Help wanted: Carlyle CEO. Team players preferred.

One thing to start: US prosecutors have charged Caroline Ellison, the former chief executive of trading affiliate Alameda Research, and Gary Wang, a co-founder of FTX, in connection with their roles in the alleged fraud that contributed to the collapse of Sam Bankman-Fried’s cryptocurrency empire. Both pleaded guilty, the US attorney for the Southern District of New York announced late on Wednesday.

In today’s newsletter:

Running Carlyle: what it takes

In the four months since Carlyle’s chief executive Kewsong Lee abruptly left the company, the same issue keeps cropping up.

David Rubenstein, Bill Conway and Daniel D’Aniello, the three billionaires who founded the company in 1987, are still involved in the business.

And that makes potential candidates wary about taking the top job, DD’s Antoine Gara and Kaye Wiggins and the FT’s Harriet Agnew report.

It’s one of the bigger roles on Wall Street, offering a powerful perch overseeing nearly $400bn in assets at a group that developed a reputation for its close connections with Washington’s elite.

Still, outsiders are wary that the presence of the trio would limit their freedom to manoeuvre. Some even want the founders to leave Carlyle’s board. Deteriorating relations with the three were behind Lee’s unexpected departure: the relations grew so icy the founders refused even to discuss his request for a $300mn share-based pay package.

It gets to the heart of the problem at Carlyle, one of the original pioneers of the private equity business, which has ceded its dominant position to larger rivals Apollo, Blackstone and KKR. The co-founders do not want to run the company day-to-day anymore — but they seem unwilling to relinquish control. It’s a difficult position for an outside corporate leader to step into.

Carlyle has explored putting itself up for sale as one way to avoid a protracted succession problem. But even there, the situation is putting people off.

Executives at BlackRock had early conversations about whether to pursue a takeover of the private equity group — a deal that would give BlackRock a real foothold in private markets — but decided against it, according to people with knowledge of the talks. One said the management issues at Carlyle looked like too much to take on.

Lee, a former Warburg Pincus and McKinsey executive, had been making mass changes inside Carlyle, consolidating many subscale divisions while pushing quickly into credit, real estate and insurance-based investments. Disagreements about how much autonomy Lee would have, not his request for a $300mn share based pay package, was behind the final rupture.

It’s now a perilous moment for a private equity group to be struggling with the big questions about its future direction.

After a decade of near-perfect conditions, rising rates and falling valuations are making life harder for buyout groups. Carlyle has said it expects to miss its target to raise a $22bn private equity fund by March.

Carlyle has discussed trying to attract some of the biggest names in US finance, including Goldman Sachs president John Waldron and Nasdaq chief executive Adena Friedman, to the top job. But neither is pursuing it, people with knowledge of the situation said. (It’s not clear whether they were among those who had concerns about the founders’ involvement.)

Mark Jenkins, Carlyle’s head of credit, and Peter Clare, a longtime partner who chairs its private equity business, joined Conway on a recent earnings call and are seen as the most likely internal candidates.

The big question, perhaps, isn’t so much about who will take the role, but what they’ll demand in return.

Twitter’s ‘un-due diligence-able’ debt

Wall Street’s buyout machine is gasping for air. But Elon Musk‘s latest tweets may have only pushed it further underwater.

The travails of his highly leveraged social media company have been the talk of the Street even before Morgan Stanley, Bank of America and Barclays agreed to write multibillion-dollar cheques to fund the takeover of Twitter.

As the presumed soon-to-be-former Twitter CEO detailed this week, that debt is helping tighten a noose around the social media platform, which now must shoulder an interest burden of about $1.5bn a year on top of its large tech budget.

“We have an emergency fire drill on our hands . . . This company is like you’re in a plane that is headed towards the ground at high speed with the engines on fire and the controls don’t work,” Musk said. “That’s the reason for my actions that may seem sometimes spurious.”

The passengers on that plane include his financiers, who are trying everything to limit their losses on the roughly $13bn they lent him. The deal is one of their biggest hung financings since the financial crisis, and they’re having little luck finding willing investors who would traditionally step into their shoes.

As one investor told DD’s Eric Platt, the debt at this moment is “un-due diligence-able”.

It all stands in sharp contrast to the other hung deals still gumming up bank balance sheets. Banks over the past few weeks have been aggressively selling down debt tied to the Citrix and Nielsen buyouts, which they had to fund themselves earlier this year.

Banks have only a few days left to clean up their balance sheets before their year-end financials are finalised, figures that will ultimately feed into annual stress tests.

The Citrix and Nielsen debt changing hands is nonetheless forcing banks to realise losses, sources added. But after a dismal bonus season, pressure is building internally for leveraged finance desks to wash their hands of the paper so they can get on writing new loans.

Until then they will keep losing out on deals to direct lenders. The latest example: a $2.3bn loan funding private equity group Advent International’s takeover of satellite operator Maxar Technologies was led by Sixth Street Partners, Blackstone and Goldman Sachs Asset Management. A competing proposal from traditional banks was edged out.

Bankers concede that even while they have been marketing that they “are open for business” and ready to offer new loans, the reality is their hands are tied. Twitter’s debt, after all, is one of their big constraints.

Mat Ishbia’s full-court press

Few people outside of the mortgage business had heard of Mat Ishbia until yesterday, when it emerged that he had agreed a deal to acquire the Phoenix Suns and Mercury basketball teams at a valuation of $4bn.

But the DD team has been familiar with Ishbia for some time now. In late 2020, the 42-year-old struck a deal with a special purpose acquisition company backed by private equity billionaire Alec Gores to take his mortgage business public at a $16bn valuation.

United Wholesale Mortgages received hundreds of millions of dollars in cash and the Ishbia family retained a 94 per cent stake in the business. That made Ishbia into a billionaire almost overnight.

While the mortgage business might seem a bit boring, Ishbia keeps things entertaining. He has an intense rivalry with Dan Gilbert, the co-founder of Rocket Mortgages and a fellow alumnus of his alma mater, Michigan State University.

There’s no love lost between the two men. Last year, Ishbia forced brokers to choose between doing business with UWM or Rocket, something he claims has been enormously beneficial to his company.

Some have seen his decision to buy the National Basketball Association franchise — at a record price — as another dig at his local rival. Gilbert is the owner of the Cleveland Cavaliers, another NBA franchise.

Ishbia recently celebrated taking Rocket’s top spot as America’s largest mortgage lender by hosting a huge party for his employees with a performance from rapper Ludacris. Previous events have featured the electronic dance music duo The Chainsmokers.

No doubt, Ishbia will be celebrating his latest feat. But before he gets too carried away, it’s worth remembering that UWM shares are down more than 60 per cent since the company went public and its valuation is down to less than $6bn.

Job moves

BNP Paribas made a number of changes across its global dealmaking team, according to an internal memo obtained by DD:

• Managing director John Bigham will succeed Simon Gates as head of UK coverage following Simon’s relocation to the US as head of US corporate banking

• Head of coverage in South Africa Kieran Fahy will move to London to become head of UK corporate coverage and transaction banking.

• Andrew McNaught has been appointed chair of UK Advisory and Kirshlen Moodley has been promoted to take his place as head of UK Advisory.

Buyout firm Vista Equity Partners has promoted five people to managing director.

Smart reads

Gilt-y as charged Pension funds’ so-called liability-driven investment strategies need a rethink, this FT Big Read explains.

M&A overload A consolidation wave has been making its way through asset management. That could be bad news for State Street, the firm’s outgoing chief Cyrus Taraporevala tells the FT, who believes “trying to be all things to all people” is misguided.

Paradise, found For day-traders, Puerto Rico has it all: sunshine, sandy beaches, generous tax breaks — and now a communal workspace for those missing the chaos and camaraderie of the typical Wall Street trading floor, Bloomberg reports.

News round-up

Shearman and Hogan Lovells issue statements as merger rumours mount (The Lawyer)

Chief witness in Wirecard trial denies deleting data before talking to police (FT)

Aircraft lessor SMBC completes $6.7bn purchase of rival Goshawk (FT)

Italy sets course for ITA Airways stake sale, likely to Lufthansa (Reuters)

Citadel, other hedge-fund winners in 2022 to return some profits to clients (Wall Street Journal)

Tech giants ditch office space in London and Europe (FT)

Octopus receives £4.5bn of state support to back Bulb takeover (FT)

Exam cheating at audit firms uncovered by UK accounting regulator (FT)