29/07/2022, 10:08 Carlyle’s credit business overtakes private equity for first time in 35 years | Financial Times

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Carlyle Group LP
Carlyle’s credit business overtakes private equity for first time in 35 years
As with peers Blackstone and Apollo Global, the buyout business is not as dominant as it once was

Carlyle chief Kewsong Lee: ‘It’s a very different firm than just a few years back. We have been deliberately diversifying our
business’ © Patrick T Falon/AFP/Getty Images

Antoine Gara in New York YESTERDAY

Dealmaking pioneer Carlyle Group has more fee-earning assets in its credit
investment business than in private equity for the first time in its 35-year history.

In second-quarter earnings published on Thursday morning, the New York and

Washington-based group reported $116bn in fee-earning assets under
management in credit investments, compared with $106bn of assets in its private
equity unit.

The change at Carlyle, which was founded in 1987 and has struck some of Wall
Street’s most high-profile buyouts, including the takeover of coffee chain Dunkin
Donuts and last year’s largest deal for Medline Industries, shows how the private
capital industry is changing.

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29/07/2022, 10:08 Carlyle’s credit business overtakes private equity for first time in 35 years | Financial Times

As with other publicly listed alternative asset managers, such as Blackstone Group
and Apollo Global, its buyout business is not as dominant as it once was.

“The largest share of our fee-earning assets under management is now associated
with global credit,” Carlyle chief executive Kewsong Lee told the Financial Times.

Since Lee assumed sole leadership of the $376bn-in-assets group in 2020, he has
embarked on a strategy to broaden Carlyle’s operations.

“It’s a very different firm than just a few years back,” Lee said. “We have been
deliberately diversifying our business.”

In its results, Carlyle also reported distributable earnings — a metric that is

favoured by analysts as a proxy for overall cash flow — up 36 per cent to $529mn
from the same time last year, which equates to $1.17 a share. This beat analysts’
forecasts.

The shift inside Carlyle is the result of two factors.

Its credit business is making acquisitions, becoming Carlyle’s fastest-growing unit

and one that is poised to be its biggest business by overall assets at year-end.

Meanwhile, fundraising for traditional private equity strategies has slowed since
markets started to fall this year.

In credit, overall assets under management surged 57 per cent from last quarter to
a record $143bn. On April 1, Carlyle closed a deal with reinsurer Fortitude, which
brought in $48bn in new fee-earning assets, and its $800mn acquisition of CBAM,
a manager of secured loans with $15bn in assets.

By contrast, assets under management in Carlyle’s global private equity business

fell 1 per cent to $167bn as $4.1bn in inflows was outweighed by $6.3bn in asset
sales.

Carlyle, like many of its competitors, has struggled to raise new money for large
takeovers since Russia’s invasion of Ukraine hammered financial markets.

Its eighth flagship buyout fund, which started raising money last autumn, raised
just $2.2bn during the quarter. Total investor commitments of $13.5bn are well
below a target reported by Bloomberg last year as $27bn.

Though fundraising slowed to just $9.8bn in the quarter, Carlyle has passed the
halfway point of a goal Lee set to raise $130bn in new investor money by the end of
2024. He remains confident Carlyle will hit the target.

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29/07/2022, 10:08 Carlyle’s credit business overtakes private equity for first time in 35 years | Financial Times

Investment performance at Carlyle was strong: all of its private equity funds either
rose or avoided losses. Its corporate buyout funds were unchanged from the
previous quarter, versus a 6.7 per cent drop reported by Blackstone.

Carlyle’s decision to not divest hydrocarbon assets paid off. Its natural resources
funds rose 14 per cent, buoyed by surging oil and natural gas prices. Accrued
performance revenues of such investments rose 427 per cent to $739mn. The
overall performance revenues Carlyle holds on its balance sheet hit $4.3bn, a new
record.

Net income attributable to Carlyle shareholders was $245mn, versus a $29mn loss
at Blackstone.

Lee brushed off the slowdown in fundraising for buyouts, noting that investors
were increasing allocations to other strategies.

“The chatter is about the challenges in the PE fundraising market. That’s kind of
old news,” he said. “We’re seeing that the demand for private credit, infrastructure
and investment solutions is quite high.”

Copyright The Financial Times Limited 2022. All rights reserved.

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