Wednesday, October 3, 2012

Is the Carlyle Group Expecting Major Price Inflation?

The Carlyle Group is one of the most connected firms in Washington D.C.  The firm has at various times counted as partners or advisers such insiders as former President George H.W. Bush, former Secretary of State and Treasury Secretary James Baker,  former United States Secretary of Defense Frank C. Carlucci ,  former Chairman of the U.S. Securities and Exchange Commission Arthur Levitt and former British Prime Minister John Major .

It would be difficult to find a business group with more insider connections. They understand Washington thinking. Thus, it is noteworthy that Carlyle just bought into a major commodities firm. Could Carlyle be expecting accelerating price inflation?

The Carlyle Group (NASDAQ: CG) and Vermillion Asset Management announced this morning in a statement that Carlyle effective October 1, 2012, it will own a 55% stake in Vermillion, a New York-based commodities investment manager with approximately $2.2 billion of assets under management.

You don't buy into a commodities firm unless you are expecting higher prices. Chris Nygaard, Co-Managing Partner and Co-Founder of Vermillion, in the statement indicated as much:
Global, secular trends are fundamentally reshaping the supply and demand balance for many commodities worldwide. Our partnership with Carlyle will help us maximize these opportunities to deliver more alpha to our investors.
Nygaard is probably thinking about changes in supply and changes in demand from emerging countries, but Carlyle is likely more tuned in to the thinking of the Fed and the Treasury and what the prospects are for price inflation as a result of money printing. The Vermillion purchase indicates that Carlyle believes it is going to be significant.


  1. Carlyle's purchase of Vermillion may be an inflation bet or it may be a play to reduce volatility at the firm level with the inclusion of a non-correlated asset manager. Vermillion is a relative value player and while inflationary pressures may create more value plays, some of the most profitable trades tend to arise when one asset gains relative to others and then retreats back to the norm.

  2. Or they could be expecting more inflation, which would be a major benefit to a commodities value-player.

  3. Carlyle's press release stressed Vermillion's ability to physically store commodities.