The Carlyle Group Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Quarterly Performance: First quarter hit record levels with record fee-related earnings of $311 million (up 17% YOY), record FRE margin (48%), record distributable earnings ($455 million), and record assets under management ($453 billion).
• Macro Environment: Entered the year with high market optimism, but trade policies impacted investor sentiment. Carlyle's long-term investment horizon, capital base, and capital-light model position it well to capitalize on opportunities.
• Business Areas:
  • Carlyle AlpInvest: Generated record FRE, AUM growth, and diversified client solutions, including a $4 billion final close on a portfolio finance fund.
  • Global Credit: Strong fee-related earnings, inflows, and opportunities in European lending with 150% YOY evergreen private credit deployment.
  • Insurance: Fortitude's reinsurance transactions in Japan, leveraging Carlyle's long-term track record.
  • Global Wealth: Evergreen inflows doubled over the past year due to strategic initiatives.
  • Global Private Equity: Portfolio value appreciation and strong realizations, with U.S. Buyout business performing particularly well.
  • Capital Markets: Accelerating growth with $150 million in fees over the past 6 months.

Segment Performance

• Carlyle AlpInvest: Record fee-related earnings (FRE) of $66 million in Q1, nearly double the first quarter of 2024. AUM grew 12% over the past year to $89 billion. Contributes to firm-wide FRE.
• Global Credit: Quarterly fee-related earnings surpassed $100 million for the first time, up nearly 50% from last year. First quarter revenue was $232 million, up 28% year-over-year. Inflows were $7.5 billion.
• Global Private Equity: Results were in line with expectations. U.S. Buyout business performed well, with the last 2 vintages appreciating 2-3% in Q1 and ~18% over the past year. Key realizations included Hexaware Technologies IPO, StandardAero secondary sale, etc.
• Global Wealth: Evergreen inflows doubled over the past year.
• Insurance (Fortitude): Announced over $8 billion in reinsurance transactions, including a sixth in Japan.
• Capital Markets: Generated a record $150 million in fees over the past 6 months.

Guidance

• Management remains comfortable with 2025 financial targets but notes market uncertainty. Carlyle AlpInvest and Global Credit are driving growth, contributing 50% of firm-wide FRE vs 34% in 2023.
• U.S. Buyout business expects management fees to increase in Q2 with activation of the latest real estate fund.
• Fund IX fundraising is targeted for Q4, with focus on performance of Fund VIII and potential kickoff in that period.

Risks

• Impact of trade policies on investor sentiment and emerging second-order economic effects.
• Uncertainty around U.S.-China trade dialogue and its potential impact on the global economy.
• Potential headwinds in the private equity market, though Carlyle's scale and diversification help navigate these challenges.

Q: Impact of trade policy on investment and LP discussions.

A: Cautiously opportunistic, LPs are open for business but being thoughtful, with focus on U.S.-China trade dialogue progress.

Q: Private Equity DPI performance and timing.

A: No major adjustments to CP IX, active deployment, strong performance in U.S. Buyout with portfolio value appreciation and strong realizations.

Q: Insurance wins and wealth flow tracking.

A: Insurance wins count towards the $40 billion flow guide, wealth fundraising up 40%, and Evergreen products up 70% YOY.

Q: Expenses and FRE margin.

A: 48% FRE margin due to investment in growth areas, G&A on track with a run rate of ~$95 million to $100 million.

Q: AlpInvest fundraising and contribution.

A: Strong growth, CAPM fund 57% committed, potential midyear fundraising for secondaries fund with significant upside.

Q: Endowment sector impact.

A: Not material, potential opportunity for AlpInvest to deploy capital from endowment shifts.

Q: Inorganic growth in insurance.

A: Open to accretive acquisitions, with preference for capital-light model and strong bias towards organic growth.

Q: Japan opportunities.

A: Strong franchise in Japan, growing funds, and potential for further growth with long-term commitment.

Q: Capital markets transaction line.

A: Activity-driven, capital-light, with multiyear growth potential and $150 million in fees over 6 months.

Q: Real estate fund sizing and GP fees.

A: Second quarter management fees to increase with real estate fund activation, sizing of CRP X larger than predecessor.

Q: Fund IX fundraising.

A: No impact on 2025 targets, with focus on Fund VIII performance and potential Q4 kickoff.

Q: Carry fund triggers.

A: CP VII on track for carry, heavy realization activity, likely over next 12 months