Bloomberg News

Carlyle Group Profit Falls 26% on Lower Performance Fees

May 15, 2012

Carlyle Group LP (CG:US), the private-equity firm that went public this month, said first-quarter profit fell 26 percent as performance fees declined from a year earlier.

Economic net income, a measure of profit excluding some costs, declined to $392 million from $533 million a year ago, Washington-based Carlyle said in a statement today. Performance fees fell 27 percent to $631.5 million from a year earlier, when Carlyle sold $1.8 billion of shares of China Pacific Insurance Group Co.

Carlyle joins competitor Blackstone Group LP (BX:US) in reporting lower profit as fund holdings appreciated at a slower pace compared with a year earlier. Carlyle and its publicly traded peers have been reducing their reliance on traditional buyouts, which produce volatile earnings, by expanding other businesses such as credit investments and real estate purchases.

“Our central mission remains the same as it has for 25 years -- investing wisely and creating value for our limited partners,” William E. Conway, the firm’s co-chief executive officer, said in the statement. “In doing so, our new partners -- our public unitholders -- will benefit.”

Carlyle, the world’s second-largest private-equity firm by assets, raised $671 million in its initial share sale this month, pricing below the marketed range to win investors wary of the track record of publicly traded buyout firms. The stock has declined 4 percent from the $22 offering price. It gained 0.4 percent to $21.12 today in New York.

Public Record

All publicly traded U.S. buyout firms have fallen below their IPO price, with Blackstone down 61 percent from its 2007 offering price, Fortress Investment Group LLC (FIG:US) losing 82 percent, and Apollo Global Management LLC (APO:US) declining 39 percent.

“We firmly believe Carlyle’s status as a public company will strengthen our capabilities,” co-CEO David Rubenstein said on a call with investors today. “No doubt as a public company there will be times when we face challenges, just as there will be times when we see considerable opportunities.”

Carlyle said it returned $2.3 billion to fund investors during the quarter and is set to return $1.5 billion more. Distributable earnings were $179 million, down 37 percent from a record $284 million a year earlier, while earnings for the 12 months ended March 31 were $759 million, up 36 percent from the previous 12 months. Taking into account changes related to the IPO, after-tax distributable earnings were 57 cents a share.

Private-equity firms pool investor money to buy companies, using mostly debt, with the intention of selling them or taking them public later for a profit. They typically charge an annual management fee of 1.5 percent to 2 percent of committed funds and keep 15 to 20 percent of profit from investments.

Assets Gain

The value of Carlyle’s fund portfolio gained 9 percent during the quarter, compared with 4.9 percent at Blackstone. New York-based Blackstone last month said profit fell 24 percent to $432.3 million as the slower gain in the value of its holdings hurt performance fees.

Carlyle raised $2 billion during the quarter and invested $1.5 billion from its carry funds, Rubenstein said. The fundraising doesn’t include some commitments to the firm’s new flagship North America buyout fund, which is targeting $10 billion. Carlyle had $39.9 billion in so-called dry powder, or committed funds that haven’t been invested, as of March 31.

“It is precisely in times like this, when economic data and markets are sending confusing signals, that the best investments can be made,” Conway said on the call.

Carlyle expects to be raising money for 11 funds this year, said Rubenstein. The firm is planning an initial close on its flagship fund in the second quarter and a first close on its fourth Asia buyout fund in the second half of the year.

Fee-earning assets since Dec. 31 rose 5 percent to $117 billion as total assets under management climbed 8 percent to about $159 billion. Blackstone, the largest private-equity firm, oversees about $190 billion.

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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Companies Mentioned

  • CG
    (Carlyle Group LP/The)
    • $32.99 USD
    • 0.27
    • 0.82%
  • BX
    (Blackstone Group LP)
    • $30.94 USD
    • 0.74
    • 2.39%
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