The Carlyle Group Inc. (CG) is a global investment firm that has established itself as a formidable player in the alternative asset management industry. With a history spanning over three decades, Carlyle has evolved into a diversified platform, providing investors access to a wide range of investment strategies across private equity, credit, and investment solutions.
Business Overview and History
Carlyle was founded in 1987 by William E. Conway, Jr., Daniel A. D'Aniello, and David M. Rubenstein, who recognized the potential of the private equity industry. The firm's early focus was on buyout transactions, leveraging its expertise in identifying undervalued companies and driving operational improvements to generate superior returns for its investors.
Over the next decade, Carlyle expanded rapidly into new asset classes and geographies, opening offices around the world. This expansion allowed the firm to establish a truly global presence and capitalize on investment opportunities across various markets.
In the late 1990s and early 2000s, Carlyle faced several challenges that tested its resilience. The firm found itself embroiled in a controversy related to its connections to the Bin Laden family, which temporarily damaged its reputation. Additionally, some of Carlyle's investments, such as its stake in United Defense Industries, faced public scrutiny. Despite these obstacles, Carlyle demonstrated its ability to navigate difficult situations and continued to grow its assets under management.
Throughout its history, Carlyle has been recognized as a pioneer in the alternative asset management industry. The firm has made numerous high-profile investments and has been involved in some of the largest private equity transactions, solidifying its position as a leader in the field.
In 2020, Carlyle underwent a significant transformation by converting from a Delaware limited partnership to a Delaware corporation, becoming The Carlyle Group Inc. This conversion, along with other strategic initiatives, helped position the firm for continued growth and expansion.
Financial Performance and Metrics Financials
Carlyle's financial performance has been impressive, with the firm reporting strong growth in assets under management (AUM) and fee-related earnings (FRE) over the past few years. As of September 30, 2024, the company's AUM stood at $447 billion, up 17% from the prior year, while its fee-earning AUM reached $314 billion, growing at a 15% compound annual growth rate over the last five years.
The firm's FRE, a key metric that measures the stability and predictability of its earnings, has also been on an upward trajectory. In the third quarter of 2024, Carlyle reported a record FRE of $278 million, representing a 35% increase from the same period in the previous year. This performance puts the company on track to achieve its 2024 FRE target of $1.1 billion, a testament to the firm's operational efficiency and its ability to generate consistent cash flows.
Carlyle's net accrued performance revenues, which reflect the unrealized gains in its carry funds, stood at $2.8 billion as of September 30, 2024. This figure, equivalent to nearly $8 per share in future earnings, highlights the firm's strong investment track record and its potential for future performance fee realizations.
For the most recent fiscal year (2023), Carlyle reported revenue of $1.32 billion, with a net loss of $608.4 million. Operating cash flow for the year was $204.9 million, while free cash flow stood at $138.3 million. However, the company's financial performance improved significantly in the third quarter of 2024, with revenue increasing by 268% year-over-year to $2.64 billion and net income rising by 455% to $615.7 million. Operating cash flow for the quarter was $406.7 million, with free cash flow of $366.7 million.
Liquidity
Carlyle maintains a strong liquidity position, which allows the firm to navigate market volatility and capitalize on investment opportunities. The company's balance sheet remains robust, with significant cash reserves and available credit facilities to support its operations and strategic initiatives.
As of the third quarter of 2024, Carlyle reported $1.38 billion in cash and cash equivalents. The company's debt-to-equity ratio stood at 1.78, while its current ratio and quick ratio were both 3.56. Additionally, Carlyle has access to a $1 billion senior revolving credit facility, which remained undrawn as of the third quarter of 2024, providing further financial flexibility.
Diversification and Growth Strategies
Carlyle's diversification strategy has been a key driver of its success. The firm operates through three reportable business segments: Global Private Equity, Global Credit, and Global Investment Solutions.
The Global Private Equity segment, which advises Carlyle's buyout, middle market and growth capital funds, U.S. and internationally focused real estate funds, and infrastructure and natural resources funds, had $169.2 billion in total AUM and $103.5 billion in fee-earning AUM as of September 30, 2024.
The Global Credit segment, which advises funds and vehicles pursuing various investment strategies including loans and structured credit, direct lending, opportunistic credit, distressed credit, aircraft financing and servicing, infrastructure debt, insurance solutions, asset-backed lending, and global capital markets, reported $194.5 billion in total AUM and $159.2 billion in fee-earning AUM.
The Global Investment Solutions segment, which advises global private equity programs and related co-investment and secondary activities, had $83.7 billion in total AUM and $50.9 billion in fee-earning AUM.
Carlyle's emphasis on expanding its credit and investment solutions offerings has been instrumental in diversifying its revenue streams. In the credit segment, the firm has been actively building its capabilities in areas such as direct lending, opportunistic credit, and asset-backed finance. The firm's insurance solutions business, anchored by its strategic partnership with Fortitude, has also been a source of growing momentum, with Fortitude's general account assets increasing by nearly 70% in the past year.
Carlyle's investment solutions segment has also been a focus of growth. The firm's recently launched secondaries wealth solution, CAPM, has seen strong early traction, highlighting the potential for Carlyle to further penetrate the wealth management channel.
Navigating a Shifting Landscape
Carlyle's diversified business model has positioned the firm well to navigate the evolving market landscape. The firm's leadership team has been proactive in adapting its strategies to address the dynamic conditions, including the impact of global events and changing regulatory environments.
For example, Carlyle has been closely monitoring the implications of the recent U.S. presidential election and the potential policy changes under the new administration. The firm has expressed confidence in its ability to capitalize on the improved market sentiment and the stabilization of interest rates, which it believes will drive increased deal activity and more favorable exit environments.
Additionally, Carlyle has been attentive to the shifting regulatory landscape, positioning itself to comply with evolving rules and regulations, such as the implementation of the Pillar Two Global Anti-Base Erosion (GloBE) model rules by the Organization for Economic Co-operation and Development (OECD).
Looking ahead, Carlyle expects a very strong fourth quarter of capital raising to close out 2024. The firm anticipates further growth in capital markets fees over time as they continue to expand their capabilities in this area. Carlyle is also on track to activate fees on their latest Japan buyout fund in Q4 2024, and on their new U.S. opportunistic real estate fund in 2025.
Conclusion
The Carlyle Group Inc. (CG) has established itself as a leading global investment firm, with a diversified platform that spans private equity, credit, and investment solutions. The company's strong financial performance, driven by its focus on operational efficiency and consistent cash flow generation, has enabled it to navigate the changing market environment and capitalize on emerging opportunities.
As Carlyle continues to expand its capabilities and diversify its revenue streams, the firm remains well-positioned to deliver long-term value for its shareholders. By adapting its strategies to address evolving market dynamics and regulatory changes, Carlyle demonstrates its resilience and its commitment to maintaining its position as a premier alternative asset manager.
The firm's robust performance across its business lines, evidenced by significant year-over-year growth in revenue and net income, underscores the strength of its diversified investment platform. With a clear focus on achieving its financial targets and driving higher earnings for shareholders, Carlyle is poised for continued success in the dynamic alternative asset management industry.