* Carlyle bought 55 percent stake in Vermillion
* Paid with cash and shares in itself
* Deal represents major expansion within alternative assets
NEW YORK, Oct 2 (Reuters) - Carlyle Group LP said on Tuesday it would buy a majority stake in a commodities-trading hedge fund manager, its biggest leap yet in an expansion that has seen it diversify from private equity into other alternative asset classes.
Carlyle, which has $156 billion of assets under management, said it bought a 55 percent stake in Vermillion Asset Management LLC, a New York-based commodities investment manager with approximately $2.2 billion of assets under management.
Like its publicly listed peers, such as Blackstone Group LP
and KKR & Co LP , Carlyle has gone beyond buying and selling companies to managing other alternative assets including real estate, hedge funds, credit and infrastructure.
But Carlyle is the only major alternative asset manager to now offer commodities as an investment offering. Earlier this year, Fortress Investment Group LLC terminated its commodities fund after poor performance and heavy withdrawals.
"For many years Carlyle has successfully invested in a variety of energy, agriculture and infrastructure companies," Mitch Petrick, Carlyle's head of global market strategies, said in a statement.
"Vermillion employs a liquid, relative-value, low volatility approach to trading both physical commodities and their derivatives to produce positive, uncorrelated returns," he added.
Vermillion trades agricultural products, metals, energy and staples such as coffee, sugar and cocoa beans. Carlyle said it acquired a stake in Vermillion in exchange for cash, an ownership interest in Carlyle and performance-based contingent payments payable over five and a quarter years.
If Vermillion achieves certain performance targets, Carlyle has agreed to issue to the Vermillion principals shares in Carlyle representing up to less than 0.5 percent of all the shares outstanding. Vermillion's principals reinvested cash proceeds from the transaction into Vermillion's funds, Carlyle said.
Vermillion was set up in 2005 by Drew Gilbert and Chris Nygaard. They will continue in their current roles as co-chief investment officers, managing investments and the day-to-day operations of Vermillion, Carlyle said.
(Reporting by Greg Roumeliotis; Editing by John Mair and Ed Davies)
Keywords: CARLYLE VERMILLION/COMMODITIES