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Carlyle Said to Raise $150 Million for Mortgage Securities Fund

Jan. 9 (Bloomberg) -- Carlyle Group LP, the second-biggest private-equity firm by assets, raised about $150 million for a fund that will invest in residential mortgage-backed securities after the market rebounded in the past four years, according to a person familiar with the firm.

Carlyle Realty Credit Partners LP, which wrapped up capital raising in September, will invest in AAA-rated securities that aren’t backed by the government, said the person, who asked not to be named because the fund isn’t public. The firm also raised about $50 million in side accounts that will invest in the strategy.

Christopher Ullman, a spokesman for Washington-based Carlyle Group, declined to comment.

The team running the fund, led by Robert Stuckey, has previously invested in RMBS primarily through the firm’s Carlyle Realty Partners V fund, according to the person familiar. Carlyle’s last dedicated RMBS fund, a publicly traded bond fund, collapsed more than four years ago in the middle of the subprime crisis.

The new fund will use a private-equity structure that locks up investor money for several years, and it may use only small amounts of leverage for investments with stable yield profiles, said the person.

Carlyle’s defunct mortgage-bond fund, Carlyle Capital Corp., was set up in 2006 at the height of the real estate bubble with about $670 million. The fund borrowed $32 for every dollar of equity, building a $22 billion portfolio of mortgage debt with government-backed guarantees.

Fed Purchases

Carlyle Capital fell apart in March 2008 when the value of its mortgage-backed collateral plummeted, resulting in more than $400 million in margin calls. Lenders seized the fund’s assets, and Carlyle subsequently faced a number of lawsuits related to the collapse. The firm wound up the fund seven months after an initial public offering.

Mortgage securities have rebounded since then as the Federal Reserve purchased an unprecedented amount of assets to revive the economy. Mortgage debt without the backing of the U.S. government, or non-agency debt, returned more than 20 percent annually in three of the past four years. U.S. government-backed mortgage bonds returned 2.5 percent last year through Dec. 26, beating similar-duration Treasuries by 1.3 percentage points, Bank of America Merrill Lynch index data show. In 2011, the home-loan debt gained 6.1 percent, underperforming the government notes by 0.8 percent.

‘Opportunistic’ Investments

Carlyle is seeking to take advantage of attractive pricing in the RMBS market, the firm told investors in its year-end letter.

“This year we successfully raised a new U.S. real estate fund and a realty credit fund and continued our program of investing in low-priced residential mortgage-backed securities,” according to the letter, a copy of which was obtained by Bloomberg News.

Carlyle last January raised $2.34 billion for its sixth U.S. real estate fund that will make “opportunistic” investments in the residential, hotel, senior living, retail and office markets.

The firm made 37 new and 64 follow-on property investments in 10 countries, mostly in the U.S., China and Europe, through the third quarter, according to the letter. It handed back more than $450 million to clients from real estate investments through Sept. 30.

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