Carlyle Group has structured an innovative financing arrangement to anchor its next flagship buyout fund while simultaneously providing liquidity to investors in older vehicles, according to a report by Bloomberg citing sources familiar with the transaction.
The overall deal is valued at approximately $8.5bn and combines multiple layers of capital, including roughly half in bank financing, with the remainder split between preferred and common equity. Around $5bn of the structure will be used to seed Carlyle’s upcoming buyout fund.
As part of the transaction, Carlyle is committing a minority share of the common equity using capital from its balance sheet and affiliated investors, amounting to several hundred million dollars. The underlying assets include roughly $3.5bn in fund stakes tied to the firm’s seventh and eighth flagship buyout funds.
The initiative – internally referred to as “Project Potomac” – highlights the increasing reliance on structured credit solutions within private equity, particularly as firms face extended holding periods and slower exit environments.
Although fundraising for Carlyle Partners IX has yet to formally launch, the firm has indicated it is targeting a raise broadly in line with the $14.8bn secured for its predecessor fund. Early indications suggest strong backing from cornerstone investors, with commitments reportedly larger than in prior vintages.
The approach follows internal efforts to address liquidity constraints and support growth in the private equity platform. Chief executive Harvey Schwartz is understood to have tasked the firm’s AlpInvest secondaries unit with developing solutions to meet investor demand for distributions while maintaining momentum in fundraising.
Performance across recent vintages has been mixed, though improving. While Carlyle Partners VII previously drew internal criticism, returns have strengthened, and the eighth fund is expected to deliver solid results. The firm has also accelerated exits, including secondary share sales in Medline and StandardAero, contributing to around $7bn in realised or agreed disposals earlier this year.
The structure bears similarities to collateralised fund obligations (CFOs), whereby private equity fund interests are pooled into a special purpose vehicle and used as collateral to raise debt and equity financing.
Such arrangements are gaining traction within the rapidly expanding fund finance market, as managers explore increasingly sophisticated methods to manage liquidity and support new fundraising cycles.
