Carlyle's investment performance has a lot do with the health of its favorite sectors: defense, aerospace, and health care. Growth in those sectors has been driven by big factors (like government spending) out of Carlyle's control for much of the firm's existence. Those fire hoses are going to run dry in a couple of years. U.S. defense spending will decline as our land wars in the Middle East and Central Asia wind down. Aerospace is on the ropes again thanks to high oil prices and perennial bankruptcies (here goes AMR through Chapter 11). Health care spending will be whittled down by some combination of government-imposed cost controls and a probable hyperinflation attempt by the Fed.
More importantly from my perspective is that Carlyle is one of the private equity firms that wouldn't hire me years ago went I sent them my resume. I thought at the time that my knowledge of finance and military affairs would have made me a shoe-in for one of their analyst jobs. It turns out that my expertise was less relevant than my lack of a pedigree. The one Carlyle employee I've ever met was a junior analyst with a bachelor's degree from Notre Dame, my alma mater. His response to my inquiry for an informational interview was to brush me off. The dude was two years younger than me and had no MBA (I had just finished mine) and considered me to be a loser. That told me more about what Carlyle values in their employees than any formal interview would have revealed.
My pedigree and connections didn't meet Carlyle's expectations. My industry knowledge and academic credentials were irrelevant. Carlyle built a successful business model on inside connections to big shots who understood where government spending goes. Now that government spending has peaked in the face of an inevitable decline, Carlyle's performance is starting to disappoint Mr. Market. This lackluster IPO is the first sign.
Full disclosure: No position in CG or any of its portfolio companies at this time. No position in AMR either.