Carlyle Group forced to liquidate sole hedge fund Blue Wave Partners

The Carlyle Group suffered yet another casualty in the current credit freeze after the sub-prime mortgage crisis when it was forced to liquidate its $600-million first and only hedge fund because it had failed to achieve "critical mass". This marks the second successive failure for the group in as many weeks after the Chinese government scuttled its earlier attempt to invest in a local machinery firm. (See: China vetoes Carlyle's acquisition of machinery maker Xugong Group)

The ill-fated Blue Wave Partners Management was set up just months before the credit crunch hit last year. It is thought to be the firm's first investment failure since Carlyle Capital Corporation, its Dutch affiliate, collapsed under a $22-billion mortgage securities debt burden in March. (See: Carlyle Group faces default on $21.7-billion sub prime assets)

Carlyle started the multi-strategy fund in April 2007 with two former Deutsche Bank executives, Rick Goldsmith and Ralph Reynolds. The fund, which invested in both equity and credit, hit $900-million at its peak. But it became a classic victim of the spiralling debt crisis that took root last June. Asset values fell and investors headed for the exit. Even the launch of an equity-only share class failed to save Blue Wave.

The equity-focused part of the Blue Wave hedge funds is up more than 2 per cent so far this year, in comparison to the S&P 500 that was down 12 per cent. However, Carlyle said that the funds started in a "challenging" market last year and haven't been able to raise assets under management to a level that will generated enough fees to cover the costs of running a big multi-strategy hedge fund business.

Carlyle Blue-Wave "today announced that it has voluntarily decided to end its multi-strategy investment programme and to begin liquidating positions in an orderly manner in anticipation of an eventual closing of the Carlyle Multi-Strategy Partners (CMSP) funds," the private-equity firm said in a statement on its Web site.

"Investors have been informed that the funds have begun to liquidate their portfolio in an orderly manner," the firm added, saying that it was not big enough to sustain a multi-strategy fund, which is labour and systems-intensive.