Carlyle CEO’s sudden exit puts the private equity giant back at square zero

August 9, 2022, 12:52 PM UTC
Late Sunday evening, Carlyle said that CEO Kewsong Lee had resigned ahead of his five-year contract expiring at the end of 2022.
Patrick T. Fallon—Getty Images

Five years ago, Bill Conway had bid Carlyle Group investors a farewell on the company’s third quarter earnings call: “I’m grateful to all of you who participated on these calls for the past 21 quarters with me.”

At the time, Conway and his co-CEO David Rubenstein, two of the private equity giant’s co-founders, had just alerted investors that they were taking a step back from day-to-day management. They had laid out a carefully crafted succession plan that would entrust the leadership of the then-$170 billion private equity and alternative asset manager to Glenn Youngkin, a 23-year U.S. and European buyout vet within Carlyle, and Kewsong Lee, a two-decade Warburg Pincus partner the company had scooped up in 2013.

But that succession plan never quite landed. Youngkin left in 2020 and shortly after became Virginia’s next governor. And now, Lee—Carlyle’s lone-standing CEO—has suddenly resigned. 

Late Sunday evening, Carlyle said that, with Lee’s five-year contract set to expire at the end of 2022, he and the board had agreed to part ways. While the company says Lee will make himself available as needed, he has immediately dropped his executive position, as well as his position on the board, so it doesn’t sound like those conversations went well. (A Carlyle spokesperson didn’t respond to a request for comment)

All that being said, Carlyle is back to square zero when it comes to leadership. The company has reinstated co-founder Conway as chief executive (welcome back!) and has quickly assembled a search committee to look for other options. Christopher Finn, Carlyle’s COO, who had been hoping to retire by the end of this year, isn’t going anywhere for the time being. 

“We’re not sure what to make of the sudden departure,” Morningstar sector strategist Greggory Warren wrote in an analyst note yesterday afternoon, adding that the company’s declining stock price this year likely wasn’t doing Lee any favors. 

Carlyle’s shares closed at $35.29, down more than 6% since the news broke. But the stock is down nearly 35% from the beginning of January. Other private equity giants are faring better—although not that much better. KKR’s shares are down more than 28% year-to-date, compared to nearly 20% at Apollo.

Private equity firms that trade on the public exchanges may be able to double dip into capital from both the private and public markets—but they aren’t immune to the scrutiny of public shareholders, who seem to be spending plenty of time speculating which private equity portfolios will hold up long-term in this downturn, and whether limited partners, who are starting to see their own performance falter, will maintain the same kind of appetite for writing checks.

In 2021, Carlyle had raised a whopping $51 billion in capital from its LPs—two-thirds of which came from its credit, real estate, solutions, infrastructure, and renewables businesses. This year doesn’t appear to be on track to reach those levels: The company is fundraising for 20+ strategies this year, it said, and had raised $19 billion in the first six months—$10 billion in this past quarter. 

“Look, no doubt, the fundraising market is challenging right now, and this could persist for a bit as LPs adjust to market dynamics,” Lee had told investors during the company’s latest earnings call at the end of July. Fundraising had been hardest for Carlyle’s corporate private equity (Carry funds for its corporate private equity portfolio didn’t appreciate at all this quarter and have only appreciated 3% year-to-date). The firm was still seeing “strong and healthy demand” from its global credit, infrastructure, renewables, and solutions funds, according to Lee.

Carlyle has been in a period of flux. In Feb. 2021, a few months after Lee had become the sole CEO, the company announced a new strategic plan to accelerate its growth, which included further diversifying its revenue streams. But Warren critiques that the firm is still small compared to its largest publicly-traded competitors “in an industry where investors are increasingly focused on firms that have meaningful scale” in the PE, real estate, credit, or hedge fund segments.

Carlyle has recently lost a couple of its investment professionals, including Jay Simmons, who had been head of media, consumer, and retail, and Ashley Evans, a technology, media, and telecommunications group partner, who left in July for Francisco Partners.

While Lee had been “generally well-regarded by the investment community,” according to Rufus Hone, a BMO Capital Markets analyst, he said in a note that he doesn’t anticipate the sudden change will impact Carlyle’s fundraising plans, and is expecting minimal impact—particularly after a new replacement is found.

Carlyle’s stock performance the rest of this year may speak for itself. If you personally have further information on Lee’s departure, you know where to find me.

‘Somewhat delirious’… SoftBank CEO Masayoshi Son yesterday addressed the company’s $23 billion loss between April and June—its most significant quarterly loss in SoftBank’s history. “When we were turning out big profits, I became somewhat delirious, and looking back at myself now, I am quite embarrassed and remorseful,” he said. You can read more here.

More jobs disappearing… Daily Harvest, the frozen vegan food delivery startup at the center of ongoing allegations of a food poisoning scandal, has cut 15% of its employees, a source with knowledge of the situation told my colleague (The company declined to comment). You can read more here.

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
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Jackson Fordyce curated the deals section of today’s newsletter.


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