Carlyle Group Inc Chief Executive Kewsong Lee has abruptly stepped down months before the scheduled end of his five-year contract, raising questions about the succession plan at the private equity firm.

Washington, D.C.-based Carlyle said it mutually agreed with Lee not to renew his contract, which was due to expire at the end of 2022, according to a statement on Sunday.

The firm, which reported its second quarter earnings in July without flagging potential leadership changes, said Lee had also stepped down as a board member.

Carlyle co-founder Bill Conway, who had been instrumental in Lee's ascendance at the firm, will serve as interim CEO while the search for a new candidate takes place, the company said. Its stock was down 6% at $35.24 per share in early morning trading on Monday, underperforming the broader market and other listed private equity firms.

"The news is a surprise and on some obvious level an overhang on the stock. That said, we doubt that there is anything substantively wrong with the company," Oppenheimer analyst Chris Kotowski said in a note to investors on Monday.

Lee, who turns 57 this week, declined to comment via a spokesperson. His abrupt departure comes more than two years after taking the helm as Carlyle's sole CEO in 2020.

According to a person familiar with the matter, Lee's exit was triggered by negotiations on a new contract over which he clashed with Carlyle's board. Lee stepped down after neither side could come to an agreement, the sources added, requesting anonymity as these discussions were confidential.

"It is, in our mind, most likely a case of the empire striking back," Kotowski said. "All the other private equity managers that we cover have had internal, homegrown talent lead their transition from the founders, and that is probably not an accident. It is a business where personalities matter."

CEO SEARCH

In a memo to Carlyle's global staff on Sunday, Conway said the search for a new CEO will be undertaken "with a sense of urgency" and the firm must continue to execute its business plan. Lee had launched that plan last year, aiming to double its distributable earnings and raise more $130 billion from investors over the next four years.

Conway also said in the memo that the firm had set up a CEO office consisting of key senior leaders, with whom he would work closely. The senior leaders include Carlyle's Chief Operating Officer Chris Finn, who has delayed his previously announced end-2022 retirement to help with the transition.

A Carlyle spokesperson declined to comment on the memo. Conway declined to comment further beyond the announcement.

Lee, a 21-year veteran of rival firm Warburg Pincus, joined Carlyle in 2013 as a deputy to Conway, who groomed him as a potential successor. He was named co-CEO in 2017, alongside Glenn Youngkin, who later left the firm in 2020 to launch a successful campaign to be governor of Virginia. Lee's profile page is no longer available on Carlyle's website.

Lee's departure comes as private equity firms face a challenging macroeconomic and investment environment fraught with geopolitical risks and sharply rising interest rates.

Carlyle's share price growth has, however, lagged peers in the last five years. Blackstone's shares have shot up more than three times since August 2017 while Carlyle's has grown about 80%.

Carlyle has said it is raising an eighth U.S. buyout fund and a fifth Europe technology fund. The firm is also exploring a new $8.5 billion Asia-focused buyout fund that is aiming for its first close in the next couple months, said a person with knowledge of the fundraising.

Carlyle also plans to kick off fundraising for a new pan-Europe buyout fund in the coming months, said a second person with knowledge of the situation.

Carlyle declined to comment on fundraising plans. It said in the second-quarter earnings report it had raised $19 billion in total this year. The firm ended the second quarter with $376 billion in total assets under management.