Release Date: August 05, 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) achieved record assets under management (AUM) of $435 billion, up 13% year over year.
- The company generated record fee-related earnings (FRE) and FRE margins, with first half FRE of $539 million, 35% higher than the first half of 2023.
- Strong fundraising efforts resulted in $18 billion raised year-to-date and $41 billion over the last 12 months, with a target of $40 billion for 2024.
- The Carlyle Group Inc (CG) announced significant transactions, including a $10 billion asset-backed finance deal with Discover Financial Services and the sale of Cogentrix Energy at a valuation of nearly $3 billion.
- The company repurchased $178 million of shares in the second quarter, bringing the total repurchase amount to approximately $330 million for the first half of the year, with $1.1 billion remaining on the share repurchase authorization.
Negative Points
- Market volatility and recent trading days have introduced uncertainty, potentially impacting future performance and sentiment.
- The geopolitical headwinds in Asia, particularly affecting the CAP VI fund, may result in smaller fund sizes compared to predecessors.
- Despite strong performance, the company faces challenges in the competitive block business within the insurance sector, requiring disciplined capital deployment.
- Stock-based compensation expenses remain elevated due to performance stock unit grants, impacting financial results despite a reduction in share count.
- Management fees in Global Private Equity are expected to remain flat, with some vintages of private equity funds anticipated to be smaller than their predecessors.
Q & A Highlights
Highlights of The Carlyle Group Inc (CG) Q2 2024 Earnings Call
Q: The market sentiment and outlook have changed recently. Why do you think the market's perception is that things are going to slow down materially, and how does this affect your capital-raising outlook for PE specifically?
A: Harvey Schwartz, CEO: The recent market volatility feels liquidity-driven and risk sentiment-driven. Our views are based on underlying portfolio performance and economic growth projections, which remain solid. Despite recent market adjustments, our outlook for the balance of the year remains positive, and we expect the Fed to take action if necessary.
Q: Can you elaborate on the $40 billion fundraising target for the year and the key contributors expected in the back half of the year?
A: John Redett, CFO: We feel confident about reaching the $40 billion target, with significant contributions expected from Global Private Equity, Global Credit, and Global Investment Solutions. We have strong momentum in our real estate and credit businesses and expect to launch new infrastructure products later in the year.
Q: What is the outlook for fundraising in CEP VI and CAP VI, and how do you see the current geopolitical headwinds affecting these funds?
A: John Redett, CFO: We expect CAP VI to be smaller than its predecessor due to geopolitical headwinds, but we continue to see attractive opportunities in Asia. Our Asia business remains important, and we are fully committed to it.
Q: Can you provide more color on the transaction advisory fees and how they should evolve in the back half of the year and into 2025?
A: John Redett, CFO: Transaction advisory fees have grown significantly, up 60% year-over-year, benefiting from a more conducive transaction environment. We expect this to be a record year for transaction capital market fees, driven by a strong pipeline of exits and new transactions across the platform.
Q: What is the outlook for deployment in the second half, especially considering the nearly $20 billion of pending fee-earning AUM?
A: John Redett, CFO: We see tremendous transaction activity in the back half across private equity, credit, and solutions. The $20 billion of pending fee-earning AUM, the highest since 2021, is expected to turn on over the coming quarters, contributing to management fees.
Q: Can you discuss the merits of merging your BDCs and the broader direct lending strategy?
A: John Redett, CFO: The merger of our public and private BDCs will provide more scale, making it easier to raise equity capital and benefiting FRE. We will provide more details as the transaction progresses, but it is a positive move for Carlyle.
Q: What is the outlook for management fees within Global Private Equity, given the recent fundraising and dry powder?
A: Harvey Schwartz, CEO: We expect management fees in Global Private Equity to be flattish, with strength in the real estate side mitigating the smaller sizes of some private equity funds. We continue to see growth in other parts of the Global Private Equity business.
Q: Can you provide an update on the progress in the retail channel and the design of your retail-focused PE product?
A: Daniel Harris, Head of Public Market Investor Relations: We have launched CAPM on several platforms and are seeing strong momentum. We are focused on a mix of platform programs and targeted feeder funds. The private equity product is targeted for 2025, complementing our existing offerings.
Q: How should we think about the pacing for the residual $1.1 billion of share repurchase and the strategic M&A outlook?
A: John Redett, CFO: We are active buyers of our stock and will continue to be. If a strategic M&A opportunity arises that makes sense financially and culturally, we would pivot away from stock buybacks to pursue it. Our focus is on allocating capital where it can generate the best returns and growth.
Q: Can you elaborate on the contribution from Fortitude in the quarter and the broader insurance-related initiatives?
A: Harvey Schwartz, CEO: The Fortitude partnership has been fantastic, exemplified by the Discover Financial Services transaction. We see huge opportunities in the insurance sector, particularly in private investment grade. The market has been competitive, but we remain disciplined in capital deployment and see a strong pipeline of transactions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
