US private equity group Carlyle is preparing to raise up to €5bn ($6.3bn) for its third European buyout fund, which will be nearly three times larger than the one it closed in 2003.

This will take its planned fundraising in all alternative asset classes to more than $10bn (€7.9bn) in the next year and demonstrates the dominance of a few alternative investment firms capable of raising large funds. If combined with its other regional funds raised in the past 12 months, the European fund would put Carlyle ahead of Blackstone and Texas Pacific Group's global buyout funds raised recently. Carlyle has raised more than $17bn for its buyout funds, including $5bn for its regional Asian funds and $7.9bn for the US market, in the past year. It is understood to be trying to raise $250m for Mexican buyouts and $750m for its third venture capital fund as well as the European fund. This compares with the $15.5bn Blackstone raised for its global fund this summer, Texas Pacific Group's $15bn fund and Kohlberg Kravis Roberts' next buyout fund, expected to close soon at about $16.5bn. Carlyle Europe Partners III has told investors it wants €3bn but sources and investors close to the firm said €5bn was the expected target, considering the good performance of its second fund, which was 70% invested. Carlyle closed its second European fund at €1.8bn in 2003, which was nearly double the €1bn it raised in 1998 for its first European fund, it said in its annual review published last year. A private equity investor said firms were trying to raise $125bn in large buyout funds over the next year, compared with $65bn in their last fundraising cycle. Carlyle was the first US private equity firm to base a buyout team in Europe rather than bringing in its investment staff to carry out deals. Jean-Pierre Millet, who joined the group from Artal, a French food company, founded the European arm and remains a managing director and head of the regional buyout team. The California Public Employees' Retirement System said Carlyle Europe Partners II had returned 2.1 times its money at a net internal rate of return of 46.3% to the end of March. The second fund included an investment in UK car safety seat maker Britax Childcare for €230m in October, and French tilemaker Terreal, which was acquired for €400m and sold to LBO France for €860m. The group has also sold its 70% stake in Italian aero parts maker Avio at an enterprise valuation of €2.57bn. Carlyle was also part of the continent's second-largest buyout – the €7.8bn public-to-private takeover of Dutch media company VNU – in the spring. The group has expanded into distressed debt, infrastructure, hedge fund and real estate asset classes. It wants to raise $1bn for its first infrastructure fund after hiring Robert Dove from US engineering company Bechtel and Barry Gold, former head of structured finance at Citigroup, this summer. Carlyle has also recruited Ralph Reynolds and Rick Goldsmith, head of global equities proprietary trading and hedge funds respectively, at Deutsche Bank, although its asset-gathering expectations have yet to be disclosed. Carlyle's fifth Realty Partners fund is trying to raise $1.5bn, up from the fourth fund's close at $950m. Carlyle declined to comment.