Carlyle Group Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights:

• Financial Performance: First quarter results reflect continued momentum. On track to achieve 2024 targets, including FRE of $1.1 billion, margins 40%-50%, and inflows of $40 billion. Record quarterly FRE of $266 million and record FRE margin of 47%.
• Macroeconomic Environment: Improving macroeconomic environment with more available capital from banking system and private credit, tight spreads, stabilized rates/inflation, driving investor confidence and potential for increased deal activity.
• Strategic Areas:
  • Global Wealth: Strong momentum, raised nearly $50 billion of wealth assets since inception; CTAC growing steadily, CAPM picking up momentum, and expected to join additional wealth platforms.
  • Global Credit: Focused on scaling asset-backed finance offering, with credit strategic solutions team managing over $7 billion in assets.
  • Global Investment Solutions: Strong momentum, countercyclical to other parts of the franchise.

Segment Performance:

• Global Wealth: Since inception, has raised nearly $50 billion of wealth assets. Global scale and brand provide competitive advantage in the growing distribution channel. CTAC had a strong quarter, and CAPM saw ramp-up in sales.
• Global Credit: CLO platform is one of the largest in the industry; priced 7 CLOs including 3 new issue CLOs in the quarter. Saw strong inflow activity into CTAC and capital raise for asset-backed finance strategy.
• Global Private Equity: Fundraising environment somewhat challenging, but some pockets of strength like real estate in Japan.
• Solutions: Raised $2.3 billion in the quarter, nearly $14 billion over the last 12 months, with momentum in secondaries and co-investment strategies, and CAPM starting to show momentum.
• Financials: Record quarterly FRE of $266 million (nearly 40% higher than Q1 2023), FRE margin 47% (more than 33% higher than last year). Management fees totaled $516 million, up ~2% y-o-y. G&A expenses $80 million, lower than prior year. Net accrued carry balance $2.2 billion. Assets under management $425 billion, up 12% y-o-y. Repurchased 150 million shares, with remaining share repurchase authorization ~$1.25 billion.

Guidance:

• Targets for 2024 include FRE of $1.1 billion, FRE margins 40%-50%, and inflows of $40 billion.
• Expect pickup in fundraising, deployment, and realization throughout 2024. Raised $5.3 billion in Q1, with expectation of pickup in next few quarters.
• Have $76 billion in dry powder ready to be deployed across global franchise.

Risks:

• Macro environment remains somewhat fragile, with potential for actual results to differ materially from forward-looking statements.
• Elevated CLO default rates in Europe (though credit quality in CLO business still better than European industry averages).

Q: Talk about how you're viewing the FRE trajectory for the balance of 2024, and components including G&A expense.

A: FRE was $266 million in Q1, record. Margin 47%. G&A benefited from lower expense and seasonality, expected to normalize in Q2. FRE margin expected to be mid-40s in next quarters, within 40%-50% target. Management fees expected to accelerate through year due to strong Q4 fundraising and $15 billion pending fee-paying AUM.

Q: Drivers of decline in private credit fee-paying AUM, and development of fee paying AUM.

A: Decline in private credit fee-paying AUM was normal course runoff. Expect acceleration in fee-paying AUM growth due to strong fundraising momentum in areas like Solutions, Japan real estate, and Wealth products.

Q: Unpack major pieces of achieving $40 billion inflows for the year, including credit side.

A: Confident in $40 billion inflows. Fundraising coming from Solutions business (secondaries, co-investment), strong demand for real estate in Japan, momentum in Wealth, Credit asset-backed platform, and CTAC/CAPM in Wealth.

Q: Outlook for share repurchases and equity-based compensation.

A: Remain active in share repurchases with $1.25 billion authorization left. Equity-based comp elevated due to performance stock units for key teams, expected to trend down next year as they vest with meaningful stock price appreciation.

Q: Dividend outlook.

A: Immediate term, no changes to dividend. Focus on dynamic flexibility in capital allocation for investing in business and returning value to shareholders.

Q: Exposure to Altice in European CLO business and risk of default leading to fee deferrals.

A: CLO business is world-class with strong team. U.S. default rates are 1/2 industry average, European rates better than European industry averages. Confident in credit quality.

Q: Flows from wealth channel, driving products, and outlook.

A: Wealth channel has strong momentum, with CTAC growing, CAPM picking up, and new partnership launches expected. Optimistic about long-term growth trajectory.

Q: Fund launches around Asia V and Europe V fund steps down.

A: Expect pickup in management fees across platform, with flagship vehicles remaining, and everything on plan.

Q: Cadence of building to $40 billion inflows.

A: Fundraising on plan, with strong interest in Solutions, Private Equity real estate, Credit asset-backed, and Wealth products. Not one specific segment is an outlier.

Q: PE transaction environment and realization activity.

A: Coming out of complex environment, team generated $22 billion in realizations. Expect realization activity to pick up if markets continue improving, though hard to project.

Q: CLO default rise in Europe and impact on fees.

A: Not concerned with credit quality stats in European CLO business, which are still below industry, and have collected 100% of fees over long term.

Q: Stock-based comp run rate in 2024.

A: Expected to be around $111 million quarterly run rate, might creep up slightly but not materially, with alignment to senior leadership and share price appreciation.

Q: Real estate demand and infrastructure opportunity.

A: Real estate has world-class franchise with strong momentum, expecting strong demand for tenth fundraise. Optimistic about real assets platform including renewables, infrastructure, energy due to global trends like energy transition and security.