uploads///Profitability

Weaker Markets Continue to Affect Carlyle’s Realizations

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Dec. 4 2020, Updated 10:53 a.m. ET

Weaker markets

Carlyle Group (CG) reported distributable earnings of $129 million in fiscal 1Q16, 13% lower than in 1Q15. Distributable earnings include proceeds from assets sold during the period and cash available for distribution to shareholders. The company’s major share sales in 1Q16 were as follows:

  • Landmark Aviation
  • World Strides
  • Seven Days Group Holdings
  • B&B Investments

Higher realizations allow the company to return more capital to its limited partners in the form of dividends or distributions. In turn, its limited partners have more to invest in Carlyle funds.

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Carlyle’s fee-related earnings remained flat on a YoY (year-over-year) basis boosted by higher transaction fees but offset by lower management fees. The company boosted its distributable earnings through exits, which resulted in higher dry powder as of March 31, 2016. Its fee-related earnings stood at $51 million in fiscal 1Q16, which was in line with fiscal 1Q15.

Carlyle’s operating margin was 13% in the last fiscal year. Let’s compare this with the operating margins for Carlyle’s peers:

Together, these companies make up ~1.4% of the Financial Select Sector SPDR ETF (XLF).

Global market strategies are a drag

Carlyle’s performance fell on a decline in its Energy and Global Market Strategies segments. Its realized performance fees stood at $70 million in 1Q16 as compared to $178 million in 1Q15. The company benefited from the appreciation of its private equity portfolio. This fall was on account of a lower level of realizations in its corporate private equity and real assets funds.

Carlyle’s Global Market Strategies segment reported losses in the majority of its credit investment and hedge funds. In 1Q16, the company’s hedge fund saw redemption requests of $1.8 billion and a return of $0.8 billion in capital to DGAM (diversified global asset management) investors. Management expects further redemptions from hedge fund partnerships to reach $1 billion–$2 billion over the next few quarters, also returning the remaining $1.5 billion to DGAM fund investors.

In the next article, we’ll examine Carlyle’s margins and expense management.

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