. If a service provider fails to adopt or adhere to adequate data security policies, or in the event of a breach of its networks, information relating to the transactions of any Advisory Client and personally identifiable information of the investors (and beneficial owners thereof) may be lost or improperly accessed, used or disclosed.
Future Investment Techniques and Instruments
An Advisory Client may employ investment techniques and invest in other instruments that such Advisory Client’s general partner believes will help achieve the Advisory Client’s investment objective. Although such investment techniques or instruments are required not to violate specific investment restrictions or limitations for the Advisory Client, such investment techniques and instruments may not be specifically described in such Advisory Client’s governing documents or offering materials. Such investments may also entail risks not described herein or in such Advisory Client’s governing documents or offering materials. New investment strategies and techniques may not be thoroughly tested in the market before being employed and may have operational or theoretical shortcomings, which could result in unsuccessful investments and, ultimately, losses to an Advisory Client. In addition, any new investment strategy or technique developed by an Advisory Client may be more speculative than earlier investment strategies and techniques and may involve material and as-yet-unanticipated risks that could increase the risk of an investment an Advisory Client.
For an Advisory Client that invests in a non-U.S. country, investments involve certain risks not typically associated with investing in the United States, including risks relating to (i) currency exchange matters, including fluctuations in the rate of exchange between the U.S. dollar and the various non-U.S. currencies in which such Advisory Client’s non-U.S. investments are denominated, and costs associated with conversion of investment principal and income from one currency into another; (ii) differences in conventions relating to documentation, settlement, corporate actions, stakeholder rights and other matters; (iii) differences between the U.S. and non- U.S. securities markets, including potential price volatility in and relative illiquidity of some non- U.S. securities markets; (iv) the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements and less governmental supervision and regulation in some countries; (v) certain economic, social and political risks, including potential exchange- control regulations and restrictions on non-U.S. investments and repatriation of capital, the risks associated with political, economic or social instability, including the risk of sovereign defaults, and the possibility of expropriation or confiscatory taxation and adverse economic and political development; (vi) the possible imposition of non-U.S. taxes on income and gains recognized with respect to such securities; (vi) differing, and potentially less well-developed or well-tested laws regarding creditor’s rights (including the rights of secured parties), corporate governance, fiduciary duties, the protection of investors and intellectual property rights, (viii) differences in the legal and regulatory environment or enhanced legal and regulatory compliance; (ix) political hostility to investments by foreign or private equity investors; and (x) less publicly available information. In addition, an Advisory Client’s investments in emerging markets may be subject to a greater risk of loss than investments in more developed and traditional markets (such as the United States and Europe). Emerging markets are more likely to experience inflation, currency and liquidity risks, geopolitical turmoil, and rapid changes in economic conditions than more developed and traditional markets. Emerging markets often have less uniformity in accounting and reporting requirements, unreliable securities valuation and greater risk associated with custody of securities. Predictions about general economic and market conditions are uncertain and the impact of such factors will be larger or smaller depending on the types of investments and the markets in which they trade.
Risks from Operations of Other Portfolio Companies
It is possible that the activities of one portfolio company may have adverse consequences on one or more other portfolio companies, even in cases where the portfolio companies are held by different Carlyle-sponsored investment vehicles and have no other connection to each other. In particular, the laws and regulations governing the limited liability of such companies vary from jurisdiction to jurisdiction, and in certain contexts (including, by way of example only, bankruptcy, environmental liabilities, consumer protection or pension / labor law matters) the laws of certain jurisdictions may provide not only for carve-outs from limited liability protection for the portfolio company that has incurred the liabilities, but also for recourse to assets of other entities under common control with, or that are part of the same economic group as, such company. For example, if one of Carlyle’s investments is subject to bankruptcy or insolvency proceedings in a jurisdiction and is found to have liabilities under the local consumer protection laws, the laws of that jurisdiction may permit authorities or creditors to file a lien on, or to otherwise have recourse to, assets held by other Carlyle portfolio companies in that jurisdiction. There can be no assurance that any Advisory Client will not be adversely affected as a result of the foregoing risks.
For an Advisory Client that invests in a particular industry, investments involve certain additional material risks. For example, the communications and technology industries, are heavily regulated. Other more highly regulated industries may include energy, power, natural resources, healthcare, financial services (including banking and mortgage servicing), insurance and also businesses that primarily serve customers that are governmental entities, including in the defense industry. In particular, financial services institutions are directly affected by many factors, including domestic and international economic and political conditions, broad trends in business and finance, legislation and regulation affecting the national and international business and financial communities, monetary and fiscal policies, interest rates, inflation, currency values, market conditions, the availability and cost of short-term or long-term funding and capital, the credit capacity or perceived creditworthiness of customers and counterparties, and the level and volatility of trading markets. The profitability of the financial services industry may be adversely affected by a worsening of general economic conditions in domestic and international markets and by monetary, fiscal or other policies that are adopted by various governmental authorities and international bodies. Monetary policies have had, and will continue to have, significant effects on the operations and results of financial services institutions. In addition, the financial services industry is highly dependent on communication and information systems and is exposed to many types of operational risks. Furthermore, financial services institutions operate in a highly regulated environment and are subject to extensive legal and regulatory restrictions and limitations and to supervision, examination and enforcement by regulatory authorities.
Investments in Debt
An Advisory Client may invest in certain permitted debt investments as provided under its governing documents, which can create various risks for the Advisory Client. For example, debt investments typically do not provide the holders with any governance rights, and so the Advisory Client’s ability to influence the success of such investment may be significantly limited. In addition, the market for selling debt may not be as liquid as the market for selling equity securities, which may impair the ability of the Advisory Client to sell the investment at the opportune time. One of the fundamental risks associated with an Advisory Client’s debt investments is credit risk, which is the risk that an issuer will be unable to make principal and interest payments on its outstanding debt obligations when due. An Advisory Client’s return to its investors would be adversely impacted if an issuer of debt securities in which the Advisory Client invests becomes unable to make such payments when due.
An Advisory Client may make investments in companies that are experiencing financial or operational difficulties or are otherwise out-of-favor. An investment in the securities of financially troubled issuers or operationally troubled issuers involves a high degree of credit and market risk. There is a possibility that an Advisory Client may incur substantial or total losses on its investments.
Additionally, certain portfolio companies may have a unionized workforce or employees who are covered by a collective bargaining agreement, which could subject any such portfolio company’s activities and labor relations matters to complex laws and regulations relating thereto. Moreover, a portfolio company’s operations and profitability could suffer if it experiences labor relations problems. Upon the expiration of any such portfolio company’s collective bargaining agreements, it may be unable to negotiate new collective bargaining agreements on terms favorable to it, and its business operations at one or more of its facilities may be interrupted as a result of labor disputes or difficulties and delays in the process of renegotiating its collective bargaining agreements. A work stoppage at one or more of any such portfolio company’s facilities could have an adverse effect on its business, results of operations and financial condition.
Operating a Carlyle-sponsored investment vehicle as a “venture capital operating company” (“VCOC”) within the meaning of the regulations promulgated under Title I of t please register to get more info
Except as described below, none of CIM, its affiliates, or any of their respective professionals have been the subject of any legal or disciplinary matter of an investment-related nature that would be material to an existing or prospective Advisory Client’s evaluation of the CIM’s advisory business or the integrity of its management.
In the ordinary course of business, Carlyle is a party to litigation, investigations, inquiries, employment-related matters, disputes and other potential claims. Certain of these matters are described below. Carlyle believes that the matters described below are without merit. Additional information may also be available in current public filings with the SEC for the Public Company (see ir.carlyle.com).
Along with many other companies and individuals in the financial sector, Carlyle and Carlyle Mezzanine Partners, L.P. (“CMP”) are named as defendants in Foy v. Austin Capital, a case filed in June 2009 in state court in New Mexico, which purports to be a qui tam suit on behalf of the State of New Mexico under the state Fraud Against Taxpayers Act (“FATA”). The suit alleges that investment decisions by New Mexico public investment funds were improperly influenced by campaign contributions and payments to politically connected placement agents. The plaintiffs seek, among other things, actual damages for lost income, rescission of the investment transactions described in the complaint and disgorgement of all fees received. In September 2017, the Court dismissed the lawsuit and the plaintiffs then filed an appeal seeking to reverse that decision. The Attorney General may also pursue its own recovery from the defendants in the action. Carlyle Capital Corporation Limited (“CCC”) was a fund sponsored by Carlyle that invested in AAA-rated residential mortgage backed securities on a highly leveraged basis. In March of 2008, amidst turmoil throughout the mortgage markets and money markets, CCC filed for insolvency protection in Guernsey. The Guernsey liquidators who took control of CCC in March 2008 filed a suit on July 7, 2010 against Carlyle, certain of its affiliates and the former directors of CCC in the Royal Court of Guernsey seeking more than $1.0 billion in damages in a case styled Carlyle Capital Corporation Limited v. Conway et al. On September 4, 2017, the Royal Court of Guernsey ruled that Carlyle and the CCC board of directors acted reasonably and appropriately in the management and governance of CCC and that none of Carlyle, its affiliates or former directors of CCC had any liability. In December 2017, the plaintiff filed a notice of appeal of the trial court decision. A hearing before the Guernsey appellate court took place from October 8 through October 18, 2018. We are waiting for the Guernsey appellate court to hand down the final judgment. In December 2017, Carlyle received approximately $29.8 million from the plaintiff as a deposit towards its obligations to reimburse Carlyle for legal fees and expenses incurred to defend against the claims, but such amount is subject to adjustment pending a final determination of the correct reimbursement amount and the ultimate outcome of the appeal process. Cobalt International Energy, Inc. (“Cobalt”) was a portfolio company owned by two of Carlyle’s legacy energy funds co-advised by Riverstone (alongside funds advised by certain other private equity sponsors). Cobalt filed for bankruptcy protection in December 2017. A federal securities class action against Cobalt (In re Cobalt International Energy, Inc. Securities Litigation) was filed in November 2014 in the U.S. District Court for the Southern District of Texas, seeking monetary damages and alleging that Cobalt and its directors made misrepresentations in certain of Cobalt’s securities offering filings relating to: (i) the value of oil reserves in Angola for which Cobalt had acquired drilling concessions, and (ii) its compliance with the Foreign Corrupt Practices Act regarding its operations in Angola and a U.S. government investigation regarding the same. The securities class action also named as co-defendants certain securities underwriters and the five private equity sponsors of Cobalt, including Riverstone and Carlyle. The class action alleged that Carlyle has liability as a "control person" for the alleged misrepresentations in Cobalt's securities offerings as well as insider trading liability. The federal court dismissed the insider trading claim against Carlyle. On February 13, 2019, the district court approved a settlement between the lead plaintiffs in the securities class action and various parties, including Carlyle, under which all claims against Carlyle were released without any requirement for Carlyle to make any financial contribution towards the settlement. In addition to the class action in federal court, a class action claim was also filed in Texas state court in Houston (Ira Gaines v. Joseph Bryant, et al.) on similar grounds, alleging derivative claims that Cobalt and the private equity sponsors breached their fiduciary duties by engaging in insider trading. On May 9, 2018, the Plan Administrator for Cobalt filed a Notice of Nonsuit with Prejudice, dismissing all claims in the case (including the claim against Carlyle) with prejudice. The court ordered the nonsuit of all claims in an order entered the same day.
A Luxembourg subsidiary of CEREP I, a real estate fund, has been involved since 2010 in a tax dispute with the French authorities relating to whether gain from the sale of an investment was taxable in France. In April 2015, the French tax court issued an opinion in this matter that was adverse to CEREP I, holding the Luxembourg property company liable for approximately €105 million (including interest accrued since the beginning of the tax dispute). CEREP I paid approximately €30 million of the tax obligations and Carlyle paid the remaining approximately €75 million in its capacity as a guarantor. Carlyle appealed the decision of the French tax court. In December 2017, the French appellate court reversed the earlier tax court opinion and awarded Carlyle a refund of the full €105 million of tax and penalties (inclusive of amounts paid by CEREP I) and awarded interest on the refund of €12.5 million, before tax. On February 22, 2018 the French tax authorities appealed the appellate court decision and on October 2, 2018, CEREP I filed its appellate brief. The parties are awaiting a hearing on the appeal. The SEC has requested information about Carlyle’s historical practices relating to the acceleration of monitoring fees received from certain Carlyle portfolio companies, and Carlyle’s relationship with a third-party investment adviser to a registered investment company that has invested in various Carlyle-sponsored investment funds. Carlyle is cooperating fully with the SEC’s inquiries. please register to get more info
The following discussion enumerates certain potential conflicts of interest arising from certain of the financial industry activities and affiliations of CIM and its affiliates. Affiliated Broker-Dealers TCG Securities An affiliate of CIM, TCG Securities, L.L.C. (“TCG Securities”), is registered with the SEC as a limited purpose broker-dealer and is a member of the Financial Industry Regulatory Authority (“FINRA”). TCG Securities acts as placement agent (and provides related services), on a best efforts basis, with respect to the offer and sale of investment funds and certain interests in private investment vehicles (most of which are affiliated, and include Advisory Clients) and interests in special purpose vehicles (including debt and equity tranches of collateralized loan obligations for which CIM serves as collateral manager). TCG Securities does not intend to hold funds or securities for, or owe money or securities to, clients generally. Certain registered representatives of TCG Securities also may be providing investment advisory services to Advisory Clients and to advisory clients of Carlyle-affiliated investment advisers. These individuals are subject to the policies and procedures of TCG Securities when engaging in securities-related transactional activities in addition to CIM’s (or the relevant Carlyle-affiliated advisers’) policies and procedures.
TCG Capital Markets
In 2018, Carlyle obtained FINRA approval for TCG Capital Markets L.L.C. (“TCG Capital Markets”), an affiliated broker-dealer entity that operates as part of the CCS platform within Global Credit, and engages in the underwriting, syndication and placement of securities of corporate issuers in private transactions, among other related activities, including U.S.-based marketing and fundraising for Global Credit. In addition, TCG Capital Markets is registered as a broker-dealer with the SEC and in 49 states and the District of Columbia. The CCS platform also includes TCG Senior Funding, L.L.C., an affiliate of TCG Capital Markets, which has been established to originate and syndicate loans.
As discussed in Item 5, TCG Capital Markets and its affiliates may collect a fee for syndicating and underwriting loans and certain securities to third-party participants and portfolio companies. Certain registered representatives of TCG Capital Markets also may be providing investment advisory services to Advisory Clients and to advisory clients of Carlyle-affiliated investment advisers. These individuals are subject to the policies and procedures of TCG Capital Markets when engaging in securities-related transactional activities in addition to CIM’s (or the relevant Carlyle-affiliated investment advisers’) policies and procedures. CCS may, from time to time, manage or otherwise participate in underwriting syndicates and/or selling groups with respect to the securities, debt instruments and loans of portfolio companies and other non-controlled entities in or through which Advisory Clients and other Carlyle-affiliated advisory clients have invested including in respect of securities or other instruments of such portfolio companies in which Advisory Clients and other Carlyle-affiliated advisory clients have invested, and with respect to securities and other instruments held directly or indirectly by certain co-investment vehicles. In addition, CCS may otherwise be involved in the private placement of such securities and other instruments, and/or may provide capital markets advisory services to portfolio companies and other noncontrolled entities in or through which Advisory Clients or other Carlyle-affiliated advisory clients invest, including in connection with mergers and acquisitions, and may provide acquisition financing and other corporate lending services to such entities in addition to financing provided through investments of Advisory Clients or other Carlyle-affiliated advisory clients. CCS may also provide syndication services to such entities including in respect of co-investments in transactions participated in by Advisory Clients or other Carlyle-affiliated advisory clients. CCS may receive fees, including underwriting, placement, transaction and syndication fees, commissions, underwriting discounts, interest payments and other compensation, which may be payable in cash or securities and/or loans, in respect of the activities described above and may elect to waive such fees. CCS may, as a consequence of such activities, from time to time hold positions in instruments or securities and/or loans issued by portfolio companies, including, for example, where CCS commits to fund the shortfall amount, if any, resulting from the incomplete syndication of debt, including loans, or equity. Under such circumstances, CCS may commit to provide capital support for the syndication on a short-term basis (i.e., to provide certainty to Advisory Clients or other Carlyle-affiliated advisory clients that there will be sufficient capital to complete the proposed transaction) or fund a different instrument or security in the portfolio company than that held by Advisory Clients or other Carlyle-affiliated advisory clients to facilitate the syndication. In either scenario, CCS typically will sell its holdings prior to Advisory Clients or other Carlyle-affiliated advisory clients disposing of their respective investments in the portfolio company.
CCS also may act as placement agent or underwriter of securities and/or loans of a third party that Advisory Clients or other Carlyle-affiliated advisory clients may purchase. CCS may act as the placement agent, on a best efforts basis, with respect to the offer and sale of certain interests in private investment vehicles and special purpose vehicles for Advisory Clients or other Carlyle- affiliated advisory clients in certain jurisdictions. CCS does not generally receive compensation for such service; however if compensation is received, such compensation would be made on a fully disclosed basis. CCS does not otherwise execute transactions on behalf of Advisory Clients or other Carlyle-affiliated advisory clients. While fees, commissions, upfront placement fees, interest payments and other compensation paid to CCS are generally believed to be reasonable and charged at rates that are market rates for the relevant activities, such compensation could be determined through negotiation with related parties. Advisory Clients or other Carlyle-affiliated advisory clients generally do not have the right to share in the compensation received by CCS for its role in any transaction, unless specifically required (e.g., Exemptive Relief).
The relationship CGCIM and CIM have with CCS may give rise to a potential conflict of interest between CGCIM and CIM, and Advisory Clients or other Carlyle-affiliated advisory clients that have an interest in any portfolio companies or investment vehicles with respect to which CCS provides services. In particular, CGCIM or CIM may be seen as incentivized to seek to influence the decision to retain CCS, or transact with CCS, instead of other unaffiliated broker-dealers or other service providers or counterparties that may be more appropriate or offer better terms. Where CCS acts as a lender to a portfolio company in which Advisory Clients or other Carlyle-affiliated advisory clients hold investments in the same or different levels of the capital structure, the arrangement may lead to a conflict between CCS and the Advisory Clients or other Carlyle- affiliated advisory clients in the event of a default by, or the liquidation of, the portfolio company or a restructuring or renegotiation of the terms of the loan. In certain circumstances, including without limitation, where a portfolio company becomes distressed and the participants in the relevant offering have a valid claim against the underwriter, the participating Advisory Clients or other Carlyle-affiliated advisory clients may have a conflict in determining whether to seek recourse or sue CCS. CGCIM or CIM could also be seen as incentivized to structure portfolio company transactions, including related co-investment opportunities, so that they require the use of a broker-dealer (and consequently provide an opportunity for CCS to be retained by a portfolio company or acquisition company established for the relevant transaction and generate fees, including underwriting, placement, transaction and syndication fees, commissions, underwriting discounts, interest payments or other compensation for such an affiliated broker).
CCS also provides financing and capital markets services to third parties that are not portfolio companies including third parties that are competitors of portfolio companies of particular Advisory Clients or other Carlyle-affiliated advisory clients, or that are service providers, suppliers, customers, or other counterparties with respect to such companies (“competitor companies”) and may act as placement agent in respect of investment funds that are sponsored and managed by other third party investment managers, including funds that may compete with Advisory Clients or other Carlyle-affiliated advisory clients. In addition, CCS may also be engaged to provide financing or other capital markets services to third parties in connection with transactions that may also be appropriate for Advisory Clients or other Carlyle-affiliated advisory clients. In some cases, these services offered to third parties in connection with a transaction may be provided concurrently with services being provided in a similar manner to Advisory Clients or other Carlyle- affiliated advisory clients even if the Advisory Clients or other Carlyle-affiliated advisory clients has a competing interest with the third party. In providing such services to third parties, including to competitor companies, CCS may come into possession of information that they are prohibited from acting on (including on behalf of an Advisory Clients or other Carlyle-affiliated advisory clients) or disclosing to CGCIM or CIM or its affiliates as a result of applicable confidentiality requirements or applicable law, even though such action or disclosure would be in the best interests of Advisory Clients or other Carlyle-affiliated advisory clients.
CCS’ ability to receive commissions or other transactional compensation in certain capital markets transactions on the basis of an Advisory Clients’ or other Carlyle-affiliated advisory clients’ participation may be limited in certain circumstances. As a result, in the event that such services are provided to an issuer that is or becomes a potential investment opportunity for Advisory Clients or other Carlyle-affiliated advisory clients, this limit on compensation may create a conflict of interest with such Advisory Clients or other Carlyle-affiliated advisory clients. Where CCS serves as underwriter with respect to a security or loan in which an Advisory Client or other Carlyle- affiliated advisory client invests, such Advisory Client or other Carlyle-affiliated advisory client may be subject to a “lock-up” period during which time the investment may not be sold, and may prejudice the Advisory Clients’ or other Carlyle-affiliated advisory clients’ ability to dispose of such investment at an opportune time. CCS may have access to confidential and/or material, non- public information regarding Advisory Clients, other Carlyle-affiliated advisory clients or their portfolio companies and, subject to applicable law and confidentiality agreements, may use such information in connection with financing and other services provided by CCS. CIM reviews such transactions to ensure that the requirements of Section 206(3) of the Advisers Act in respect of principal transactions between any Advisory Clients or other Carlyle-affiliated advisory clients and Carlyle or its affiliates (including CCS) are complied with in the context of such transactions. Other Affiliated Broker-Dealers A subsidiary of CIM, Carlyle Australia Equity Management Pty Limited (“CAEM”), is incorporated in Australia and is licensed by the Australian Securities and Investments Commission as an Australian financial services licensee. As an Australian financial services licensee, CAEM is authorized to carry on a financial services business to provide advice on and deal in financial products (managed investment schemes and securities) for wholesale clients. CAEM does not currently intend to hold client monies or securities for, or owe money or securities to, clients generally. CAEM and its individual staff members are subject to the policies and procedures of CAEM when performing its authorized financial services activities in addition to CIM’s (or the relevant Carlyle-affiliated advisers’) policies and procedures.
Another subsidiary of CIM, Carlyle Hong Kong Equity Management Limited (“CHKEM”), is incorporated in Hong Kong and is licensed by the Hong Kong Securities and Futures Commission to carry on Type 1 (dealing in securities) regulated activity in respect of professional investors. CHKEM does not hold client monies or assets on behalf of clients. CHKEM and its individual staff members are subject to the policies and procedures of CHKEM when performing its regulated activities in addition to CIM’s (or the relevant Carlyle-affiliated advisers’) policies and procedures.
Another subsidiary of CIM, Carlyle Singapore Investment Advisers Pte Limited (“CSIAL”) holds a capital market services license and an exempt financial adviser status registration with the Monetary Authority of Singapore to carry on fund management and dealing in securities activities in respect of institutional and accredited investors. CSIAL and its individual staff members are subject to the policies and procedures of CSIAL when performing its regulated activities in addition to CIM’s (or the relevant Carlyle-affiliated advisers’) policies and procedures.
An Advisory Client holds a significant interest in The TCW Group, Inc. (“TCW”), a Los Angeles- based financial firm. TCW has a related entity, TCW Funds Distributors, which is registered with the SEC as a limited purpose broker-dealer and is a member of FINRA.
DGAM retains an exempt market dealer license with the Ontario Securities Commission to facilitate certain marketing activities in Canada for Advisory Clients. Affiliated Business Development Companies
Certain investment funds within Global Credit have each elected to be treated as BDCs that are advised by CIM’s affiliate, CGCIM, and are subject to all relevant provisions under the 1940 Act as BDCs. Affiliated Alternative Investment Fund Managers In January 2018, the CIM AIFM, an affiliate of CIM, was authorized in Luxembourg to operate as an alternative investment fund manager for purposes of the Directive. Through a series of delegation agreements, CIM provides portfolio management services with respect to certain private investment funds that are managed by the CIM AIFM. Carlyle Real Estate SGR S.p.A. holds an authorization from the Bank of Italy to carry on fund management and real estate activities, which license was extended in 2017 to carry out AIFMD- compliant fund management and real estate activities. AlpInvest also holds a license as an AIFM from the Netherlands Authority for Financial Markets pursuant to the Directive. Participating Affiliates CIM controls, or is under common control with, several affiliates established outside of the United States, as listed below (the “Participating Affiliates”), to assist CIM in rendering investment advice. As noted below, certain Participating Affiliates are registered with the regulatory authorities in their local jurisdiction based on their particular business and requirements of local law. Typically, these Participating Affiliates identify, evaluate and monitor investment opportunities and investments in the foreign jurisdictions in which they are located solely to advise CIM on investment opportunities in respect of an Advisory Client, or in certain cases, the advisory client of another affiliated adviser (e.g., Metropolitan) to which CIM is providing sub-advisory services.
CIM subjects each of the Participating Affiliates and their respective employees to CIM’s regulatory oversight and its Code of Conduct (see Item 11 below) together with its other compliance policies and procedures, including books and records maintenance, as adopted pursuant to the requirements of the Advisers Act, as applicable (in addition to applicable local laws and regulations).
None of the Participating Affiliates conducts a stand-alone business apart from providing internal analysis and advice to CIM.
Carlyle Asia Investment Advisors Limited
Carlyle Australia Investment Advisors Limited
Carlyle Australia Real Estate Advisors Pty Ltd.
Carlyle Brasil Consultoria em Investimentos Ltda.
Carlyle Global Credit Asia Limited (licensed with the Hong Kong Securities and Futures
Carlyle India Advisors Private Limited
Carlyle Investment Consulting (Shanghai) Co., Ltd.
Carlyle Japan, LLC
Carlyle Japan Equity Management LLC (registered with the Japan Kanto Local Finance
Carlyle Korea Ltd.
Carlyle Management Hong Kong Limited
Carlyle Mauritius CIS Investment Management Limited (registered with the Mauritius
Financial Services Commission)
Carlyle Mauritius Investment Advisor Limited (registered with the Mauritius Financial
Services Commission; licensed with the Securities and Exchange Board of India)
Carlyle MENA Investment Advisors Limited (registered with the Dubai Financial Services
Carlyle Mexico Advisors, S. de R.L. de C.V.
Carlyle Mexico Holdings, S.C.
Carlyle Nigeria Investment Advisors Limited
Carlyle Peru Consultoria de Inversiones S.R.L.
Carlyle Real Estate Advisors LLP
Carlyle Real Estate Advisors S.a.r.l. (a/k/a Carlyle Real Estate Advisors France S.a.r.l.)
Carlyle Real Estate Advisors UK Limited
Carlyle Real Estate SGR S.p.A. (registered with Banca D'Italia Eurosistema)
Carlyle Singapore Investment Advisors Pte Ltd (licensed with the Monetary Authority of
Carlyle South Africa Advisors (Pty) Limited (registration with the South Africa Financial
CECP Advisors LLP (registered with the United Kingdom Financial Conduct Authority)
CECP Investment Advisors France S.A.R.L.
CEP Advisors, S.r.l.
CREA Germany GmbH
PT Carlyle Indonesia Advisors
TCG Gestor Ltda (registered with CVM, the Brazilian Securities and Exchange
The Carlyle Group España, SL
Affiliated Advisers under Common Control – Separate Federal Registrants
CIM is also under common control with, or controls, several investment advisers that are separately registered as investment advisers under the Advisers Act, as follows: (i) CGCIM, AlpInvest, Metropolitan, and Carlyle Aviation Securities Partners, which were described above in Item 4; (ii) multiple advisers affiliated with TCW, a Los Angeles-based financial firm (in which an Advisory Client holds a significant interest); and (iii) Content Partners LLC (“Content”), a Los Angeles-based firm that is controlled by an Advisory Client.
Each of AlpInvest, Metropolitan, Carlyle Aviation Securities Partners, TCW, and Content has an existence independent of CIM. Certain supervised persons of CIM and Carlyle CLO in Global Credit are also supervised persons of CGCIM.
In 2016, Carlyle formed a wholly-owned subsidiary of CIM, Carlyle CLO, which acts as collateral manager to certain Advisory Clients in Global Credit. Additionally, in 2016, Carlyle formed a wholly-owned subsidiary of CIM, Carlyle IDF Management L.L.C. (“Carlyle IDF”), which acts as a sub-adviser with respect to a third-party managed Advisory Client in the Corporate Private Equity group. Additionally, CIM directly or indirectly controls each of (i) CIM Global, L.L.C. (“CIM Global”), an investment adviser through which CIM provides advisory services to certain Advisory Clients located outside of the United States, (ii) CIM Global Asia, L.L.C. (“CIM Global Asia”), an entity that provides advisory services with respect to a real estate asset located in Australia and (iii) Carlyle Mauritius CIS Investment Management Limited (“Carlyle Mauritius”), an investment adviser that provides advisory services to an Advisory Client located in Sub-Saharan Africa, and is registered with the Mauritius Financial Services Commission. CIM and each of CIM Global, CIM Global Asia, Carlyle CLO, Carlyle IDF, and Carlyle Mauritius conduct a single advisory business. Consequently, each of CIM Global, CIM Global Asia, Carlyle CLO, Carlyle IDF, and Carlyle Mauritius are deemed to have registered through CIM’s Form ADV as “relying advisers”. Exempt Reporting Advisers
CELF is exempt from registration with the SEC as an “Exempt Reporting Adviser” under the exemption from the SEC’s investment adviser registration requirements set forth in Rule 203(m)- 1 under the Advisers Act.
Related General Partners/Managing Members
CIM is under common control with several general partners/managing members of Carlyle- sponsored investment vehicles. CIM, either directly or indirectly, enters into investment advisory agreements to provide all investment advisory services regulated by the Advisers Act to certain Carlyle-sponsored investment vehicles.
Carlyle has entered into one or more strategic alliances (e.g., NGP) with other investment firms which involve certain of its personnel and for which Carlyle may have an ownership interest and may receive some financial benefit for such alliances (e.g., carried interest).
Carlyle owns certain economic interests in NGP. NGP focuses on investments across a range of energy and natural resource assets in North America, including oil and gas resources, oilfield services, pipelines and processing. Carlyle does not control NGP or its current funds. NGP is separately registered as an investment adviser under the Advisers Act.
In October 2015, an Advisory Client acquired indirect equity interests in two portfolio companies through a joint venture arrangement with Broad Sky. In November 2015, Broad Sky personnel became Carlyle employees. Carlyle does not control Broad Sky or its advisory clients, and Broad Sky is an “Exempt Reporting Adviser” under the Advisers Act. References to CIM do not include references to Broad Sky. In November 2018, Carlyle acquired a passive minority share of the outstanding equity securities of Institutional Capital Network, Inc. (“iCapital”). iCapital provides fund administration services to certain Advisory Clients. iCapital is an affiliate of iCapital Advisors, LLC, which is registered as an investment adviser under the Advisers Act. References to CIM do not include references to iCapital Advisors, LLC. Investment Solutions Competitive Activities Carlyle’s Investment Solutions business, including AlpInvest and Metropolitan, may be permitted to allocate a portion of advisory client portfolios to long-dated, illiquid, restricted or other similar securities and investment opportunities (which may include mezzanine, direct lending, private credit, distressed debt and equity, high-yield debt, bank loans and private-equity investments), and whose investment strategies may therefore overlap with those of CIM’s Advisory Clients. As noted above, it is therefore possible that Investment Solutions advisory clients may independently consider the same investment opportunities as the Advisory Clients, and thereby, on any given occasion, compete with Carlyle for the same investment opportunity. Due to the one-way information barrier between Investment Solutions and the rest of Carlyle, and the separate existence of AlpInvest and Metropolitan, and the rest of Carlyle, such potentially competitive activities could occur, and Carlyle may not be aware of such activity and/or be in a position to remedy such activity. Other Competitive Activities
Other investment advisers affiliated with Carlyle (or their employees), including CGCIM, AlpInvest, Metropolitan, and Carlyle Aviation Securities Partners may conduct other business activity that could present a potential conflict of interest with Carlyle, CIM and/or CIM’s Advisory Clients. For example, within Global Credit, advisory clients of CGCIM and Advisory Clients may be in competition for similar investment opportunities. Please see “Allocation of Investments” below for a more detailed discussion of the procedures adopted regarding this potential overlap.
Possession of Material, Non-Public Information and other Trading Restrictions
As discussed in Item 8, Carlyle has implemented an information barrier to segregate the flow of material, non-public information between Global Credit and the rest of Carlyle. The purpose of this information barrier is, among other things, to insulate material, non-public information, such that the investment activities of Global Credit, on the one hand, and the rest of Carlyle, on the other hand, are not otherwise restricted because one business unit may have material, non-public information that would be imputed to the other business unit in the absence of an information barrier. From time to time Carlyle may permit an investment professional within Global Credit to participate in certain Carlyle-related investment advisory activities outside of Global Credit. To the extent such investment professional acquires material, non-public information in connection with such activities Global Credit may be restricted from making certain investments. At the same time, within Global Credit, with the exception of an information barrier affecting Carlyle Aviation Securities Partners, there is no information barrier between CIM and other separately registered investment advisers affiliated with CIM that are part of the group. Global Credit generally operates a single restricted list to which CIM’s Global Credit Advisory Clients are subject. As a consequence, CIM may not be able to buy or sell a particular security on behalf of certain of its Advisory Clients because Global Credit may be deemed to be in possession of material, non-public information. Similarly, in such circumstances, CIM may not be able to dispose of a security owned by an Advisory Client, even in a declining market, until the information becomes publicly available or no longer material and the security is no longer restricted. In addition, Carlyle, AlpInvest, and Metropolitan maintain a one-way information barrier between the Investment Solutions businesses (including the Carlyle elements of Investment Solutions), on the one hand, and the other business segments of Carlyle, on the other hand. The information barrier restricts the flow of certain non-public, commercially sensitive investment information regarding Investment Solutions to the other Carlyle business segments, other than for certain regulatory, reporting and similar purposes. Other information is not restricted between the firms. Collaboration between Investment Solutions personnel and other Carlyle personnel is subject to certain restrictions, including that no Carlyle personnel generally may serve on or participate in any AlpInvest investment committees (except that Carlyle Investment Solutions personnel may act as observers). Carlyle personnel generally may not participate on any Metropolitan investment committee (except that Carlyle Investment Solutions personnel may act as observers). In addressing the misuse of material, non-public information, Carlyle, AlpInvest and Metropolitan maintain a shared restricted trading list for their personnel and advisory clients, except that the Global Credit maintains a separate restricted trading list for Global Credit advisory clients.
Carlyle also may from time to time erect information barriers or similar policies, procedures or guidelines for reasons of insulating material, non-public information and Carlyle may decide to remove information barriers. Carlyle has established policies and procedures regarding the implementation and operation of information barriers and trains its professionals on such policies and procedures. Other Activities and Relationships The employees of Carlyle and its affiliates may serve on the boards of directors of portfolio companies of Advisory Clients. Serving in such capacity may give rise to conflicts to the extent that an employee’s fiduciary duties to a portfolio company as a director may conflict with the interests of an Advisory Client. please register to get more info
Codes of Conduct CIM has established and approved a Code of Conduct that sets forth standards of ethical conduct for employees and is designed to address and avoid potential conflicts of interest as required under Rule 204A-1 of the Advisers Act. Among other things, the Code of Conduct prescribes standards for dealing with clients ethically, addresses conflicts of interest issues, and supplements personal trading and operating procedures, including Carlyle’s Policies and Procedures Regarding Material, Non-Public Information and the Prevention of Insider Trading. The Code of Conduct provides guidance in specific areas, including but not limited to, confidentiality of Carlyle information, personal investments, gifts and entertainment and personal political activities. This Code of Conduct is available to clients, investors or prospective clients or investors by writing to Carlyle Investment Management L.L.C., 1001 Pennsylvania Avenue, NW, Suite 220 South, Washington, DC, 20004, Attn: Investor Relations. Further, Carlyle has adopted additional written policies and procedures to account for the pay-to- play regulations promulgated by the SEC, and to comply with the New York Attorney General's Public Pension Fund Reform Code of Conduct6, which governs Carlyle’s interactions with U.S. public pension funds. Carlyle has developed and integrated into its investment process a set of responsible investment guidelines that consider the environmental, social and governance implications of its control- oriented investments. Those guidelines are available to clients, investors or prospective clients or investors by writing to the address noted above or by visiting Carlyle’s website (www.carlyle.com). Principal Transactions CIM, as investment manager, or an affiliate in limited circumstances engages in principal transactions (i.e., transactions in which CIM or an affiliate is deemed to be acting for its own account by buying a security from, or selling a security to, an Advisory Client). These transactions introduce a potential conflict of interest between its own interests and those of the Advisory Client. CIM has established policies and procedures to comply with the Advisers Act when engaging in principal transactions with Advisory Clients. Additionally, investment guidelines and an Advisory Client’s charter documents may limit principal transactions on a more restrictive basis than the Advisers Act. In general, CIM avoids secondary-market transactions in which it knowingly transacts, directly or through a broker-dealer, with advisory clients of CGCIM or Carlyle Aviation Securities Partners. In connection with Carlyle’s Investment Solutions business, transactions involving the purchase (or sale) of securities by an advisory client of one of the Investment Solutions managers from (or to) an affiliate of Carlyle may constitute a cross-trade or a principal transaction in certain circumstances. Accordingly, prior to any potential cross-trade or principal transaction involving an Investment Solutions manager’s advisory client, such manager will determine whether or not the trade would constitute a cross trade or principal transaction, and if so, that all required notice and consent requirements have been satisfied.
Fund Notice and Consent In certain cases, a principal transaction may occur prior to the initial closing of an Advisory Client (e.g., where an affiliate warehouses loans prior to selling them to an Advisory Client). Details of any such transaction typically are disclosed in the offering documents of an Advisory Client. In other cases, principal transactions may occur after an Advisory Client has held an initial closing. In those cases (other than certain Global Credit Advisory Clients), either the Advisory Client or an independent representative of the Advisory Client must receive notice of the transaction and 6 This code of conduct is available to clients, investors or prospective clients or investors by writing to Carlyle Investment Management L.L.C., 1001 Pennsylvania Avenue, NW, Suite 220 South, Washington, DC, 20004, Attn: Investor Relations. consent to the transaction prior to CIM or an affiliate settling the principal transaction. An Investor Advisory Committee is typically established for each Advisory Client to, among other things, receive notice of, advise on and provide consent to certain conflicts of interest matters, such as principal transactions. Certain Global Credit Advisory Clients may follow a different procedure because of the absence of a separate Investor Advisory Committee. In the case of a principal transaction, typically a qualified independent agent is engaged to review and approve of such transactions (where the independent agent determines, in its sole judgment, that the monetary or business consideration arising therefrom would be substantially as advantageous to the Advisory Client as the monetary or business consideration which the Advisory Client would obtain in a comparable arm’s-length transaction with a person who is not an affiliate of the Advisory Client). In the case of Global Credit Advisory Clients, principal transactions generally require that the price reflect the average of the midpoints of the then-prevailing related bid and ask quotations of at least two independent brokers and/or pricing services as a condition to the engaging in the transaction. If two market or pricing service quotations are not available, the instrument will be fair valued in accordance with CIM’s valuation policies and procedures. Separate Account Notice and Consent In the case of an Advisory Client that is a separately managed account, CIM will notify the Advisory Client itself or a duly appointed, independent representative of the Advisory Client to obtain consent for any principal transaction. Other Notice and Consent Considerations In general, CIM will not engage in principal transactions with accounts of a retirement plan subject to ERISA unless approved by Carlyle’s General Counsel, Chief Compliance Officer, and, if necessary, competent ERISA counsel. Cross Transactions CIM from time to time allows Advisory Clients to engage in cross transactions, which occur when a transaction is effected directly between two or more of CIM’s Advisory Clients. Cross transactions may benefit advisory clients because they can avoid certain transaction fees. They also create conflicts of interest because, by not exposing buy and sell transactions to market forces, advisory clients may not receive the benefits of best price, or, an adviser might seek to prop up the performance of one advisory client by selling under-performing assets to another advisory client in order, for example, to earn higher fees. CIM has established policies and procedures that address permissible cross transactions. Subject to the terms of the Advisory Client’s (other than certain Advisory Clients managed by Global Credit) organizational documents: (i) notice must be provided to each Advisory Client or an independent representative of each such Advisory Client prior to proceeding with the cross transaction; (ii) if an Investor Advisory Committee of a particular Advisory Client has been established under the Advisory Client’s charter and organizational documents, it must provide consent (generally by majority of the Investor Advisory Committee’s members) prior to engaging in such cross transaction; and (iii) records of such notices and consents must be maintained as part of CIM’s books and records. Typically, the governing agreements for each of the Advisory Clients address permissible cross transactions. In the case of a separately managed account, the investment management agreement or similar documentation addresses cross transactions. Global Credit follows separate procedures when a cross transaction involves structured credit Advisory Clients. CIM has established the following procedures in such context: (i) unless otherwise preapproved by Carlyle’s Chief Compliance Officer or General Counsel, no consideration should be paid (aside from customary fees for advice and management) other than the current market price of the instrument (including brokerage commissions); (ii) generally, the execution price reflects the average of the midpoints of the then-prevailing related bid and ask quotations of at least two independent brokers and/or pricing services (and if two market or pricing service quotations are not available, the instrument will be fair valued in accordance with CIM’s valuation policies and procedures); (iii) settled cross transactions must be reviewed by the Global Credit Compliance and Regulatory Committee, a committee comprising senior personnel from Carlyle’s compliance department and Global Credit, to determine compliance with CIM’s procedures; (iv) internal documentation of the cross transaction must be established and maintained, including (among other things) internal transaction reports that contain material transaction information, such as independent pricing of the investment crossed between Advisory Clients; (v) Advisory Clients will receive notification of cross transactions in periodic reports; and (vi) Carlyle’s Chief Compliance Officer or designee must pre-approve the cross transaction. ERISA accounts generally will not participate in cross trades absent the written consent of Carlyle’s Chief Compliance Officer, General Counsel, and/or competent ERISA counsel.
Financial Interests in Advisory Client Recommendations As described in more detail in Item 5 – “Fees and Compensation”, in addition to management fees payable and carried interest allocable to CIM and its affiliates, with regards to certain Advisory Clients, including Corporate Private Equity Advisory Clients, CIM and its affiliates receive acquisition, monitoring, disposition and certain other fees with respect to advisory and related services provided in connection with investments by Advisory Clients.
CIM generally has a conflict of interest to the extent that it has an opportunity to earn such a fee in connection with investments by Advisory Clients. However, CIM believes that applicable management fee offset provisions described in Item 5 and the substantial equity commitment by CIM and its affiliates in Advisory Clients substantially mitigates this incentive. Any fees paid to CIM by a portfolio company or an Advisory Client are required to be on an arm’s-length basis and on terms that are no less favorable to the Advisory Client or portfolio company than would be obtained in a transaction with an unaffiliated party. Accordingly, the agreements pursuant to which such fees are paid typically are not required to be reviewed by the Investor Advisory Committee or the investors of the participating Advisory Clients. CIM’s policies prohibit the allocation of investment opportunities based on anticipated compensation or profits to Carlyle, CIM, any affiliates or their professionals. Further, CIM may recommend the securities or loan instruments of portfolio companies for acquisition by an Advisory Client where Carlyle, its affiliates (including a portfolio company of a different Advisory Client), or a Carlyle professional renders services to, engages in transactions with, or has a business relationship with (i.e., board seat), and receives fees from, the portfolio company. See Item 17 for additional information regarding CIM’s policies on voting on behalf of Advisory Clients, which include protocols on handling conflicts of interest (e.g., when Advisory Clients are invested in different parts of the capital structure). In addition, CIM or its affiliates may own equity interests in certain CLOs to which CIM provides advisory services pursuant to separate collateral management agreements. CIM’s equity interests and contractual rights in these CLOs may give it voting rights on certain matters relevant to the funds. On matters involving retention of the collateral manager (CIM or its affiliates), CIM does not, and would not be expected to, have any voting rights. On other matters, CIM’s voting interest could be significant enough to affect the outcome depending on the governance matter, especially matters that may require a super majority to effectuate a particular outcome, such as an early wind up of a fund, which, if blocked by CIM, would continue the collateral management arrangement and fees to CIM or a Carlyle affiliate. CIM expects that, as an equity owner, its economic interests would in most, if not all, cases align with the economic interests of other equity owners in a fund; however, the possibility exists that CIM could take a position on governance matters that would be adverse to other equity holders and indirectly, any noteholders in these particular CLOs. Should CIM’s interests diverge from the interests of other equity owners, decisions on how to vote CIM’s interest will be presented to Carlyle’s Conflicts Committee, a committee comprising senior management to help manage conflicts of interest that may arise during the conduct of Carlyle’s business, for review and resolution. Allocation of Investments When allocating investment opportunities across Advisory Clients, there could be differences in the financial structure of the Advisory Clients potentially participating in the opportunity that could introduce an incentive for CIM to favor one Advisory Client over another. Company Procedures CIM has established allocation policies and procedures addressing CIM’s duties to allocate investment opportunities among Advisory Clients in a fair and equitable manner. Most investment opportunities that satisfy the investment parameters of a particular Advisory Client will be allocated to that particular Advisory Client. In certain cases, however, an investment opportunity may be appropriate for more than one Advisory Client. Any such allocation decisions are initially raised with the investment committee of the relevant Advisory Client that originated the investment opportunity. That particular investment committee, together with one of the Co-Chief Investment Officers, will review the opportunity to determine if an allocation to any other Advisory Client may be appropriate in the first instance, taking into account, among other things, whether the investment satisfies each of the relevant Advisory Client’s investment objectives and the Advisory Client’s expected allocation based on its available capital commitments. Such allocation determinations are also subject to the review and approval of CIM’s Allocation Committee, comprised of senior management. If an investment opportunity will be allocated (which may include an allocation of 100% of such opportunity to a single Advisory Client), CIM will, to the extent practicable, determine in good faith that the allocation is fair and reasonable taking into account the relevant facts and circumstances CIM deems relevant, as well as parameters of the governing documents of the Carlyle-sponsored investment vehicle advised by CIM (or investment management agreement in the case of a separately managed account), the sourcing of the transaction, the nature of the investment objective, mandate or policies, results of underwriting analyses, including projected returns and target hold period for each investment, the relative amounts of capital available for investment, the nature and extent of involvement in the transaction on the part of the respective teams of investment professionals for each such Advisory Client and other considerations deemed relevant by CIM in good faith. In certain situations, participation of multiple Advisory Clients in a single transaction may require consent of the Investor Advisory Committee or the investors of the participating Advisory Clients (or duly appointed representative in the case of a separately managed account). Allocation decisions are periodically reviewed to determine the reasonableness and fairness of the allocation decisions. Final allocation decisions will generally align with the allocation of costs and expenses related to the diligence and structuring of and ongoing supervision of an investment opportunity; however, in certain situations, there may be costs such as diligence costs that are allocated to Advisory Clients that considered an investment opportunity but ultimately decided to not pursue such investment opportunity. CIM’s policies prohibit the allocation of investment opportunities based on anticipated compensation or profits to Carlyle, CIM, any affiliates or their professionals. Parallel and successor Carlyle-sponsored investment vehicles advised by CIM are subject to specialized allocation procedures set forth in the governing agreements of the applicable Advisory Clients. For such Carlyle-sponsored parallel investment vehicles, allocation decisions will be made on the basis of the investment vehicles’ relative capital commitments, subject to the vehicle’s governing documents. Carlyle generally does not introduce or begin investing successor Carlyle- sponsored investment vehicles until the capital commitments of a predecessor Carlyle-sponsored investment vehicle have been substantially invested, committed or reserved. Subject to legal, regulatory and tax considerations (in addition to any other exceptions set forth in an Advisory Client’s governing agreements), a Carlyle-sponsored successor investment vehicle advised by CIM may only co-invest alongside a predecessor investment vehicle on materially the same terms and conditions, and, if so, investments must be allocated between the two investment vehicles on a basis that CIM believes, in good faith, to be fair and reasonable. Such allocation determinations are also subject to the review and approval of CIM’s Allocation Committee. In making allocations between such a Carlyle-sponsored successor and a predecessor investment vehicle, CIM may take into consideration, among other things, the relative available capital of the investment vehicles and the investment limitations of the predecessor vehicle. In certain cases, the Investor Advisory Committee may be required to approve any co-investment by a successor investment vehicle in accordance with the terms of the vehicles’ governing agreements. In certain cases, where the equity portion of a private equity investment may exceed that which is believed appropriate for one or more of such Carlyle-sponsored investment vehicles, a successor vehicle may be allocated 100% of an investment opportunity. CIM may permit one or more strategic investors to invest in transactions in which the Advisory Client invests if CIM determines in good faith that their investment would be beneficial in consummating the Advisory Client’s investment (including where an investor can invest or commit to invest a significant amount of capital in a short period of time), successfully operating the portfolio company or its assets, disposing of the investment or otherwise adding value to the investment because of certain skills or attributes of the strategic investor. CIM may (but is generally not required to) give investors in an Advisory Client or third parties who are not investors in an Advisory Client the opportunity to co-invest in a particular investment, including where CIM determines a portion of the equity required would unreasonably limit diversification of the Advisory Client. Co-investment offers of participation are made in CIM’s sole discretion and CIM may use any criteria it deems fit when determining which persons to offer such opportunities to, including to investors that are expected to or currently hold significant capital commitments to Advisory Clients. Investors in Advisory Clients are not entitled to be offered any co-investment opportunity by virtue of their investment in a particular Advisory Client. For additional disclosure regarding co-investments, please see the “Co-Investments” disclosure found in Item 8.
The Advisory Client may bridge such investments until capital is called from co-investors. Any capital returned from such a bridge will generally be treated as not having been contributed for purposes of an Advisory Client’s governing documents. The performance of co-investments is not aggregated with that of any Advisory Client, including for purposes of determining the calculation of carried interest or management fees. CIM may or may not charge management fees, one-time funding/upfront fees and/or carried interest in respect of co-investments, as it determines in its sole discretion. As discussed in Item 8. Methods of Analysis, Investment Strategies and Risk of Loss – Potential Conflicts of Interest – Side Letters, the general partner (or similar managing fiduciary) of an Advisory Client may enter into side letters or other similar agreements with investors in connection with their admission to such Advisory Client which may include special rights with respect to co-investment.
Carlyle is, from time to time, presented with opportunities to acquire an investment advisory business or other financial services business that are attractive to Carlyle as a direct corporate investment and which would be incorporated as part of the Carlyle global investment advisory business. To the extent such opportunities are acquired by Carlyle on its own balance sheet, they are not viewed as portfolio investments, but instead as an addition to Carlyle’s operating business as an investment adviser. Some of these acquisition opportunities may also appear to be suitable as potential investment opportunities for certain Advisory Clients. However, these potential direct corporate investments generally are excluded by contract from the investment mandate of potentially relevant Advisory Clients (e.g., Global Financial Services Advisory Clients).
To the extent an investment opportunity is rejected by the investment committee of a general partner of an Advisory Client, Carlyle, such general partner and its affiliates may not be restricted from pursuing such opportunity outside of the Advisory Client’s investment program. In such a circumstance, Carlyle may allocate such an opportunity to another Carlyle investment fund and/or managed account or to one or more entities established for the benefit of, or otherwise controlled by, one or more senior executives of Carlyle and/or their family members. In addition to mandatory investments pursuant to Carlyle’s commitment to an Advisory Client, the general partner of an Advisory Client typically has the right to allocate, in its sole discretion, between 5-10 percent of each investment opportunity available to Carlyle to Carlyle-related funds, accounts or vehicles and Carlyle officers, employees, Operating Professionals and affiliates. As discussed in Item 8. Methods of Analysis, Investment Strategies and Risk of Loss – Potential Conflicts of Interest – Co-Investments, Carlyle has formed (and may in the future form additional) funds, accounts or vehicles for the benefit of third-party investors to participate in investments alongside Advisory Clients that will be entitled to a portion of such allocation with respect to some or all of the investments made by Advisory Client(s), including programs designed to invest across Carlyle’s platform that are structured in part to invest alongside one or more Advisory Clients through a single account or vehicle. Any remaining portion of any such opportunity would then be subject to Carlyle’s overall allocation policies described above.
Global Credit Procedures
Within Global Credit, there may be multiple investment vehicles, including Advisory Clients, advisory clients of CGCIM and CCS, who have the ability to participate in an investment opportunity. Because multiple advisory clients often seek similar investments (e.g., loans), allocating investment opportunities among multiple Global Credit advisory clients is more prevalent relative to the private equity or real assets contexts. The objective of Global Credit with respect to allocations of investment opportunities is to ensure that all advisory clients to which its investment teams provide investment advisory services, including Advisory Clients, are treated in a fair and equitable manner under the particular circumstances. Accordingly, CGCIM and Carlyle CLO (a relying advisor of CIM) have established allocation policies and procedures for Global Credit in an effort to ensure that investment opportunities are allocated among advisory clients, including Advisory Clients, and CCS, in a fair and equitable manner. These policies and procedures seek to provide consistent treatment, to the extent possible and consistent with legal, regulatory and contractual restrictions, of advisory clients within Global Credit that have similar investment objectives and guidelines. There can be no assurance that the application of these policies and procedures will result in fair or equivalent allocation of, or participation in, investment opportunities, or comparable performance of investments allocated to one advisory client as compared to another. CGCIM and Carlyle CLO advisory clients may vary substantially in size, investment objectives, risk tolerance, return targets, permissible asset classes, preferred asset classes and liquidity requirements. At the same time, certain investment opportunities may be appropriate for multiple advisory clients (“Overlapping Opportunities”). More specifically, these allocation policies and procedures also require that co-investment allocations involving one or more CGCIM advisory clients that are BDCs or a RIC (together, the “Regulated Funds”) must also be in accordance with the terms and conditions of the exemptive relief granted by the SEC to CGCIM and certain of its affiliates, on January 17, 2018 (the “Exemptive Relief”). In addition, these allocation policies and procedures also require that investment allocations in non-negotiated co-investment transactions amongst advisory clients involving one or more Regulated Fund Advisory Clients must comply with certain SEC no-action guidance regarding funds regulated under the 1940 Act investing alongside an affiliate (e.g., if the transaction involves no negotiation of terms other than price and certain other conditions are met). The primary allocation principles for each Global Credit advisory client are derived from respective prospectus, fund partnership or operating agreements and related side letters, offering memoranda, investment or collateral management agreements, limited liability company agreements, trust indentures or other charter documents (“Client Agreements”) that govern the investment programs for such advisory clients. These allocation parameters may include: investment objective or category, industry focus, geography, security or instrument type, diversification requirements, available commitments or liquidity, target investment size, applicable law and/or regulatory guidance. Subject to the foregoing investment parameters, the investment or credit committees have the discretion to construct what, in their business judgment, constitutes an appropriate investment portfolio for a Global Credit advisory client. As such, in determining what they believe to be an appropriate portfolio for a particular Global Credit advisory client, they may give consideration to factors in addition to those outlined above. After consideration of the various factors, it may not be desirable for a Global Credit advisory client to participate in an investment opportunity or acquire all of an investment opportunity. An allocation of an Overlapping Opportunity will generally be made in accordance with the allocation policies and procedures adopted and implemented by CGCIM and Carlyle CLO. The terms of the Client Agreements (and, in consideration of the Exemptive Relief as applicable) with respect to certain Global Credit advisory clients may require CGCIM to allocate investment opportunities to such Global Credit advisory clients in priority to allocations to other vehicles. As a result, there will likely be circumstances where Overlapping Opportunities appropriate for Advisory Clients are allocated instead to such other advisory clients of CGCIM. In addition, it is anticipated that there will be situations where CCS underwrite, originate and syndicate loans or securities in which Global Credit advisory clients may wish to invest. In such cases, the Global Credit advisory clients will receive their full participation requests ahead of CCS. A Global Credit allocation committee (“GCAC”) has been established to oversee the allocation of investment opportunities in accordance with the allocation policies and procedures adopted by CGCIM and Carlyle CLO. The GCAC has established a Global Credit Screening Committee to review and assess potential investments, and make an initial assessment regarding which Global Credit advisory client(s) should review the potential investment. The Global Credit Screening Committee is authorized by the GCAC to review allocations among Regulated Funds and other advisory clients investing in middle market loans as well as allocations among Regulated Funds and Advisory Clients of Carlyle CLO. Global Credit: Structured Credit Group Allocation Procedures As a general rule, Carlyle CLO Advisory Clients are expected to be the primary investors in broadly syndicated loans. Overlapping Opportunities in the primary or secondary broadly syndicated loan market sourced by the US Structured Credit platform first will be allocated across US Structured Credit Advisory Clients in accordance with the Carlyle U.S. Structured Credit Allocation Policy, provided, however, that any negotiated Overlapping Opportunity in broadly syndicated loans with attributes meeting certain investment criteria must be shown to the Regulated Fund advisory clients in accordance with the Exemptive Relief. When the amount of an Overlapping Opportunity that falls outside of such criteria exceeds the amount that US Structured Credit desires, CGCIM will be offered the Overlapping Opportunity for its advisory clients. While CGCIM is not often expected to source broadly-syndicated opportunities, to the extent it does, such investment allocations are subject to review and approval by the GCAC or the Global Credit Screening Committee, as applicable. A Credit Committee generally oversees the selection of investments appropriate for Advisory Clients within the Structured Credit Group (“Structured Credit Group”). Because multiple Advisory Clients with this strategy often seek similar investments (e.g., loans), allocating investment opportunities among multiple Structured Credit Advisory Clients is more prevalent relative to the private equity or real assets contexts. An allocation to an Advisory Client in the Structured Credit Group is prepared via an automated trade order system specifying the Advisory Client(s) that should receive a particular investment opportunity in accordance with the allocation guidelines established by CIM. Generally, initial allocations are prepared on a pro rata basis based upon the assets of the Advisory Client, and, depending on the circumstances, may be augmented, reduced, or excluded for reasons that CIM believes are fair and equitable to the Advisory Clients. CIM may employ other methods of allocation based on the facts and circumstances, including percentage allocation, pro rata by exposure, rotation, and fill rotation. Allocation methods are documented in the automated trade order system. If an order may be filled in its entirety, the investment will be allocated in accordance with the allocation, unless reallocated, as described below, in a manner that CIM believes is fair and equitable to the Advisory Clients. If a partial fill, the investment is generally allocated on a pro rata basis in accordance with the initial allocation amounts unless reallocated, as described below, in a manner that CIM believes is fair and equitable to the Advisory Clients. Exceptions, variations in pro rata allocations, and reallocations are documented. For example, orders may be reallocated, especially if a partial fill, but must be documented and the reallocation decision explained to and reviewed by Carlyle’s Chief Compliance Officer or designee. Allocations of investment opportunities among Structured Credit Advisory Clients are periodically reviewed and monitored on an ongoing basis by the Global Credit Compliance and Regulatory Committee to determine the reasonableness and fairness of the allocations.
Possession of Material, Non-Public Information and other Trading Restrictions Carlyle espouses a management philosophy of collaboration and information sharing among investment professionals to create a unified global network. Carlyle, its affiliates, and their professionals may come into contact with material, non-public information in connection with their activities for Carlyle, CIM, or their affiliates. Carlyle has established policies and procedures to prevent the abuse of material, non-public information, which includes procedures for, among other things, the use and maintenance of restricted trading lists. Under no circumstances may a professional trade in a security while in possession of material, non-public information about that security for his or her own account, the accounts of certain family members or the account of an Advisory Client. Further to this end, as discussed in Item 8, Carlyle has implemented various information barriers to segregate the flow of material, non-public information between its business segments, and in the case of Investment Solutions, to segregate the flow of certain non-public, commercially sensitive investment information. Other Potential Conflicts The legal and/or organizational documents of an Advisory Client, the investment management agreement between CIM (or an affiliate) and the Advisory Client or the agreements in respect of the portfolio investments establish complex arrangements among the parties, including between investors and Advisory Clients. Questions may arise from time to time under these agreements regarding the parties’ rights and obligations in certain situations, many of which may not have been contemplated at the time of the agreements’ drafting and execution. In these instances, the operative provisions of the agreements, if any, may be broad, general, ambiguous or conflicting, and may permit more than one reasonable interpretation. At times there may not be a provision directly applicable to the situation. While Carlyle will construe the relevant agreements in good faith and in a manner consistent with its legal obligations, the interpretations adopted may not be, and need not be, the interpretations that are the most favorable to an Advisory Client. please register to get more info
Broker Selection CIM has discretion to select brokers and dealers to execute transactions in securities and other instruments for Advisory Clients. CIM is obligated by law and under its investment management agreements to seek to obtain the best prices and executions for orders executed for Advisory Clients, taking into account quantitative and qualitative factors affecting the execution quality of portfolio transactions. In particular, CIM reviews factors, such as the experience of the broker or the dealer, its ability to handle the order to the best advantage of the Advisory Client, the nature of the investments to be bought or sold, special circumstances affecting the instrument (e.g., redemption features), and the overall price of the order. As a result, although CIM will seek competitive commissions and spreads, it may not necessarily obtain the most competitive price/commission/spread for portfolio transactions.
From time to time, brokerage firms may provide services to CIM in addition to order execution. As discussed in Item 8, certain large investment banks that may act as service providers to CIM and its affiliates, Advisory Clients and Carlyle portfolio companies may also invest in an Advisory Client (directly, or by sponsoring a feeder fund).
From time to time CIM selects brokers and dealers who are owned in part by an Advisory Client to execute transactions in securities and other instruments for another Advisory Client. For example, an Advisory Client has an ownership interest in Sandler O’Neill, an investment bank and broker-dealer. Certain other Advisory Clients, CIM affiliates or affiliated investment advisers may utilize Sandler O’Neill for execution of transactions in securities and other instruments, or other investment-related services. In addition, please see “Broker Dealer” in Item 8 above with respect to conflicts involved in the selection of a broker-dealer affiliated with CIM. Portfolio trades of certain investment vehicles, generally within Global Credit, can be expected to generate commissions, mark-ups/mark-downs, and other transaction charges that each Advisory Client is responsible for paying. CIM has complete discretion in deciding the brokers and dealers to execute Advisory Client transactions and the fees that will be paid to selected broker-dealers for their services. CIM seeks to obtain best execution of Advisory Client transactions based on a number of factors that include net price for the order, experience of the broker-dealer, order handling ability (particularly block orders), and the nature of the investments to be bought or sold. Global Credit maintains approved broker-dealer lists and the Global Credit Compliance and Regulatory Committee meets periodically to review and analyze trades executed by approved broker-dealers as part of its requirement to seek best execution for their respective Advisory Client transactions. In assessing the quality of execution for Advisory Client transactions, the Global Credit Compliance and Regulatory Committee will consider the full range of services available from and the characteristics of each broker-dealer, including, but not limited to execution capabilities, responsiveness, trading experience, reputation and integrity, overall reliability, access to underwritten offerings and secondary market trades, and the value of any “research” services provided to CIM. Typically, trade allocations are made to full service broker-dealers that provide research reports (typically on an unsolicited basis), services related to settlement and clearance, trade seminars, or access to certain professionals in connection with portfolio transactions. From time to time, depending on the certain circumstances, brokerage firms may pay for trade seminars, travel to such seminars, and lodging and entertainment of Carlyle professionals. Because these benefits, while providing Carlyle employees opportunities for education and fostering of business relationships, can create potential conflicts of interest, the compliance department assesses the types of research or other services that are provided (whether solicited or unsolicited) to determine if they are appropriate under the circumstances and if the provision of such research or services appears to have had any effect on the execution quality for client accounts. From time to time, Global Credit will engage in transactions with broker-dealers that also have other dealings with Carlyle or its affiliates, including investor referrals and investments in Advisory Clients. Such business relationships could present a potential conflict of interest for CIM. However, Global Credit performs an analysis and review of each broker-dealer’s trading and execution capabilities as part of its requirement to seek best execution. That analysis and review is presented to the Global Credit Compliance and Regulatory Committee for assessment. In the context of investment activity outside of these groups, CIM periodically reviews its relationships and levels of business allocated to key service providers, especially investment banks. Bunching or Aggregating Trades Structured Credit Advisory Client trades may be aggregated if aggregation is believed to benefit the Advisory Client and to be consistent with CIM’s obligation to seek best execution. CIM is not obligated to aggregate Advisory Client trades, however, and there may be reasons, such as Advisory Client specifications or logistics of the trade itself, where aggregation is not possible. In such situations, the inability to aggregate the trade could result in an increase in transaction costs for the Advisory Client. CIM may trade the same instruments for multiple Advisory Clients with a particular broker throughout the day. Where possible, the price at which that particular broker handles these multiple orders generally will be averaged among the multiple Advisory Client accounts during a trading day. Trades with a particular broker that occur in the same instruments for multiple Advisory Clients on the same day may be averaged across multiple Advisory Client accounts if determined by CIM to be fair, reasonable and appropriate under the circumstances. All exceptions to CIM’s policy on the aggregation of trades must be approved by Carlyle’s Chief Compliance Officer or designee.
Carlyle seeks to detect and correct trading errors. Should a trading error occur and be detected before the trade has been settled in the Advisory Client account, Carlyle will reverse the trade or reallocate, as necessary and appropriate. In any event, the Advisory Client account will be made whole (put in a position as if the error had not been made), with Carlyle absorbing any loss, where Carlyle’s conduct does not meet the standard for exculpation set forth in the governing documentation for the relevant Advisory Client(s), and not in other cases. Advisory Clients regulated under the 1940 Act will be made whole with Carlyle absorbing losses any time a trade error cannot be reversed or reallocated. please register to get more info
Oversight and Monitoring The portfolio investments of certain Advisory Clients are regularly reviewed by a team of investment professionals. Depending on the Advisory Client, the team generally includes principal executive officers of CIM, Managing Directors and other investment professionals. These professionals monitor operations, overall performance, financial performance, and strategic direction of each portfolio company owned by the Advisory Clients. The specific parameters relating to the oversight and monitoring of the portfolio investments of the Advisory Clients for which there is shared oversight (i.e., joint ventures) are set forth in the related offering documents. The portfolio investments in leveraged bank loans made by certain of the Advisory Clients are monitored by professionals at CIM under an organizational structure deemed appropriate to provide oversight. The portfolio assets are reviewed and monitored consistent with trading guidelines and events in the capital markets. Reports to Advisory Clients and Investors Investors in CIM-advised (and co-advised) Advisory Clients (excluding certain Global Credit Advisory Clients) typically receive quarterly financial reports and audited annual reports. Investors have the ability to access these reports via a password-protected website. Each of Global Credit Advisory Clients is required to fulfill reporting obligations to investors based on the terms and conditions of the particular Advisory Client organizational documents (or investment management agreement in the case of a separately managed account). Certain of Global Credit Advisory Clients deliver annual audited financial statements to investors. Depending on the particular Advisory Client, investors may receive monthly reports or letters, quarterly financial and capital account statements. Reports to separately managed account Advisory Clients are based on the terms of the particular investment management agreement. Certain investors may have the right to obtain information relating to an Advisory Client. Accordingly, such investors may possess information regarding the business and affairs of an Advisory Client that may not be known to other investors. As a result, certain investors may be able to take actions on the basis of such information which, in the absence of such information, other investors do not take. For new Advisory Clients, a copy of this Brochure is delivered prior to or at the time of entering into an advisory contract. please register to get more info
As described in more detail in Item 5 – “Fees and Compensation”, in addition to management fees payable and carried interest allocable to CIM and its affiliates, CIM and its affiliates may receive acquisition, monitoring, disposition and certain fees with respect to advisory and related services provided in connection with investments by Advisory Clients.
CIM and its affiliates may enter into cash compensation arrangements with its affiliated broker- dealers including TCG Securities, TCG Capital Markets and affiliates, CHKEM, CAEM, CSIAL, certain portfolio companies of Advisory Clients or affiliates thereof, unaffiliated placement agents or third parties for introducing investors to Carlyle in respect of an Advisory Client. Any fees associated therewith will ultimately be payable by CIM or its affiliates, either directly or through an offset of the management fee payable by the relevant Advisory Client.
In accordance with CIM’s policies, no investor may bear any portion of any fee paid to any third- party solicitor with respect to such investment (whether in the form of higher management fees or other types of fees) without the consent of Carlyle’s General Counsel and Carlyle’s Head of Investor Relations. please register to get more info
CIM uses unaffiliated, qualified, third-party custodians to hold the assets of its Advisory Clients in a manner that it believes complies with SEC standards and guidance. For example, these qualified custodians maintain the client assets in a manner that segregates them from assets for other clients of the custodian. CIM is deemed to have custody of the underlying assets of many of its Advisory Clients. In addition to holding client assets with an unaffiliated, qualified, third-party custodian, these client assets (where CIM is deemed to have custody) are generally also subject to a year-end audit by a major accounting firm that is a member of, and examined by, the Public Company Accounting Oversight Board (“PCAOB”), and the audited financial statements are then provided to the underlying investors of these Advisory Clients within 120 days of the end of the fiscal year. For client assets that are pooled investment vehicles (and subject to such financial audits and reporting delivery qualifications), CIM relies on an exception from the notification, account statement delivery obligations, and is deemed compliant with the surprise audit obligations imposed by the SEC’s custody rule. To the extent that CIM is deemed to have custody of the underlying assets of an Advisory Client that is not deemed to be a “pooled investment vehicle”, CIM engages a PCAOB major accounting firm to subject such assets to a surprise audit and requests requisite reporting to the Advisory Client. Such Advisory Clients may also have a statutory obligation to perform a year-end audit. please register to get more info
Typically, CIM provides investment advice to its Advisory Clients on a discretionary basis, either directly or indirectly through sub-advisory arrangements. An affiliate of CIM, typically the general partner of the applicable Advisory Client, accepts discretionary investment authority for each Advisory Client. CIM, in turn, is retained as investment adviser in order to provide advice with respect to Advisory Client investments. Generally this discretion is subject only to the investment guidelines set forth in the governing agreements (or investment management agreement in the case of a separately managed account) of an Advisory Client. Such governing agreements generally expressly provide that the applicable general partner (or similar managing fiduciary) has the authority to make all decisions concerning the investigation, evaluation, selection, negotiation, structuring, commitment to, monitoring of and disposition of investments. please register to get more info
Because CIM has, or will accept, authority to vote public company securities and other debt instruments (e.g., loans) held by an Advisory Client, it has adopted policies and procedures (the “Proxy Voting Policies and Procedures”) that it believes are reasonably designed to comply with the requirements of the Advisers Act. The Proxy Voting Policies and Procedures reflect CIM’s commitment to vote such instruments in a manner consistent with the best interests of the Advisory Clients.
Under the Proxy Voting Policies and Procedures, unless faced with a conflict of interest between or among Advisory Clients, CIM will vote proxies in a manner that serves the best interest of its Advisory Clients, as determined by CIM in its discretion, taking into account relevant factors, including (i) the impact on the value of the securities owned by the Advisory Client and the returns on those securities; (ii) alignment of portfolio company management’s interest with the Advisory Client’s interest, including establishing appropriate incentives for management; (iii) the ongoing relationship between the Advisory Client and the portfolio companies in which it invests, including the continued or increased availability of portfolio information; (iv) industry business and practices; and (v) the requirements imposed on CIM and its affiliates in the Advisory Client operating agreements.
CIM reviews each proposal submitted for a vote on a case-by-case basis to determine whether it is in the best interest of the applicable Advisory Client. As a result, depending on the Advisory Client’s particular circumstances, CIM may vote one Advisory Client’s securities differently than it votes those of another Advisory Client, or may vote differently on various proposals, even though the securities or proposals are similar (or identical). In some instances, CIM may determine that it is in the Advisory Client’s best interest for CIM to “abstain” from voting or not to vote at all, and will do so accordingly. At times, conflicts may arise between the interest of an Advisory Client, on the one hand, and the interest of either another Advisory Client or Carlyle or its affiliates on the other hand in consideration of a proxy vote. For example, a vote could arise in relation to a single company that (i) has issued stock to an Advisory Client with a buyout investment mandate, and (ii) has issued bonds or other debt instruments that are owned, in part, by an Advisory Client that is permitted to invest in debt instruments. To address such potential conflicts, CIM follows the procedures outlined in the Proxy Voting Policies and Procedures, which include the potential involvement of Carlyle’s General Counsel, the Chief Compliance Officer and/or the Conflicts Committee, a committee comprising senior management to help manage conflicts of interest that may arise during the conduct of Carlyle’s business. The Proxy Voting Policies and Procedures require that in all situations involving a potential conflict between two Advisory Clients, the vote will be made without regard to Carlyle’s actual or anticipated compensation. Certain Advisory Clients within Global Credit business segment utilize a third-party service provider to assist with the processing of proxy votes.
Proxy voting reports, identifying how proxies were voted where Carlyle has been delegated proxy voting authority, and CIM’s Proxy Voting Policies and Procedures are available upon written request to Carlyle Investment Management L.L.C., 1001 Pennsylvania Avenue, NW, Suite 220 South, Washington, DC, 20004, Attn: Investor Relations. please register to get more info
At this time, CIM is not aware of any financial condition that could impair CIM’s ability to meet its contractual obligations to its clients. CIM has not been the subject of any bankruptcy petitions, including in the past ten years. Additional financial information is also available in current public filings with the SEC for the Public Company (see ir.carlyle.com). please register to get more info
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|Pooled Investment Vehicles||$142,862,879,601|
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Contract let for Romanian offshore gas development Black Sea Oil & Gas SRL (BSOG), Bucharest, a unit of Carlyle Investment Management LLC's Carlyle International Energy Partners LP, has let a ...
PA has grown strongly during the five-year Carlyle investment period through a combination ... upper-mid market buyout fund. The exit of CEP IV's stake in PA is another example of Carlyle's ...
PA has grown strongly during the five-year Carlyle investment period through a combination ... upper-mid market buyout fund. The exit of CEP IV's stake in PA is another example of Carlyle's ...
PA Consulting and Jacobs announce agreement on future investment and strategic partnership. Dec 02, 2020 12:12 PM ET. Legal Newswire POWERED BY LAW.COM . PA Consulting (PA), the c
PA Consulting and Jacobs announce agreement on future investment and strategic partnership. Dec 02, 2020 12:12 PM ET. Legal Newswire POWERED BY LAW.COM . PA Consulting (PA), the c
Jacobs has agreed to acquire a 65 percent stake in PA Consulting, a management consultancy. As a result of the deal, The Carlyle Group will exit its stake in PA. The deal puts PA at a valuation of 1.825 billion pounds.
PA has grown strongly during the five-year Carlyle investment period through a combination of organic ... upper-mid market buyout fund. The exit of CEP IV’s stake in PA is another example of Carlyle’s strategy of working in partnership with management ...
PA has grown strongly during the five-year Carlyle investment period through a combination ... upper-mid market buyout fund. The exit of CEP IV's stake in PA is another example of Carlyle's ...
PRNewswire/ -- PA Consulting (PA), the consultancy that's Bringing Ingenuity to Life, today announced that global technical and professional services
PRNewswire/ -- PA Consulting (PA), the consultancy that's Bringing Ingenuity to Life, today announced that global technical and professional services
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