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How Is Carlyle’s Portfolio Performing in 2Q16?

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Carry fund valuations

Carlyle Group’s (CG) carry fund valuations appreciated by 1% in 1Q16. This reflects some recovery in portfolio valuations led by private equity funds. The S&P 500 Index (SPY) recovered by the end of the first quarter after seeing its biggest decline in four years. On an LTM (last-12-month) basis, Carlyle’s carry fund portfolio valuation rose by 1% on account of strength in US buyouts and US real estate funds. The rise was partially offset by depreciation in global market strategies, natural resources, and legacy energy carry funds.

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In the first quarter of 2016, lower carry fund valuations in global market strategies resulted in net performance fees of $1.3 billion, which came in lower than the $1.8 billion in the corresponding quarter last year. The decline was mainly due to strong exit activity during 1Q16 in corporate private equity and real estate funds. In 1Q16, the company generated economic net income of $89 million, up from $73 million in 4Q15.

2Q16 performance

Carlyle’s major holdings that saw rises in the second quarter include Wesco Aircraft Holdings (WAIR) and CommScope (COMM). The holdings that fell include Axalta Coating Systems (AXTA).

Carlyle’s EPS (earnings per share) stood at -$0.30 in the last fiscal year. Let’s compare this to the EPS of Carlyle’s peers in fiscal 2015:

  • Blackstone (BX): $1.04
  • KKR (KKR): $1.01
  • Apollo Global Management (APO): $0.61

The company also faces competition from traditional asset managers, which form part of the iShares Dow Jones US Financial ETF (IYF).

Energy woes

Carlyle’s natural resources and legacy energy segments continued in a downward spiral, falling by 2% and 3%, respectively. Also, its GMS (global market strategies) carry funds were down by 12% due to the effect of low energy prices on credit in that sector. Given the challenging energy markets, the company believes this decline to be modest compared to previous quarters.

As of fiscal 1Q16, energy-related, net accrued performance fees across natural resources, legacy energy, and GMS segments were -$34 million. Carlyle Group’s carry funds include investment funds advised by the company. Investment funds include buyout funds, growth capital funds, real estate funds, infrastructure funds, certain energy funds, and distressed debt and mezzanine funds. Carry funds don’t include structured credit funds, hedge funds, business development companies, mutual funds, or funds of funds vehicles. Carlyle receives a special residual allocation of income or carried interest.

In the next article, let’s discuss Carlyle’s realizations.

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