Volatility might impact stock market
The Carlyle Group (CG) is of the view that increasing interest rates, as well as volatility surrounding the markets, might negatively impact the company’s performance, and the gains that it saw in 2017 could be difficult to replicate in 2018.
Since the broader market witnessed positive momentum in the last three months of 2017, valuations also saw upward momentum, which in turn positively impacted CG’s private equity segment in 4Q17. Due to fluctuations in the stock markets, the company thinks that achieving gains in the current environment is a difficult task.
Management’s view and digitization
The management thinks the present environment isn’t supportive of new investments. According to management, a rise in interest rates would also impact the present holdings of the company. Thus, the appreciation the company witnessed in the previous year isn’t expected to remain the same in 2018.
As digitization is experiencing upward momentum, investors and managers are now planning to make deployments into the companies supporting digital tools. Moreover, they are planning to make their portfolio companies adopt these tools, which would positively impact the performance of these companies. However, in 2018, investors and managers could even utilize the digital opportunities for themselves.
The price-to-sales ratio of Carlyle stood at 2.12x on an LTM (last-12-month) basis, and peers (XLF) CBRE Group (CBG), Brookfield Asset Management (BAM), and KKR & Company (KKR) have ratios of 1.03x, 1.11x, and 5.37x, respectively, on an LTM basis.