The Carlyle Group Inc. (CG): A Diversified Alternative Asset Manager Poised for Growth

Published on September 24, 2024 | Ticker: CG

The Carlyle Group Inc. (CG) is a leading global investment firm that deploys private capital across its business, operating through three reportable segments: Global Private Equity, Global Credit, and Global Investment Solutions. The company's diversified platform and strong brand recognition have positioned it well to capitalize on the improving macroeconomic environment and growing demand for alternative investments.

Financial Performance Highlights

Carlyle reported annual net income of -$608.4 million, annual revenue of $2,643.1 million, annual operating cash flow of $941.6 million, and annual free cash flow of $875.0 million in its latest fiscal year. In the first quarter of 2024, the company generated record quarterly Fee Related Earnings (FRE) of $266 million, up nearly 40% year-over-year, and a record FRE margin of 47%, more than 33% higher than the prior year period.

The company's Distributable Earnings (DE), a key performance metric, reached $431 million in the first quarter of 2024, or $1.01 per share, the best quarterly DE result since 2022. Carlyle's total assets under management (AUM) stood at $425 billion as of March 31, 2024, up 12% year-over-year.

Fundraising and Capital Deployment

Carlyle raised $5.3 billion of new capital in the first quarter of 2024, in line with its expectations, and remains confident in achieving its target of $40 billion of inflows for the full year. The company has seen strong momentum in its Global Investment Solutions segment, raising $2.3 billion in the quarter and nearly $14 billion over the last 12 months, driven by investor demand for its secondaries and co-investment strategies.

In Global Credit, Carlyle priced 7 new CLOs, including 3 new issue CLOs, during the first quarter, leveraging its leading CLO platform. The company also saw strong inflows into its global wealth product, CTAC, and continued to raise capital for its asset-backed finance strategy.

While the fundraising environment remains somewhat challenging in Global Private Equity, Carlyle sees pockets of strength, such as in its real estate business in Japan. The company has $76 billion in dry powder ready to be deployed across its global franchise.

Operational Efficiency and Strategic Initiatives

Carlyle's focus on operational excellence and business model optimization has enabled it to invest for growth while delivering strong financial results. The company's updated compensation strategy, effective December 31, 2023, is expected to increase the portion of performance allocations and incentive fees paid as compensation, leading to a decrease in cash-based compensation and benefits.

In its Global Wealth business, Carlyle has raised nearly $50 billion of wealth assets since inception, leveraging its global scale and brand to provide efficient access to alternative markets alongside its high-quality investment funds. The company continues to expand its wealth distribution partnerships, adding new partners in the near term.

Within Global Credit, Carlyle sees opportunities to further scale its asset-backed finance offering, as market participants increasingly look to partner with firms like Carlyle to address their capital solutions needs. The company has mobilized and scaled its credit strategic solutions team to capture this growing opportunity, which has grown to more than $7 billion in assets.

In Global Investment Solutions, Carlyle continues to see strong momentum, helping it gain traction in both the institutional and wealth channels, particularly with its secondary-focused CAPM fund.

Liquidity

Carlyle maintains a strong liquidity position, with $1.3 billion in cash and cash equivalents as of March 31, 2024. The company also has access to a $1.0 billion senior revolving credit facility, which was undrawn as of the end of the first quarter.

Carlyle's investments, excluding performance allocations, totaled $3.9 billion as of March 31, 2024, with $3.0 billion attributable to the company. Of this, $2.3 billion was invested in Carlyle's own funds, $1.2 billion in CLOs, and $0.4 billion in other investments.

The company's net accrued performance revenues stood at $2.2 billion, or $6 per share, as of March 31, 2024, providing a substantial source of future earnings. Carlyle has also been an active repurchaser of its common stock, with $1.3 billion remaining under its share repurchase authorization as of the end of the first quarter.

Risks and Challenges

Carlyle operates in a competitive alternative asset management industry, which exposes it to various risks, including market volatility, fundraising challenges, and regulatory changes. The company's diversified platform, strong brand, and focus on operational efficiency, however, position it well to navigate these challenges and capitalize on the improving macroeconomic environment.

Outlook

Management remains confident in the company's ability to achieve its 2024 financial targets, including targeting FRE of $1.1 billion, FRE margins of 40% to 50%, and $40 billion in capital inflows for the year. Carlyle's pipeline of investment opportunities, coupled with its strong liquidity and capital position, suggest the company is poised for continued growth and value creation for its shareholders.

Conclusion

Carlyle's diversified alternative asset management platform, operational excellence, and strategic initiatives position the company for success in the current market environment. With a strong financial profile, robust fundraising capabilities, and a focus on expanding its global wealth and credit businesses, Carlyle appears well-positioned to deliver sustainable growth and shareholder value in the years ahead.

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