Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Carlyle Group Inc (CG, Financial) delivered record quarterly fee-related earnings, up 36% compared to the third quarter of 2023, with FRE margins reaching 47%.
- The company raised $9 billion of new capital in the quarter and $43 billion over the past 12 months, indicating strong fundraising capabilities.
- The underlying investment portfolio is performing well, with significant appreciation in corporate private equity funds, contributing to a nearly 30% increase in net accrued performance revenues.
- The Carlyle Group Inc (CG) is seeing strong momentum in its Global Wealth platform, with record $1.8 billion of wealth inflows this quarter, up 70% year over year.
- The company has made strategic moves to enhance its Asset Backed Finance capabilities, identifying differentiated partnerships and achieving record leverage loan and CLO issuance in 2024.
Negative Points
- Despite strong performance, the net IRR for certain buyout funds remains low, with CP.7 at 8% and CP.5 falling to 4%, indicating potential headwinds in buyout performance.
- The macroeconomic environment, including potential policy changes from the Trump administration, presents uncertainties that could impact market activity and regulatory conditions.
- There are concerns about the impact of tariffs and other aggressive policy measures on global trade and deployment outside the US, which could affect The Carlyle Group Inc (CG)'s operations.
- The company's stock-based compensation is currently elevated due to accounting treatment, which may impact financial metrics until it trends down to more normalized levels in 2025.
- Management fee growth in the private equity business is facing headwinds, particularly in corporate private equity, despite strong performance in other segments.
Q & A Highlights
Q: How do you think the Trump administration could impact Carlyle's activity, both on a macro level and in terms of regulatory items?
A: Harvey Schwartz, CEO, noted that the election certainty has removed a significant risk factor for the market, which should lead to more M&A activity. He emphasized that the stability of interest rates and the election outcome are powerful catalysts for markets and Carlyle's business. John Redett, CFO, added that the removal of election uncertainty elevates confidence levels, which is beneficial for capital markets and M&A.
Q: Can you discuss the performance metrics in your buyout funds and how you see them developing in the current environment?
A: John Redett, CFO, highlighted strong improvement in performance within Carlyle's corporate private equity business, particularly in the U.S. and Asia. He noted that the appreciation is driven by operational improvements such as EBITDA growth and margin expansion. Redett expressed confidence in the trajectory of the business and its potential for growth.
Q: What is your outlook for fundraising activity in 2025, particularly in the credit side?
A: Harvey Schwartz, CEO, expressed optimism about the credit markets, noting significant momentum across strategic and opportunistic credit. He mentioned that the private investment grade market continues to grow, and Carlyle is well-positioned due to its partnership with Fortitude and other insurance capabilities.
Q: How do you plan to deploy excess capital from net accrued performance fees?
A: John Redett, CFO, stated that Carlyle focuses on capital allocation where they can get the best return, prioritizing organic growth and share buybacks. He mentioned that while they are open to inorganic opportunities, the current focus is on investing in the business for organic growth and continuing share repurchases.
Q: Can you provide an update on the Asset Based Finance business and its growth potential?
A: John Redett, CFO, described Asset Based Finance as an enormous opportunity for Carlyle, noting that the business has grown to roughly $7 billion in AUM. He highlighted a strong pipeline and expects continued growth through a mix of portfolio purchases and flow arrangements, emphasizing the business's significant potential.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
