The Carlyle Group is lowering its threshold for new investors to $50,000 in an attempt to broaden its customer base and tap an investment pool that reaches into the trillions.
Until now, Carlyle’s client base has been limited to multimillion-dollar investments from wealthy individuals, foundations, foreign sovereign wealth funds and giant pensions.
The minimums for those entities has started at about $5 million. The new model will include investors who can put up $50,000, a pool that one analyst called “the holy grail” for investment firms.
Tim Loughran, a finance professor at the University of Notre Dame, said the move by Carlyle and other private-equity firms is an attempt to diversify their sources of cash.
“They are trying to get more money than ever,” Loughran said. “And this is just another way of getting money. Let’s see if it works. . . . There’s a lot more people with $50,000 than with $20 million.”
Carlyle’s new policy is contained in a filing with the Securities and Exchange Commission. A Carlyle spokesman declined to comment.
Carlyle’s initiative was reported in Wednesday’s Wall Street Journal.
The initiative follows the years-long evolution of Carlyle, which has $170 billion under management, from a boutique investment firm shrouded in mystery to a publicly owned, transparent manager of assets. Since Carlyle went public in May, its stock price has risen steadily, and the firm’s three founders are trying to cement a long-lasting financial services firm with the breadth of a Goldman Sachs or a Vanguard Group.
Private equity’s traditional business model is to take big chunks of money from investors, known as limited partners. Private-equity firms then use that money over a period of several years to buy companies, fix them and sell them at a profit.
Investing with private equity can be more risky and more expensive than mutual funds, but the returns can far exceed those from traditional stocks and bonds. Carlyle has said net returns on realized investments average about 20 percent per year.
Carlyle said it will not deal directly with clients. Instead, it is partnering with Central Park Group, an independent advisory firm that specializes in alternative investments, to find the new clients.
Central Park is creating a pool of Carlyle funds that represents Carlyle’s broad geographic and product diversity.
While Carlyle’s limited partners generally must wait up to 10 years to get their money back, the investors who come in at $50,000 and up may be able to begin harvesting returns after two years.
Although Carlyle has relaxed its threshold for investment, its fees will not be lowered.
Carlyle will maintain its traditional charges of 1.5 percent for managing money and 20 percent of profits. Central Park Group will include a fee of 1.8 percent.