Carlyle Group is establishing a collateralized bond obligation fund and has hired a former Merrill Lynch & Co. executive to run it.
The fund, which will have from $1 billion to $2 billion of seed capital, will be up and running next month, Carlyle executives said. It will make its first bond investments later this year, they said.
The fund will be run by Jack Mann, who resigned as co-head of global high-yield capital markets at Merrill Lynch last week. Mr. Mann had been with Merrill for 14 years.
Carlyle, a Washington leveraged buyout firm, has branched out into many new types of funds in recent years. It has launched a venture capital fund and a fund to invest in European buyouts.
"We started to receive a lot of queries for things other than domestic buyouts," said Jim Griffin, a Carlyle vice president.
But this will be the firm's first collateralized bond obligation fund, a type of fund that backs investment-grade bonds with a pool of junk bonds.
The popularity of these funds has skyrocketed in recent years because they give junk bond investors a way to diversify their portfolios.
"This is a classic domain that many of the buyout shops want to play in," said Sam DeRosa-Farag, managing director in charge of global high- yield research at Donaldson, Lufkin & Jenrette.
Some other buyout shops have entered this business over the last two years, ever since the structure of the funds was changed to include private equity.
Before 1996 the funds included all cash-flow instruments. But many newer funds have given portfolio managers more leeway.
The exact relationship between Carlyle Group's fund and its other activities has not been decided.
"Whether they will provide financing into our acquisitions ... has to be taken under review," Mr. Griffin said.
He said the Washington firm plans to open a New York office soon. Mr. Mann and his high-yield group, which is expected to number about half a dozen, will be based there.
Carlyle Group's global telecommunications buyout group will also be relocated to the new office. One reason to open the New York office is to attract more talent from Wall Street, Mr. Griffin said.
At Merrill, Mr. Mann will be succeeded by John Hagerty, head of U.S. high-yield capital markets, a spokesman said.