Why Carlyle Group Lost Premium in Its Valuations


Aug. 18 2020, Updated 6:22 a.m. ET

Falling dividend

Carlyle Group’s (CG) stock has fallen ~11% over the past six months on falling holdings valuations due to the global slowdown. Alternative asset managers have posted losses in recent quarters due to a global equity rout, slowing growth, and slowing emerging markets.

CG generated subdued distributable earnings through lower exits. It declared a dividend of $0.29 per share in 4Q15 compared to $1.61 per share in the corresponding quarter last year and $0.56 in 3Q15. This translates to an annualized dividend yield of 10% compared to its competitors’ yields:

  • Blackstone (BX): 8.5%
  • KKR (KKR): 9.5%
  • Apollo Global Management (APO): 12%
  • T. Rowe Price Group (TROW): 4.7%

Together, these companies account for 0.72% of the Financial Select Sector SPDR ETF (XLF).

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Discounted valuations

Carlyle Group is valued at 9.5x on a one-year forward earnings basis compared to its peers, who are trading at an average of 10.4x. The company’s valuations have risen over the past few weeks due to a comeback in equities after a dismal start to 2016.

However, CG is trading at a discount compared to its premium valuations, mainly due to the weak performance of its holdings and its relatively high exposure to riskier asset classes.

As a whole, alternative asset managers are trading at a discount compared to traditional asset managers such as BlackRock (BLK), Bank of New York Mellon (BK), and Franklin Resources (BEN).

Carlyle has enough dry powder to take advantage of mispriced assets domestically as well as internationally. The key will be its allocation in the next few quarters and how fast it can invest a substantial portion of its dry powder.

CG has invested in UK insurance technology company Innovation Group, data-analytics company Novetta Solutions, India-focused oil producer Magna Energy, and Chinese real estate website operator SouFun Holdings. Carlyle completed its acquisition of Symantec’s Veritas unit for $7.4 billion.

The company needs to diversify more by increasing its offerings in divisions such as credit, hedge funds, and some traditional offerings to attract a higher share of new capital.

For further detailed analysis on the company, you can read Carlyle Group: The $193 Billion Alternative Investment Manager.


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