In a somewhat surprising announcement this week, the Carlyle Group announced they were lowering minimums for individuals to invest with them, from $5 million to just $50,000.
Not familiar with the Carlyle Group?
Carlyle is one of the largest private equity firms today. Like a pure hedge fund, Carlyle’s essential business (since it was created in 1987) is buying assets cheaply, fixing, repairing or repositioning them and selling them for a profit. Though they began with real estate investments, they quickly became involved in buying businesses. For individual investors, an investment in Carlyle Group would be classified as an “alternative investment.”
As an investment adviser, I cannot keep count of all the solicitation calls I get each and every week from money management firms wanting to show me their menu of “alternative investments.” While alternative investments may sound sexy, the biggest question individuals need to ask is the same question we asked with oil and gas limited partnerships, 1980’s real estate partnerships, indexed annuities, and any other exotic products created and sold by Wall Street:
Exactly how do we get out of this thing?
Historically, investors with Carlyle have been told not to expect their investment back for a period of ten years, which is a far longer investment horizon than the typical individual investor thinks about.
More importantly, is Carlyle Group’s announcement a canary in a coalmine? Like the miners, who used to carry the birdcages into the tunnels with them, is this new minimum level at Carlyle a sign we should be paying attention to? Have private equity firms simply run out of large investors? Or has the “smart money” simply stopped buying?
Or, is this decision by the Carlyle Group an indication that all the “big money” is already in the game? Is the small to medium-sized investor being handed a ticket to the game which is already in the eighth inning?