10-Q: Carlyle Group Reports Strong Third Quarter Earnings Driven by Performance Allocations

The Carlyle Group Inc. announced robust third-quarter results, highlighted by significant performance allocations and increased fee-related earnings.

Summary

• The Carlyle Group Inc. reported a strong third quarter with net income attributable to the company of $595.7 million, a significant increase from $81.3 million in the same period last year.
• The company's total revenues reached $2.635 billion, a substantial rise from $716.6 million in the prior year's third quarter.
• This growth was primarily driven by a surge in performance allocations, which totaled $1.785 billion, compared to a loss of $118.3 million in the third quarter of 2023.
• Fund management fees also saw a modest increase, rising to $532.7 million from $502.6 million year-over-year.
• The company's fee-related earnings (FRE), a key metric, increased to $277.9 million, up from $204.7 million in the same quarter of the previous year.
• Distributable earnings (DE), another important measure, reached $367.1 million, compared to $367.4 million in the third quarter of 2023.
• Assets under management (AUM) totaled $447 billion as of September 30, 2024, reflecting the company's strong position in the global investment market.
• Fee-earning AUM was $313.6 billion as of September 30, 2024, up from $273 billion in the prior year.
• The company's Global Private Equity segment saw a 4% appreciation in its corporate private equity funds, while infrastructure and real estate funds appreciated 2% each.
• The Global Credit carry funds appreciated 3% in the third quarter, and Global Investment Solutions carry funds appreciated 2%.

Sentiment

Score: 8

Explanation: The document presents a strong financial performance with significant growth in key metrics, indicating a positive outlook for the company. However, some risks and challenges are also noted, preventing a perfect score.

Positives

• The company experienced a significant increase in net income and total revenues compared to the same period last year.
• Performance allocations showed a strong positive swing, indicating successful investment strategies.
• Fee-related earnings and assets under management both increased, reflecting the company's growth and stability.
• The company's various segments showed positive appreciation in their respective funds.
• The company's capital markets fees increased by more than 80% in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Negatives

• The document notes a challenging fundraising landscape due to net negative distributions to investors over the last two years, heightened geopolitical risk and continued global economic uncertainty.
• The document notes a decline in buyout fund sizes across most geographies, which may continue to result in lower management fees in Global Private Equity in the future.
• The document notes that the company is subject to examinations, formal and informal inquiries and investigations by various U.S. and non-U.S. governmental and regulatory agencies, which may result in the commencement of civil, criminal, or administrative or other proceedings against the company or its personnel.

Risks

• The company's performance is subject to various risks, including economic, political, regulatory, and public health conditions.
• The company's investments in private companies lack public markets, making liquidation subject to limitations and uncertainties.
• Investments outside the United States are subject to additional risks, such as currency fluctuations and political instability.
• The company is exposed to economic risk concentrations related to certain large investments and concentrations in certain industries and geographies.
• The company encounters credit risk, which is the risk of default by a counterparty in the company's investments.
• The company is subject to credit risk should a financial institution be unable to fulfill its obligations.
• The company is subject to examinations, formal and informal inquiries and investigations by various U.S. and non-U.S. governmental and regulatory agencies, which may result in the commencement of civil, criminal, or administrative or other proceedings against the company or its personnel.

Future Outlook

The company expects to see increased activity in its carry funds in the coming quarters as the recovery in deal activity continues to gain momentum and the IPO market thaws. The company also expects to continue to attract a significant amount of capital for its buyout funds, but has seen a decline in buyout fund sizes across most geographies, which may continue to result in lower management fees in Global Private Equity in the future.

Management Comments

• The document does not contain any direct quotes from management.

Industry Context

The announcement reflects a positive trend in the alternative asset management industry, with strong performance driven by market appreciation and successful investment strategies. The company's results are in line with the broader market recovery and increased deal activity.

Comparison to Industry Standards

• The Carlyle Group's performance in the third quarter of 2024 is strong compared to the previous year, with a significant increase in net income and total revenues.
• The company's performance allocations of $1.785 billion in the third quarter of 2024 is a significant turnaround from a loss of $118.3 million in the prior year's third quarter, indicating a strong performance in its investment strategies.
• The company's fee-related earnings (FRE) of $277.9 million in the third quarter of 2024 is a strong increase from $204.7 million in the same quarter of the previous year, indicating a strong performance in its fee-generating activities.
• The company's assets under management (AUM) of $447 billion as of September 30, 2024, and fee-earning AUM of $313.6 billion as of September 30, 2024, are both strong indicators of the company's scale and market position.
• The company's Global Private Equity segment saw a 4% appreciation in its corporate private equity funds, while infrastructure and real estate funds appreciated 2% each, indicating a strong performance across its various investment strategies.
• The company's Global Credit carry funds appreciated 3% in the third quarter, and Global Investment Solutions carry funds appreciated 2% in the third quarter, indicating a strong performance across its various investment strategies.
• The company's capital markets fees increased by more than 80% in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, indicating a strong performance in its capital markets activities.
• The company's performance is in line with the broader market recovery and increased deal activity, indicating a strong position in the global investment market.

Legal Proceedings

• The company is involved in various legal proceedings, including the Authentix matter and the Tax Receivable Agreement matter.
• The company is also subject to an SEC investigation related to the preservation of electronic business communications.

Related Party Transactions

• The company has various related party transactions, including due from and due to affiliates, and investments in CLOs and preferred securities of Carlyle Secured Lending, Inc.

Stakeholder Impact

• Shareholders will benefit from the strong financial performance and potential for future growth.
• Employees may benefit from the company's success through compensation and benefits.
• Customers (investors in Carlyle funds) will benefit from the company's strong investment performance.
• Suppliers and creditors may benefit from the company's financial stability.

Next Steps

• The company expects to see increased activity in its carry funds in the coming quarters.
• The company will continue to monitor the impact of regulatory changes on its business and operations.
• The company will continue to monitor the impact of global economic uncertainty on its business and operations.

Key Dates

Keywords

performance allocations, fee-related earnings, assets under management, private equity, global credit, investment solutions, fund management fees, carried interest, capital markets, distributable earnings