HONG KONG - The Carlyle Group's back-to-back sell-downs worth $2.6 billion of China Pacific Insurance (Group) Co, has put the US buyout fund on course for its best exit ever.

As far as private equity deals go, the China Pacific transaction looks set to be not just Carlyle's biggest single profit on an acquisition, but among the biggest in the industry.

Should China Pacific's stock remain steady, and Carlyle eventually sells out of its stake as expected, the private equity firm will have made a profit of around $4.4 billion, or six times its original investment.

The profitable exit from China Pacific, while big, is unlikely to change much in terms of the industry's strategy. Asia is still a tough place for the industry to do business, given restrictions on lending and lingering aversion to foreign investors.

"The relatively higher growth rates in Asia certainly gives potential for higher returns versus the mature markets," said Thomas Britt, a partner with law firm Debeoise & Plimpton LLP. "But private equity community is pretty careful out here. I don't think people will just go out and make aggressive investments," he added.

Even for developed markets, it is rare for private equity funds to clock such huge gains. Even better for Carlyle though, is that it appears to be a text book private equity transaction in one of the toughest markets to operate.

Carlyle bought into a struggling company, influenced change without much apparent trouble, held on for five years, and sold out through the public markets.

"Carlyle are not insurance experts, but they are smart managers. They were willing to take the big risk, when some others were not," said Arjan van Veen, an insurance analyst with Credit Suisse. "This is what private equity business is all about and I would have liked to be in their shoes."

Carlyle, like all big buyout firms, does not boast a perfect record, and has had its share of controversial and ugly deals. But this China purchase seems destined for the record books.

The company declined to comment for this article.

While there are a dozen or so large private equity exits on record since the credit boom, many involve several buyers and mounds of debt and few involve such a large sum of money coming back to a firm in raw profit.

Carlyle's exit of HCR Manorcare, on paper, is listed at $6.1 billion, but that involves less gain, and more debt paydown. Carlyle didn't borrow money for the China Pacific deal.

Other large exits in the record books may look good on paper, but they were massive headaches for the firms, and may have, in the end, been more trouble than they were worth.

Since late December, Carlyle has raised $2.6 billion by selling 7.3 percent stake China Pacific Insurance -- the nation's third-biggest insurer -- after ploughing about $800 million between 2005-07 for a 17 percent stake.

Carlyle's remaining 8.1 percent stake in China Pacific is worth around $2.6 billion, taking its potential exit size to $5.2 billion.

Carlyle has reassured the market that it will not be selling any more shares of China Pacific for the next six months following the two sell downs.

Big deals

Globally, TPG Capital and GS Capital Partner's $28.1 billion sale of Alltel to Verizon Communications in 2008 was the biggest ever PE-based exit, according to market research firm Preqin.

That transaction, however, involved a massive amount of debt and a profit, for the firms, of around $1 billion, according to reports at the time.

Private equity exits in Asia has also been gathering pace in recent years. Just last year, TPG sold $2.4 billion worth of its Shenzhen Development Bank stake and Lone Star Funds recently agreed to sell a $4.1 billion controlling sale of Korea Exchange Bank .

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In Asia, growth capital has been the biggest opportunity for private equity funds, which involves zero to little debt financing, mid-to minor stakes, but bit potential gains.

China Pacific was a proprietary deal for Carlyle, led by X.D. Yang, a Hong Kong-based managing director for Carlyle's Asia buyout fund, sources previously told Reuters.

Carlyle worked its way into China Pacific in 2005 when the State-backed insurance company was on the verge of collapse, a source familiar with the matter told Reuters. Carlyle had been studying the company for at least 18 months before injecting capital in its life insurance business, the source added.

In late 2005, Carlyle and US firm Prudential Financial Inc jointly invested $410 million for a near-25 percent stake in the life insurance unit of China Pacific Group, beating rival bidders including American International Group, Citigroup and Singapore state investor Temasek.

Then in 2007, Carlyle converted its shareholding.

"That was a lot to sink into an unlisted company without knowing when you will be able to get out," Credit Suisse's Arjan van Veen said.

Carlyle quickly overhauled the management, introduced performance-based incentives, changed the product mix relying less on guaranteed products, restructured the asset management business to help generate more returns.

The turnaround was quick and within in two years the company was ready for a Shanghai listing.