Bloomberg News

Carlyle Fourth-Quarter Profit More Than Triples on Exits (3)

February 19, 2014

Carlyle Group LP (CG:US), the world’s second-largest manager of investment alternatives to stocks and bonds, said fourth-quarter profit more than tripled as the value of its fund holdings increased and the firm sold assets at a profit.

Economic net income after taxes, a measure of profit excluding some costs, increased to $520 million, or $1.64 a share, from $145.6 million, or 47 cents a share, reported a year ago, Washington-based Carlyle said today in a statement. The results beat the 93-cents average estimate (CG:US) of 14 analysts in a Bloomberg survey.

Carlyle, like peers Blackstone Group LP (BX:US) and KKR & Co. (KKR:US), has diversified its business beyond traditional leveraged buyouts to bolster assets dedicated to real estate and credit investments, reducing reliance on volatile LBO earnings. Carlyle sold shares during the quarter in railway operator Genesee & Wyoming Inc., French cable operator Numericable Group SA (NUM), ratings company Nielsen Holdings NV (NLSN:US) and Italian ski-wear maker Moncler SpA (MONC), among others, according to Credit Suisse Group AG. The firm also completed sales of Arinc Inc. to Rockwell Collins Inc. and Personal & Informatik AG to HgCapital LLP.

The year “was yet another good year to exit,” Bill Conway, Carlyle’s co-founder and chief investment officer, said on a conference call with investors and analysts today. At the same time, “it was a challenging year to invest, particularly in the U.S. This was the flip side of robust public markets and low interest rates,” which boosted prices of potential investments, said Conway.

Fund Returns

Carlyle fell 1.3 percent to $35 at the close of trading in New York. The stock has declined 1.7 percent this year, remaining above the $22 at which Carlyle sold shares to the public in a 2012 initial offering.

The firm’s private-equity portfolio rose 9 percent in the fourth quarter, compared with 12 percent at Blackstone, 9 percent at Apollo Global Management LLC (APO:US) and 8.4 percent at KKR.

Conway said seven Carlyle funds, including its 2006 European buyout and 2008 Asian buyout funds, exceeded their performance thresholds during the quarter, allowing the firm to start accruing carried interest, or its slice of investment profits. Those earnings, represented by unrealized performance fees, rose more than 14-fold to $560 million from a year earlier.

GAAP Results

Together, all of Carlyle’s funds from which it can collect a slice of profits -- which in addition to buyouts include real estate, energy and certain Global Market Strategies pools -- appreciated 6 percent in the quarter and 20 percent in 2013. That compares with gains of 9.9 percent in the fourth quarter and 30 percent in the year for the Standard & Poor’s 500 Index of large U.S. companies.

The value of buyout holdings at private-equity firms affects economic net income, or ENI, because the metric depends on quarterly mark-to-market valuations of those investments. Accounting rules require the firms to value their portfolio holdings every quarter.

Carlyle, like other alternative-asset firms, reports profit that differs from U.S. generally accepted accounting principles. The quarterly profit under those rules, known as GAAP, was $71.3 million, or $1.17 a share, compared with $12 million, or 25 cents a share, in the fourth quarter of 2012.

Blackstone, KKR

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit in a cycle that lasts about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.

Blackstone and KKR both reported higher profit in the fourth quarter as they, like Carlyle, benefited from portfolio appreciation and profitable asset sales. Blackstone, run by Steve Schwarzman, said economic net income more than doubled to a record-high $1.54 billion, and KKR, led by Henry Kravis and George Roberts, said ENI after taxes more than doubled to $774 million. Both firms are based in New York.

Assets under management at Carlyle rose 2.1 percent to $188.8 billion since the end of the third quarter, the firm said. Blackstone, the largest alternative-asset manager, said last month its assets under management reached an industry record of $266 billion, up 7.1 percent from Sept. 30.

Energy Funds

Carlyle finished raising $13 billion in the quarter for its sixth U.S. buyout fund, the largest pool dedicated to U.S. leveraged buyouts since the financial crisis. The firm and NGP Energy Capital Management LLC, in which it owns a stake, plan to raise $7 billion for three energy funds by 2015, executives said at Carlyle’s investor day in November, including pools for North American energy and power and an international energy fund.

Carlyle has committed more than $2 billion of its funds’ equity to deals this year, a rate that, if continued, would mean Carlyle in 2014 may invest more than the $8.2 billion it deployed last year, according to Conway. The firm is committing more than $1 billion of equity to its $4.15 billion buyout of Johnson & Johnson (JNJ:US)’s blood diagnostics unit, just under $1 billion to its $3.2 billion acquisition of Illinois Tool Works Inc.’s industrial-packaging business and $400 million to its purchase of a minority stake in hair-products maker Vogue International, he said on the call.

“The business ebbs and flows,” Conway said. “Our global investment pipeline is stronger than it has been in over a year.”

Carlyle said distributable earnings, a measure of cash profitability, rose to $401 million in the fourth quarter from $188 million a year earlier. The company plans to pay a dividend (CG:US) of $1.40 a share on March 11.

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)
    • $30.61 USD
    • -0.48
    • -1.57%
  • BX
    (Blackstone Group LP/The)
    • $32.56 USD
    • -0.61
    • -1.87%
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