The Carlyle Group Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Macro Environment: The market is complex but resilient, with inflation moderating, healthy balance sheets, and continued consumer spending. Carlyle proprietary U.S. economic data shows steady EBITDA growth, investment in technology/AI infrastructure, and resilient consumer demand.
• Credit Markets: No broad deterioration in credit quality; fundamentals remain solid. M&A volume was up over 40% Y/Y in Q3, and IPO volumes were up 60% YTD.
• Global Private Equity: Returned $19 billion to limited partners in the past year, 150% of the industry average. Had successful IPO of Orion Breweries in Japan, sold Calastone and HSO in Europe, and completed a EUR 7.7 billion carve-out of BASF's coatings business.
• Carlyle AlpInvest: FRE was up over 80% YTD. Closed a $20 billion secondaries fund, a $1.25 billion GP-led collateralized fund obligation, and a $550 million credit secondaries continuation vehicle.
• Global Credit: Platform scaling with asset-backed finance inflows of $2 billion. Insurance solutions platform active, CLO platform inflows over $3 billion, and direct lending platform growing at 20% CAGR.
• Global Wealth: Evergreen inflows at $3 billion in Q3, 10x growth since management change, and partnership with Oracle Red Bull Racing.

Segment Performance

• Global Credit: Generated nearly $10 billion in inflows in Q3, with total AUM reaching $208 billion, comprising 45% of firm-wide assets. FRE from Global Credit is nearly 1/3 of Carlyle's total. Asset-backed finance strategy had almost $2 billion inflows. The insurance solutions platform ($87 billion) was active, with initiatives like a $4 billion reinsurance agreement with Unum. The CLO platform had inflows of more than $3 billion, and the direct lending platform is growing at a 20% CAGR. The asset-backed finance business raised $2 billion in Q3.
• Carlyle AlpInvest: Raised $6.3 billion in Q3, with year-to-date total capital raised exceeding $15 billion. AUM at AlpInvest is $102 billion, up over 20% YTD. FRE at AlpInvest represents 23% of Carlyle's FRE. Key highlights include closing a $20 billion secondaries fund, a $1.25 billion GP-led collateralized fund obligation, and a $550 million credit secondaries continuation vehicle.
• Global Private Equity: Attracted nearly $9 billion in capital over the past year, with $40 billion available capital to deploy. Announced a EUR 7.7 billion transaction with BASF and has $5 billion of announced exit transactions. Medline, a U.S. bio portfolio company, filed for an IPO.
• Global Wealth: Evergreen vehicles are scaling quickly, with $32 billion of evergreen capital. Raised $3 billion in Q3 across evergreen wealth products, and the Carlyle AlpInvest CAP solution with UBS surpassed $1 billion in assets.

Guidance

• Full-year FRE growth is expected to exceed 10%, up from the prior outlook of 6%. Full-year inflows target $50 billion, up from the prior $40 billion.
• On track to exceed the 10% FRE growth target for the full year while continuing to invest for the long term.
• Confident in exceeding the financial targets updated last quarter.

Risks

• Forward-looking statements involve inherent risks and uncertainties, including those identified in the Risk Factors section of Carlyle's annual report on Form 10-K, which could cause actual results to differ materially from forward-looking statements.

Question and Answer

Q: Looking at inflows for the quarter, it was clearly a little bit lighter in private equity, but credit and solutions both came in above expectations, and there's a lot of momentum there. It would just be helpful if you could talk about the outlook for inflows by business into year-end. And how you're thinking about flows throughout 2026 and some of the different drivers there? And then, I guess, do you have any visibility into some of the larger insurance transactions that might be coming in over the next couple of quarters?

A: Thanks, Brian. It's John. Look, we feel very good about where we are in terms of inflows. This is an area where I think we have tremendous momentum and really reflects we have strong investment performance across the firm. And I would say client engagement remains positive and remains elevated. So $17 billion in the third quarter, obviously, a very strong quarter, it's nearly double the third quarter from 2024. If you look at kind of an LTM basis, we're $60 billion, and year-to-date, we're around $45 billion. So we feel good about the revised guidance that Harvey alluded to in his script, which we provided last quarter, which was around $50 billion. Again, we're at $45 billion year-to-date. We obviously had a very strong quarter in credit and AlpInvest. Harvey talked about how we closed on the secondaries platform, where we raised $20 billion, but we had a really strong quarter without any real private equity funds in the market. So I feel good about the diversification that's driving this growth. So overall, I'd say in terms of inflows, we have tremendous momentum going into the fourth quarter, but more importantly, going into 2026.

Q: Justin, welcome to the call, and John, congrats again on the new role. Harvey, maybe just building on that a little bit. You alluded in your prepared remarks, in the script as well, just around the strong momentum you guys think for 2026. Maybe expand on that a little bit. What are the key top-of-the-house priority in terms of growth for next year? What do you find to be most needle moving? And what do you guys ultimately that could mean for management fee growth into '26?

A: Great, Alex. So I would say at this particular point in time, the momentum for the firm has never felt better. And I say that in terms of client engagement globally, the strategic execution of the team. And I think that, when I say that, I'm talking about all aspects of the firm. So you see it in solutions, you see it in the wealth channel, you see across credit. It's a quiet year for private equity and fundraising, but the performance by the team, as I mentioned, has been remarkable, returning 150% of the average of capital. When you think through 2026, the demand for capital is going to be quite high. So I think deployment will be good, and I think the opportunities would be great. We see opportunity virtually in every part of the platform. If you think about credit, they're building quite quickly in the asset-backed business. You'll see more activity there. Same across insurance, the pipeline remains very good and fortitude and the engagement just broadly speaking, with insurance clients, as they continue to invest in private credit. So the team has done a remarkable job there. We have the 2 flagship wealth funds, evergreen funds, up, CPEP will really be in the market next year. And so you'll see another wealth flagship vehicle, which will give our wealth investors the opportunity to participate there. So really when you sort of look at all aspects, either through the client lens or the specific business, I feel very, very good about the momentum and about flows and about growth. And then, capital market still has a lot of room to run, and that's just going to be levered to activity. And so all the pieces now that we've been putting in place over the last couple of years, and I have to thank John for his leadership and partnership in that role, you're really starting to see it, but we're -- really feel we're just very much at the beginning of that.