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Carlyle(CG) - 2024 Q2 - Earnings Call Transcript
CGCarlyle(CG)2024-08-05 14:52
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Financial Data and Key Metrics - Record FRE of 539millionforthefirsthalfof2024,up35539 million for the first half of 2024, up 35% YoY [11] - Record FRE margins achieved in the first half of 2024 [5] - Record AUM of 435 billion in Q2 2024, up 13% YoY [10] - DE per share of 1.79year−to−date,up191.79 year-to-date, up 19% YoY [10] - Share repurchases of 330 million in the first half of 2024, with 1.1billionremainingintherepurchaseauthorization[10]BusinessLineDataandKeyMetrics−GlobalCredit:Raised1.1 billion remaining in the repurchase authorization [10] Business Line Data and Key Metrics - Global Credit: Raised 5 billion in Q2 2024, with strong activity in opportunistic and real asset credit strategies [7] - CLO business: Second busiest first six months in 20-year history, ended Q2 as the world's largest CLO manager [8] - Global Investment Solutions: Deployed 9billionandraised9 billion and raised 12 million over the last 12 months [8] - Global Wealth: CTAC private credit product had a strong first half, and CAPM wealth product added to new distribution platforms [8] Market Data and Key Metrics - Asset-backed finance: Announced a 10billiontransactiontoacquireaportfolioofloansfromDiscoverFinancialServices[5]−Exitactivity:SaleofCogentrixEnergyatavaluationofnearly10 billion transaction to acquire a portfolio of loans from Discover Financial Services [5] - Exit activity: Sale of Cogentrix Energy at a valuation of nearly 3 billion, with a considerable pipeline of active IPO and sale processes [6] - Fundraising: Raised 18billionyear−to−dateandover18 billion year-to-date and over 40 billion in the last 12 months, targeting 40billionfor2024[7][12]CompanyStrategyandIndustryCompetition−Focusonasset−backedfinance,credit,andinsurancebusinessestodrivevalueforclientsandgeneratetransactionfees[6]−Optimisticabouttheinvestmentenvironment,withincreasedactivitylevelsandrobustcompetitioninexitpaths[13]−Strategicfocusontransactionandadvisoryfees,witha6040 billion for 2024 [7][12] Company Strategy and Industry Competition - Focus on asset-backed finance, credit, and insurance businesses to drive value for clients and generate transaction fees [6] - Optimistic about the investment environment, with increased activity levels and robust competition in exit paths [13] - Strategic focus on transaction and advisory fees, with a 60% YoY increase in Q2 2024 [11] Management Commentary on Operating Environment and Future Outlook - Despite recent market volatility, underlying fundamentals support improving activity across the platform for the rest of the year [5] - Expectation of increased exit activity in the second half of 2024, with several large transactions in the pipeline [6] - Confidence in achieving the 40 billion fundraising target for 2024, with strong momentum across all segments [12] Other Important Information - Non-GAAP financial measures used during the call, with reconciliation to GAAP provided in the earnings release [3] - Forward-looking statements made with inherent risks and uncertainties, as identified in the Risk Factors section of the annual report [4] Q&A Session Summary Question: Market sentiment and capital-raising outlook for PE - Management views recent market volatility as liquidity-driven and risk sentiment-driven, with no change in the underlying economic fundamentals [15] - Confidence in the fundraising outlook, with strong momentum across the platform and multiple product strategies in the market [18] Question: Fundraising in real estate and key contributors - Strong momentum in real estate fundraising, with a number materially higher than disclosed in the earnings release [12] - Expectation of continued strength in Solutions business, credit opportunities fund, and CLO activity [18] Question: Outlook for fundraising in CEP VI and CAP VI - CAP VI expected to be smaller than its predecessor due to geopolitical headwinds, but Asia remains an important market with attractive opportunities [19] Question: Transaction advisory fees outlook - Transaction and advisory fees up 60% YoY, with a record year expected driven by a conducive transaction environment [21] Question: Deployment outlook and impact of risk-off sentiment - Long-term investment focus, with a strong pipeline of transaction activity expected in the second half of 2024 [24] - 20billionofpendingfee−earningAUMexpectedtoturnonoverthecomingquarters[24]Question:FREcompratioandbaselineexpectations−FREcompratiointhe3020 billion of pending fee-earning AUM expected to turn on over the coming quarters [24] Question: FRE comp ratio and baseline expectations - FRE comp ratio in the 30% to 35% range, with expectations to operate within this range plus or minus 1% to 2% [28] Question: Merger of BDCs and direct lending strategy - Merger of public and private BDCs expected to close in Q1 2025, providing scale and financial benefits [30] Question: Management fees outlook in Global Private Equity - Expectation of flattish management fees in Global Private Equity, with strength in real estate and other parts of the business [32] Question: Progress in the retail channel and PE product design - Strong momentum in retail-focused products, with a focus on scale and long-term performance [34] Question: Capital allocation and strategic M&A - Active share repurchases with 1.1 billion remaining, and openness to strategic M&A if it aligns with growth and shareholder returns [37] Question: Contribution from Fortitude and insurance initiatives - Fortitude partnership performing well, with a focus on private investment grade and capital-light growth opportunities [41] Question: Stock-based comp modeling - Elevated stock-based comp in 2024 due to performance stock unit grants, with a step down expected in 2025 [44]