Carlyle Group Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Actions: Undertook strategic actions like realigning compensation, appointing new leadership, and prioritizing margin expansion over the past year and a half, leading to strong financial performance.
• Financial Performance: Record quarterly fee-related earnings, up 36% Y/Y; best-ever FRE margins at 47%. Net accrued performance revenues reached $2.8 billion, representing nearly $8 per share of pretax earnings for shareholders.
• Market Environment: Election certainty removed market uncertainty, supporting economic growth and Carlyle's business. Fed policy shift and election outcome provided a powerful boost; increased IPO activity seen, e.g., StandardAero and Rigaku IPOs.
• Portfolio Performance: U.S. and Asia buyout funds performed well, with two largest U.S. funds up over 7% and two largest Asia funds up 9% and 13% respectively. Strong EBITDA growth and margin expansion in corporate private equity.
• Global Wealth Momentum: Record $1.8 billion wealth inflows, with strong traction in the secondaries wealth solution CAPM and progress in private equity wealth product.
• Asset-backed Finance Strength: Record leveraged loan and CLO issuance; differentiated partnerships enhancing origination capabilities and data edge.
• Insurance Progress: Fortitude's general account assets grew 70%, leveraging excess capital for reinsurance opportunities.

Segment Performance

• Corporate Private Equity: Delivered record quarterly fee-related earnings, up 36% versus Q3 2023, with FRE margins at 47% (best ever). Two largest U.S. buyout funds up over 7% each, and two largest Asia buyout funds up 9% and 13% respectively. Net accrued performance revenues increased over $600 million to $2.8 billion.
• Capital Markets: Year-to-date capital market fees more than 80% higher than the prior year. Q4 expected to see significant increase as large transactions closed; targeting further growth in capital markets activity.
• Global Wealth: Benefited from record $1.8 billion of wealth inflows, nearly 3 times the previous quarter's amount; global wealth AUM up 70% year-over-year. Newly launched secondaries wealth solution CAPM showing strong early traction.
• Asset-backed Finance: Record leveraged loan and CLO issuance in 2024; U.S. leveraged loan issuance expected to exceed $1 trillion. Identified differentiated partnerships to bolster origination capabilities.
• Insurance (Fortitude): Fortitude grew general account assets by almost 70% in the past year; excess capital position allows pursuit of a robust reinsurance pipeline.

Guidance

• FRE Target: On track to achieve the 2024 FRE target of $1.1 billion.
• Capital Raising: Raised $9 billion in Q3, $43 billion over past 12 months; anticipate strong Q4 capital raising to close out the year, targeting ~$40 billion inflows.
• 2025 Fees: Expect to activate fees on the latest Japan buyout fund in Q4 2024 and on the new U.S. opportunistic real estate fund in 2025.
• Credit Markets: Optimistic about credit markets, particularly private investment-grade and CLO activity, with strong issuance and attractive spreads.

Risks

• Market Uncertainties: Potential policy changes like tariffs introduce uncertainty that could impact operations.
• Regulatory Changes: Uncertainty around regulatory touch, tax policy, etc., may affect market and investment activity.
• Economic Factors: Fluctuations in economic conditions, interest rates, and market sentiment could influence performance.

Question and Answer

Q: Alex Blostein from Goldman Sachs asked about how the Trump administration could impact activity in the alt space.

A: Harvey Schwartz and John Redett discussed that election certainty boosts confidence, leading to more M&A and decision-making.

Q: Ken Worthington from JPMorgan asked about buyout performance metrics.

A: John Redett talked about strong EBITDA growth, margin expansion, and focus on improving private equity performance.

Q: Ben Budish from Barclays asked about credit side outlook.

A: Harvey Schwartz was optimistic about credit markets, especially private investment-grade and CLO activity.

Q: Patrick Davitt from Autonomous Research asked about scenario testing for aggressive plans.

A: Harvey Schwartz said they risk manage scenarios but no unique issues for Carlyle.

Q: Brian McKenna from Citizens GMP asked about deploying excess capital.

A: John Redett said focus on organic growth and share buybacks, with balance between capital deployment and returns.

Q: Glenn Schorr from Evercore ISI asked about management fee growth.

A: John Redett discussed capital markets growth, solutions growth, and focus on private equity performance.

Q: Mike Brown from Wells Fargo Securities asked about fundraising potential.

A: Harvey Schwartz and John Redett talked about momentum in fundraising, strong Q4 visibility.

Q: Brian Bedell from Deutsche Bank asked about global trade and deployment.

A: Harvey Schwartz said they are global with regional capabilities, prepared for scenarios.

Q: Brennan Hawken from UBS asked about fundraising pace.

A: John Redett said strong momentum, good Q4 visibility, close to 40 billion.

Q: Steven Chubak from Wolfe Research asked about capital markets revenue.

A: Harvey Schwartz and John Redett said record year in capital markets, with runway.

Q: Bill Katz from TD Cowen asked about FRE margin and fee-paying AUM.

A: John Redett talked about FRE margin progress and focus on organic growth.

Q: Michael Cyprys from Morgan Stanley asked about asset-based finance.

A: John Redett discussed growth potential, AUM, and flow arrangements.

Q: Craig Siegenthaler from Bank of America asked about stock-based comp.

A: John Redett said stock-based comp expected to trend down in 2025.