Carlyle Group took $500M from Abu Dhabi, gave most of it to firm’s partners

Posted March 13, 2012, at 11:59 p.m.

WASHINGTON — About 15 months ago, the Carlyle Group borrowed $500 million from the Abu Dhabi government.

Carlyle then turned around and gave $400 million of it in dividends to the firm’s 100-plus partners, who will not pay taxes on the windfall until a later date. The rest of the loan went to help run the company.

The move by the private-equity giant — known as a liquidity event — allowed the partners to extract more money from the hugely profitable firm, which is expected to go public later this year.

The December 2010 loan and subsequent dividend payment, first reported by Bloomberg News, are likely to reignite debate over executive income and tax rates as the country heads into a presidential election.

It follows Carlyle’s disclosure in public filings in January 2012 that its three co-founders took home $138 million each last year.

President Barack Obama has regularly criticized Wall Street financiers and has made raising taxes on the wealthy a central theme of his campaign. Republican presidential candidate Mitt Romney made his fortune in private equity and has defended its practices and pay system against critics.

The dividend Carlyle paid to its partners will be taxed at a capital gains rate of 15 percent, which is lower than the rate on almost all ordinary income.

Private-equity experts said the loan’s effect on Carlyle’s reception in public markets was best left to the judgment of would-be investors.

“It’s going to be something shareholders are going to have to weigh,” said Dan Primack, who writes about private equity as a senior editor at Fortune.com. “Are they comfortable that there is this additional debt on the company?

“If [Carlyle shares] were public today and [they] did this and suddenly Carlyle executives took home millions and shareholders were left with the debt in the end, that’s something that people should jump up and down about. But this is prior to the offering, before anyone has put in an order. It’s much ado about nothing.”

The loan was made by Abu Dhabi’s Mubadala Development Corp., which owns a piece of Carlyle. It invested $1.35 billion to buy 7.5 percent of the firm in 2007. As part of the December 2010 loan, Mubadala increased its ownership in Carlyle to more than 9 percent.

A Carlyle spokesman declined to comment.

Industry experts said that by giving its partners a dividend, Carlyle dampened incentives to sell shares once the company goes public.

Carlyle’s co-founders — Daniel A. D’Aniello, William E. Conway Jr. and David M. Rubenstein — have said they intend to hold shares in the company for the long term, in part to assure future investors of a smooth transition when they leave.

The financial powerhouse is among the world’s largest private-equity firms, with about $150 billion in assets under its control. Forbes magazine last year ranked the three founders, worth an estimated $2.7 billion each, among the richest people in the United States.

They are also major philanthropists. Rubenstein is the largest donor in the history of the Kennedy Center, where he is chairman of the board of trustees. He recently gave $7.5 million to help repair the Washington Monument, which was damaged in last year’s earthquake. Conway has given away millions to the homeless, and D’Aniello has donated to several charities and institutions.

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