The Carlyle Group’s Performance Weighs on Its Valuations



High dividend yield

Carlyle Group (CG) stock has declined ~37% over the past year on lower profits in its private equity division. The company in 2014 had given a dividend of $1.87 per share, translating into a dividend yield of 9%.

Carlyle manages a dividend yield of ~7–9% for its investors, compared to:

  • Blackstone (BX) at 6.50%
  • KKR & Co. (KKR) at 7.60%
  • Apollo Global Management (APO) at 12%
  • T. Rowe Price Group (TROW) at 4.73%

Together, these companies form 0.72% of the Financial Select Sector SPDR Fund (XLF).

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Declining valuations

The Carlyle Group (CG) is currently valued at 7.6x on a one-year-forward-earnings basis—compared to its peers trading at 8.2x. Its valuation on a standalone basis has declined over the past couple of quarters. The company was trading at 9.1x on a forward price-to-earning basis in May 2013. Historically, Carlyle has traded at a premium on the performance of its portfolio companies combined with a select sector-based deployment of capital in the alternative asset management space.

As a whole, alternative asset managers are trading at a discount compared to traditional asset managers like BlackRock (BLK), Bank of New York Mellon (BK), and Franklin Resources (BEN), mainly due to the liquidity risk involved in alternative asset management.

According to Market Realist, Carlyle needs to diversify more by increasing its offerings in divisions like credit, hedge funds, and some traditional offerings to attract a higher share of the new capital in downturns as well as improving markets. The company has to contribute more on the performance front, as new investments haven’t yielded the desired hurdle rates. It has enough dry powder to take advantage of mispriced assets domestically as well as internationally. The key will be its right allocation in the next few quarters.


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