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Carlyle Group’s 2Q16 Expenses in Line with Operating Performance

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Performance and compensation

Carlyle Group’s (CG) total expenses decreased to $547 million in fiscal 2Q16, compared to $844 million in fiscal 2Q15. CG’s various funds derive value from the effective management of their operating companies, as well as from 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. As performance improves in the June quarter, performance fee–related compensation increased.

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Carlyle Group’s compensation expenses rose in the second quarter of 2016 on a quarter-over-quarter basis. Expenses stood at $355 million in 2Q16, as compared to $414 million in 2Q15, 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 decreased to $109 million in 2Q16, a drop of 5% compared to 2Q15.

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

  • Blackstone (BX): 10.6%
  • KKR (KKR): 8.9%
  • Apollo Global Management (APO): 8.7%

Other heads

Carlyle Group’s (CG) general and administrative expenses dropped to $91 million, which was lower than $133 million in 2Q15 and higher than 1Q16. Its management also expects its cash compensation to remain below 2015 levels for the rest of the year.

In the final part of this series, we’ll analyze Carlyle Group’s margins.

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