Private equity giant Carlyle Group is replacing its chief executive Kewsong Lee, who will leave the New York and Washington-based group just two years after he was appointed in July 2020.
Lee’s exit, announced on Sunday evening, came after Carlyle’s board met and decided to end contract negotiations with Lee, according to a source with direct knowledge of the situation. Lee, who was named co-chief executive in 2017 alongside Glenn Youngkin, was given a five-year contract that expired at the end of the year.
After Carlyle notified Lee that it had decided to not renew his contract, he decided to step down immediately. William Conway, a co-founder of Carlyle, will become its interim leader as it looks for a full-time replacement.
“With Kewsong Lee’s employment agreement soon coming to a close and the firm on a strong footing and entering its next phase of growth, our board and he mutually agreed that now is the right time to initiate a search for a new CEO to lead the company forward,” said Conway in a memo sent to employees and seen by the Financial Times.
“[W]e must continue to execute our business plan and build on the firm’s strong performance across our three segments,” he added.
The decision surprised close followers of Carlyle. “[T]his is a sudden and unwelcome surprise change, particularly in light of the positive progress that we believe the firm has made during [Lee’s] tenure in terms of accelerating growth, entering new business verticals, and expanding profitability,” said Robert Lee, an analyst at Keefe, Bruyette & Woods.
“We had just this past week met with Lee [and] a group of investors, and he appeared comfortable in his position and optimistic about the strategic direction of the firm,” he added.
Carlyle shares fell 6.2 per cent in New York on Monday.
The sudden exit throws the $376bn group’s leadership into renewed upheaval as it navigates a more challenging investment environment, with volatile markets and a pullback in commitments from institutional investors.
It also marks another impromptu change in Carlyle’s succession planning beyond co-founders Conway, David Rubenstein and Daniel D’Aniello, who formed the group in 1987.
Unlike competitors such as KKR, Carlyle has struggled to identify its next generation of leadership. Lee served as co-chief executive alongside Youngkin, a split role that was supposed to resemble the joint leadership of Conway and Rubenstein during the firm’s ascent into a publicly listed industry giant.
However, Youngkin decided to retire at the end of 2020 amid friction with Lee, plunging Carlyle’s succession plan into turmoil. In 2021, Youngkin launched a successful run to be governor of Virginia.
Lee took over sole leadership of Carlyle as it recovered from the shock of the coronavirus pandemic, which had caused it to record steep losses as performance flagged in many of its investment funds.
Under Lee, Carlyle’s business rebounded as he plotted the firm’s expansion in credit and insurance-related investments under new leadership. He also set a target of raising $130bn in new money by 2024, with much of the fundraising focused away from Carlyle’s traditional corporate buyout business.
In second-quarter earnings released in late July, Carlyle had made it more than halfway to Lee’s target, which he insisted the firm would hit. However, fundraising in its buyout unit has slowed. In the second quarter, its new flagship fund raised just $2.2bn.
At the same time, Carlyle expanded quickly elsewhere, striking a partnership with insurer Fortitude Re that brought in $48bn in assets last quarter.
In an interview with the Financial Times in late July, Lee emphasised Carlyle’s diversification from private equity buyouts, in which the firm first made its name under Conway and Rubenstein.
“The largest share of our fee-earning assets under management is now associated with global credit,” said Lee, brushing off fundraising challenges in Carlyle’s eighth flagship buyout fund as “old news”.
“It’s a very different firm than just a few years back,” he said. “We have been deliberately diversifying our business.”
Conway, who for decades oversaw Carlyle’s private equity investments, said he was “grateful” to Lee for his efforts to “position Carlyle for the future”.
Lee said he was “thankful for the opportunity to build the firm with an incredibly talented and committed team”.