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Carlyle prepares to launch IPO next week

By Anthony Hughes

April 10 (IFR) - Carlyle Group is expected to launch its IPO as early as next week, according to market sources, coinciding with a step-up in deal size across the US IPO market.

The private equity firm, which first filed for an IPO in September, is widely expected to seek to raise around $1 billion, though to date it has only filed for a "placeholder" raising of $100 million.

JP Morgan, Citigroup and Credit Suisse are leading a team of 21 underwriters on the deal.

It comes as another alternative asset management company, Oaktree Capital , is poised to price its IPO tomorrow night, one of eight IPOs due to price this week despite a recent market sell-off.

The Oaktree and Carlyle deals highlight renewed appetite for asset management businesses after the strong first quarter performance of the US stock market, though listed peers such as KKR , Apollo Management and Blackstone have traded basically flat so far in 2012.

Based on Oaktree's valuation, Carlyle (which has $147 billion in assets under management) would likely be valued north of $10 billion.

The two companies are not strictly comparable. Carlyle's focus is primarily private equity and Oaktree's mostly credit, including distressed debt, corporate debt and convertible securities.

Though the timing of the two deals is largely coincidental, a robust Oaktree listing would be a positive for Carlyle and its peers.

Oaktree is understood to have drawn strong demand from investors for its offering of 11.25m shares at a range of $43-$46. Buy-side sources say the deal is three times covered, suggesting upper-end pricing is possible.

Oaktree's stock already trades on the GSTrUE OTC platform developed by Goldman Sachs (which, along with Morgan Stanley, is leading the Oaktree IPO).

Though there has not been an active market in Oaktree stock, Oaktree's SEC filing discloses that its GSTrUE trading price has ranged from $12 to $52 since the start of 2009.

It is understood that recent trades have been around the $46 mark, the top end of the IPO range. On the basis that Oaktree's GSTrUE valuation includes a liquidity discount, this has given investors some confidence that Oaktree will trade higher in the secondary market.

At $46 a share, Oaktree's Class A and Class B shares would be valued at $6.94 billion. Valuation is complicated by the large proportion of earnings generated from investment income and incentive management fees.

Investors are reluctant to attribute much of a multiple to variable and "lumpy" earnings generated by these types of businesses. Still, Oaktree has generated incentive income for 14 consecutive years and has made a name for itself preserving investors' capital in tough markets. It also has US$1bn in potential net income from accrued incentives.

Oaktree manages $74.9 billion in assets, of which $36.2 billion potentially generates incentive income.

Market conditions notwithstanding, there are several other $1 billion-plus IPOs lined up for the second quarter, even apart from the much-anticipated $5 billion Facebook offering lined up for next month.

AIG aircraft-leasing subsidiary ILFC could raise $2 billion this quarter, while independent refining company PBF Energy and fracking services company FTS International are in registration for $1 billion and $1.2 billion deals respectively that may also soon launch.

So far this year there has been less than a handful of IPOs raising more than $300 million, though this week brings four deals looking to raise at least that amount (Forum Energy Technologies, Aleris, MRC Global and Oaktree).

(Anthony Hughes is an IFR reporter in New York)