10-Q: Carlyle Group Reports Strong Q2 Earnings, AUM Growth

The Carlyle Group Inc. announced a significant increase in net income and performance allocations for the second quarter of 2025, driven by strong investment performance and AUM growth across its segments.

Summary

• Net income attributable to The Carlyle Group Inc. increased by 116% to $319.7 million for Q2 2025, compared to $148.2 million for Q2 2024.
• Total revenues rose by 47% to $1,572.9 million for Q2 2025, up from $1,069.7 million in Q2 2024, primarily due to a 222% surge in performance allocations to $638.8 million.
• Fund management fees increased by 16% to $620.4 million for Q2 2025, compared to $534.4 million for Q2 2024.
• Total Assets Under Management (AUM) reached $464.6 billion as of June 30, 2025, a 6% increase from $441.0 billion at December 31, 2024.
• Fee-earning AUM grew by 6.7% to $324.7 billion as of June 30, 2025, from $304.4 billion at December 31, 2024.
• The company deployed $14.6 billion in capital and realized proceeds of $7.6 billion in its traditional carry funds during Q2 2025, representing increases of over 50% and 30% respectively, compared to Q2 2024.
• The carry fund portfolio appreciated by 2% in Q2 2025, with Global Private Equity funds appreciating 1%, infrastructure & natural resources funds 4%, and real estate funds 1%.
• A restructuring of the strategic investment in NGP on March 31, 2025, resulted in a $92.5 million impairment charge and a $38.0 million reduction in accrued performance allocations, impacting principal investment income for the six months ended June 30, 2025.
• The senior credit facility was amended in May 2025, extending its maturity date from April 29, 2027, to May 29, 2030, while maintaining a $1.0 billion capacity.
• A quarterly dividend of $0.35 per common share was declared in July 2025, payable on August 28, 2025.

Sentiment

Score: 8

Explanation: The company demonstrated robust financial performance with significant increases in net income and performance allocations, alongside healthy AUM growth and increased investment activity. While there was an impairment charge related to NGP restructuring, the overall operational results and strategic positioning appear strong.

Positives

• Net income attributable to The Carlyle Group Inc. increased by 116% to $319.7 million for Q2 2025, and by 110% to $449.7 million for the six months ended June 30, 2025.
• Performance allocations surged by 222% to $638.8 million in Q2 2025, reflecting strong investment performance.
• Fund management fees increased by 16% in Q2 2025 and 14% for the six months ended June 30, 2025, driven by new fund activations and incremental fundraising.
• Total AUM grew to $464.6 billion and Fee-earning AUM increased to $324.7 billion as of June 30, 2025, demonstrating continued capital inflows and asset growth.
• The carry fund portfolio appreciated by 2% in Q2 2025, with publicly traded investments within Global Private Equity appreciating 16%.
• Investment deployment increased by over 50% to $14.6 billion and realized proceeds increased by 30% to $7.6 billion in Q2 2025, indicating active portfolio management and successful exits.
• The senior credit facility's maturity was extended to May 29, 2030, signaling strong lender confidence and stable liquidity.
• Fee Related Earnings (FRE) increased by 18.4% in Q2 2025 and 17.5% for the six months ended June 30, 2025, indicating improved operational efficiency and profitability from recurring fees.

Negatives

• Principal investment income (loss) decreased by 37% in Q2 2025 and turned into a loss of $7.9 million for the six months ended June 30, 2025, primarily due to a $92.5 million impairment charge and a $38.0 million reduction in accrued performance allocations related to the NGP restructuring.
• Global M&A deal count was the lowest on record since 2005, indicating a subdued broader market deal environment, despite aggregate volumes being flattered by mega-transactions.
• Slower exit activity in the broader market, with buyout-backed company exits 18% lower in the first half of 2025 compared to the first half of 2024, could impact future realized net performance revenues.
• General, administrative and other expenses increased by 9% in Q2 2025 and 13% for the six months ended June 30, 2025, partly due to foreign currency movement reflecting a foreign exchange loss.

Risks

• The impact of pervasive uncertainty in global markets, combined with heightened equity and credit market volatility, may impact investment deployment and realization pace in the near term.
• Companies that rely on key components and supplies from regions with high tariff rates may see their operating performance materially impacted.
• Stretched consumers and a general softening in global growth may erode the financial performance of even companies with minimal trade dependence.
• Bonds no longer serve as a reliable hedge to risk assets, as demonstrated by Treasury yields spiking in tandem with stock plunges in April.
• Large and persistent fiscal deficits, an overvalued dollar, and the risk of sanctions pressures put upward pressure on the term premia of longer-duration Treasuries.
• The company is a party to litigation, investigations, inquiries, employment-related matters, disputes, and other potential claims, with an aggregate liability of approximately $35 million for litigation-related contingencies as of June 30, 2025.
• Realized carried interest may be required to be returned by the company in future periods if the funds' investment values decline below certain levels (giveback obligations).
• Non-compliance with financial or non-financial covenants under loan agreements could lead to an event of default, accelerating principal and interest outstanding and terminating the credit facility.
• Investments outside the United States are subject to additional risks such as foreign currency exchange rate fluctuations, unexpected changes in regulatory requirements, political and economic instability, and potentially adverse tax consequences.

Future Outlook

Looking ahead, prices, output, and labor demand will likely adjust more as inventory stocks dwindle and fixed contracts approach expiration. The impact of pervasive uncertainty in global markets, combined with heightened equity and credit market volatility, may impact investment deployment and realization pace in the near term. However, ongoing or planned fixed investment, particularly in AI-related capital expenditures, and a pivot towards military Keynesianism in Europe could drive productivity and real output growth. Heightened demand for liquidity could present opportunities for the secondaries business to buy assets at larger discounts.

Management Comments

• Our investment activity in the second quarter continued the momentum we experienced toward the end of 2024 and into the first quarter this year.

Industry Context

The global M&A activity in Q2 2025, while totaling nearly $1.1 trillion, saw a subdued deal count, marking the lowest on record since 2005, with aggregate volumes flattered by a concentration of large cashand stock-driven deals. Sponsor-led LBOs also saw an uptick in dollar value driven by mega-transactions, but the total number of deals dipped. The slower deal environment was reflected in sluggish exit activity. Despite this, AI-related capital expenditures accounted for over half of U.S. GDP growth in the first half of the year, providing a powerful support. Europe is also seeing a potential pivot towards military Keynesianism, which could drive new capex. China's economy performed well due to strong industrial production and export growth, finding new export destinations in Southeast Asia. The highly uncertain macroeconomic and geopolitical environment can provide favorable opportunities for the credit business, as private credit stepped in when the broadly syndicated loan market froze.

Comparison to Industry Standards

• For decades, private assets have delivered a 100-500 bps annualized net-of-fees return premium over their public equivalents.
• In an era when liquid markets can amplify shocks rather than cushion them, that premium together with the built-in liquidity buffer of closed-end structures offer complementary hedge and asset allocation characteristics in a diversified portfolio of equities and bonds.
• Closed-end structures and termed-out liabilities prevent private funds from being forced into fire-sale liquidations or abrupt markdowns, unlike listed markets, where the most liquid stocks fell roughly 15% in April compared with an approximately 11% drop for the least liquid quartile—a gap of over 400 bps.

Corporate Governance

Legal Proceedings

• The Authentix Matter: Certain former minority shareholders filed suit in Delaware Chancery Court alleging breach of fiduciary duties related to the sale of Authentix, Inc. A decision was rendered in favor of the company and all other defendants on January 8, 2025, but the plaintiffs appealed to the Delaware Supreme Court on March 13, 2025, with oral argument expected in October 2025.
• The Tax Receivable Agreement Matter: An alleged stockholder filed suit in the Delaware Court of Chancery challenging cash payments associated with the elimination of a tax receivable agreement in connection with the company's conversion to a corporation. A motion to dismiss was partially granted on April 24, 2024, allowing most claims to proceed to discovery.
• The company has recorded liabilities aggregating approximately $35 million for litigation-related contingencies, regulatory examinations and inquiries, and other matters as of June 30, 2025.

Related Party Transactions

• Entities controlled by the company's co-founders own aircraft used for business, with hourly rates based on market rates for chartering private aircraft. For the three and six months ended June 30, 2025, $0.6 million and $1.0 million, respectively, were incurred for the use of these aircraft.
• The company holds an investment in common shares of Carlyle Secured Lending, Inc. (CGBD), which resulted from an exchange of preferred shares for 3,004,808 common shares on March 27, 2025.
• Senior Carlyle professionals and employees participate in co-investment entities that invest in or alongside Carlyle funds, generally without management or performance allocations, but are responsible for partnership expenses.
• Substantially all revenue is earned from affiliates of the company.
• The company does business with some of its portfolio companies on a negotiated basis.

Stakeholder Impact

• Shareholders benefit from increased net income, strong performance allocations, and a consistent quarterly dividend of $0.35 per share.
• Employees are impacted by performance allocation-related compensation, which increased significantly due to higher performance allocations.
• The company's strategic investments and fund activities directly impact its limited partners and portfolio companies.
• The extension of the senior credit facility maturity demonstrates continued confidence from financial institutions and lenders.

Next Steps

• Oral argument for the Authentix Matter appeal is expected in October 2025.
• The company will continue to monitor the impact of the One Big Beautiful Bill Act (OBBBA) and OECD Pillar Two Global Minimum Tax rules as additional guidance and legislation are released.

Key Dates

Recommendation

The Carlyle Group's Q2 2025 results demonstrate robust operational performance, with significant year-over-year increases in net income and performance allocations, driven by strong fund appreciation and increased realization activity. The healthy growth in both total AUM and fee-earning AUM indicates continued investor confidence and a solid revenue base. While the NGP restructuring resulted in a notable impairment charge, it is a non-recurring item that aligns long-term interests. The extension of the senior credit facility maturity also signals strong lender support. The company's ability to navigate a volatile market environment, coupled with its strategic positioning in private markets, suggests a favorable outlook for sustained value creation, making it an attractive investment.

Keywords

Private Equity, Asset Management, Global Credit, Carlyle AlpInvest, SEC Filing, Earnings, AUM, Performance Allocations, Investment Firm, Financial Results, Corporate Governance, Risk Management, Strategic Investments, CLO, Aircraft Lease