Private equity group Carlyle (NASDAQ:CG) has made its move into commodities as it announced Wednesday that it has bought a 55 per cent stake in Vermillion Asset Management, a New York-based commodities hedge fund manager.
As of the end of September, Vermillion had roughly $2.2 billion of assets under management, which have now become affiliated with Carlyle's global market strategies business.
“For many years Carlyle has successfully invested in a variety of energy, agriculture and infrastructure companies," said managing director and head of global market strategies, Mitch Petrick.
"Vermillion employs a liquid, relative-value, low volatility approach to trading both physical commodities and their derivatives to produce positive, uncorrelated returns.”
Gold is a hot space right now, as many analysts are predicting a bull run for the yellow metal, with a host of banks boosting their precious metal price forecasts for the upcoming year.
Deutsche Bank (NYSE:DB) Tuesday raised its outlook for gold and silver prices in 2013 and 2014, citing support from stimulus measures by central banks such as the QE3 recently announced by the U.S. Federal Reserve.
Indeed, US Comex gold futures beat most of the other major markets and rose 10.4 per cent in the third quarter this year - the second largest quarterly increase since the 11.91 per cent jump in the second quarter of 2010, according to London-based bullion brokers Sharps Pixley.
In the third quarter, the S&P 500 index, the Euro Stoxx 50 index, the CRB Commodities index rose 6.35 per cent, 9.01 per cent and 8.84 per cent, respectively while the Dollar index fell 2.07 percent.
Vermillion, established in 2005 by Drew Gilbert and Chris Nygaard, manages three commodities-focused strategies, including relative value, enhanced index and long-biased physical commodities, it said.
The hedge fund manager will become Carlyle’s exclusive commodities trading platform and Gilbert and Nygaard will continue in their current roles as co-chief investment officers, Carlyle said.
“Global, secular trends are fundamentally reshaping the supply and demand balance for many commodities worldwide," said Nygaard.
"Our partnership with Carlyle will help us maximize these opportunities to deliver more alpha to our investors.”
Carlyle said it acquired the stake in Vermillion in exchange for cash, an ownership interest in Carlyle and performance-based payments payable over five and a quarter years.
If Vermillion meets outlined performance targets, Carlyle has agreed to issue to the Vermillion principals up to 1.44 million Carlyle Holdings partnership units over a four and a quarter-year period, it said.
These units will be exchangeable one-for-one on a private placement basis for common units of The Carlyle Group L.P.
Further terms of the transaction were not disclosed in Wednesday's statement.
Through the end of June, Carlyle’s global markets strategies business managed 53 funds with $29 billion in assets overseen by 100 investment professionals in New York, Washington, DC, Los Angeles, Houston, Hong Kong and London.
Carlyle as a whole has $156 billion of assets under management, across 99 funds and 63 fund-of-funds. Shares in the group were up 0.9 per cent to $25.97 in afternoon trade.