US private equity firm The Carlyle Group has agreed to acquire a 55% stake in Claren Road, a long-short credit hedge fund with $4.5bn in assets under management, in exchange for cash, an ownership interest in Carlyle and performance-based contingent payments.

Claren Road founders will reinvest substantially all of the initial cash proceeds from the transaction back into Claren Road funds. Terms of the transaction, which is expected to close by year end, were not disclosed.

Citigroup, which seeded Claren Road in 2006, and the Goldman Sachs Petershill Fund, which bought a minority stake in Claren Road in 2008, will both monetize their economic interests in Claren Road as a part of this transaction.

Carlyle managing director and head of Global Credit Alternatives business Mitch Petrick said this new partnership is an important addition to Carlyle’s expanding stable of credit product offerings. Claren Road’s long-short approach to investing in the credit markets globally is consistent with Carlyle’s views on the optimal strategy to exploit investment opportunities in credit over the long term.

Claren Road CEO and co-founder Brian Riano said Claren Road believes this partnership should benefit Claren Road by accessing Carlyle’s global network and industry expertise as well as its strong regulatory, compliance, legal and investor services capabilities.

"We thank Citigroup and the Goldman Sachs Petershill Fund for being vital partners of our firm over the past few years," Riano added.