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Why Carlyle’s Total Expenses Rose in 4Q15

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Expenses

Carlyle Group’s (CG) total expenses increased by $133 million to $796 million in fiscal 4Q15 compared to the corresponding quarter last year. Carlyle’s various funds derive value from the effective management of their operating companies as well as the returns generated for their shareholders or limited partners. As a result, the majority of the company’s expenditures relate to compensation and benefits for fund managing teams. Compensation and benefits include basic compensation and performance fees.

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Carlyle’s compensation expenses fell in the fourth quarter as well as for the full year. Expenses stood at $342 million in 4Q15 compared to $443 million in 4Q14, mainly due to lower appreciation in carry fund valuations and lower realized performance fees on fewer exits during the quarter. The company’s equity compensation increased to $122 million in 2015 from $80 million in 2014.

Carlyle generated a negative return on equity in the last fiscal year, which was competitive among its alternative investment peers that form part of the iShares Dow Jones US Financial ETF (IYF). In comparison, Carlyle’s peers posted the following returns on equity:

  • Blackstone (BX): 28%
  • KKR (KKR): 12.5%
  • Apollo Global Management (APO): 3.1%

Impairment loss

Carlyle’s general and administrative expenses rose to $167 million from $156 million in the corresponding quarter last year. For the full year 2015, expenses increased to $706 million as compared to $527 million in 2014. The increase was mainly due to an impairment loss of $186.6 million recorded in 3Q15 to reduce the carrying value of the intangible assets associated with the credit hedge funds managed by Claren Road Asset Management.

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