Carlyle(US:CG)2023-05-04 16:04Financial Data and Key Metrics Changes - For Q1 2023, the company generated $193 million in fee-related earnings (FRE) and $272 million in distributable earnings (DE), with DE per common share at $0.63 [61] - Fee-related performance revenue decreased to $29 million from $45 million year-over-year, while global credit fee-related performance revenue increased by over 30% [87] - FRE margin was 35%, down from 36% in the same quarter last year, attributed to an 8% increase in FRE expenses [113] Business Line Data and Key Metrics Changes - The global credit carry fund portfolio rose by 3% in the quarter and is up 7% over the past 12 months, while the corporate private equity portfolio increased by 1% in the quarter and 3% over the past year [114] - The company raised $6.8 billion in new capital and deployed $3.8 billion across carry funds [61] - The accrued carry balance remains robust at $4 billion, indicating strong potential for future monetization [85] Market Data and Key Metrics Changes - M&A volumes are about half of what they were last year, and IPO activity is sluggish, impacting earnings and transaction fees [3] - The company noted a significant decline in U.S. leveraged loans, which are at their lowest levels in many years, affecting overall market activity [3] Company Strategy and Development Direction - The company aims to grow its global credit and investment solutions businesses, with a focus on disciplined growth and operational excellence [66][83] - The recent Fortitude reinsurance transaction, valued at $28 billion, is expected to accelerate growth and enhance the company's capabilities in the insurance sector [86] - The company is committed to leveraging its strong balance sheet and cash flow generation to pursue growth opportunities [6][80] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the current complex financial market environment, which is expected to impact FRE and distributable earnings throughout the year [64] - Despite short-term challenges, management remains optimistic about long-term growth opportunities, particularly in private equity and global credit [90][92] - The company anticipates a modest decline in FRE for 2023 compared to the previous year, but expects top-line fee growth [70] Other Important Information - The company repurchased $100 million in shares during the first quarter, with a new repurchase authorization increased to $500 million [89] - Equity-based compensation expense increased to $57 million from $41 million in the first quarter of the previous year, expected to remain elevated [73] Q&A Session Summary Question: What is the company's strategy for growth? - The new CEO emphasized the importance of disciplined growth and the potential for expanding the global credit and investment solutions businesses [124][128] Question: How does the company plan to address the valuation gap? - Management acknowledged the valuation gap and expressed confidence in the brand's strength, indicating a focus on execution and growth to close this gap [190] Question: Can you provide insights on the private equity fundraising environment? - The company noted a challenging fundraising environment, particularly for buy-out funds, but remains optimistic about future opportunities [167] Question: What is the expected contribution from the Fortitude deal? - The fee arrangement with Fortitude is variable and tied to performance, with expectations for significant contributions as the deal closes and assets are migrated into Carlyle's funds [165][186]