Yahoo Finance The Carlyle Group Inc. (NASDAQ:CG) Q1 2024 Earnings Call Transcript
The Carlyle Group Inc. (NASDAQ:CG) Q1 2024 Earnings Call Transcript May 1, 2024
The Carlyle Group Inc. beats earnings expectations. Reported EPS is $1.01, expectations were $0.92. The Carlyle Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to The Carlyle Group's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Daniel Harris, Head of Investor Relations. Please go ahead, sir.
Daniel Harris: Thank you, Norma. Good morning, and welcome to Carlyle's first quarter 2024 earnings call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz; and our Chief Financial Officer and Head of Corporate Strategy, John Redett? Earlier this morning, we issued a press release and a detailed earnings presentation, which is also available on our Investor Relations website. This call is being webcast and a replay will be available. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided a reconciliation of these measures to GAAP in our earnings release to the extent reasonably available.
Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our Annual Report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. In order to ensure participation by all those on the line today, please limit yourself to one question and then return to the queue for any additional follow-ups. And with that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz.
Harvey Schwartz: Thanks, Dan. Good morning, everyone, and thank you for joining us. I want to touch on three areas today. First, our financial performance and an update on our 2024 targets. Second, Carlyle's ability to capitalize on an improving macroeconomic environment. And third, progress on key strategic areas. First, our performance. Our first quarter results reflect continued momentum across the firm, and importantly, we are on track to achieve our 2024 financial targets, including targeting FRE of $1.1 billion, targeting FRE margins to increase to a range of 40% to 50%, and targeting inflows of $40 billion in 2024. We once again set several financial records this quarter, including record quarterly FRE of $266 million, a near 40% increase over first quarter last year and record FRE margin of 47%, more than 33% higher than last year.
These results are the outcome of our efforts to prioritize operational excellence and optimize our business model, while at the same time enabling us to invest for growth. We anticipate a pickup in fundraising, deployment and realization throughout the year, and we remain confident in our ability to achieve our financial targets for 2024. With respect to fundraising, we raised $5.3 billion in new capital in the quarter, in line with our expectations, after a near record quarter closing out 2023. Looking forward, we expect to see a pickup in fundraising over the next few quarters, again, keeping us in line with our target. While the macroeconomic environment remains somewhat fragile, we continue to see signs that the investment environment is steadily improving.
Capital from the banking system and private credit is more readily available. Private credit and syndicated loan spreads are at historically tight levels. Equity volatility is under long-term averages, and interest rates and inflation have generally stabilized. These are clear improvements from this time last year, which is driving increased investor confidence, and if sentiment continues to improve, we expect a higher level of deal activity. Our deal teams are already starting to see the knock-on effects of improved market sentiment. We had $5.9 billion of realized proceeds this quarter. We have to go back to the fourth quarter of 2022 to see a higher number. We've already announced additional exits in various strategies that will close in the coming quarters.
We have $2.2 billion in net accrued carry across our portfolio, and our global pipeline continues to increase. Carlyle is well-positioned to capitalize on these improving market conditions over the coming months. We have high-quality assets in our portfolio ready to be monetized and $76 billion in dry powder ready to be deployed across our global franchise. Switching gears, I want to provide an update on our strategic areas of focus. In Global Wealth, we have strong momentum. Since inception, we raised nearly $50 billion of wealth assets. Our global scale and brand give us a competitive advantage in this rapidly growing distribution channel. I have witnessed the importance of our brand and quality of our funds firsthand in my personal interactions with wealth advisers.
We want to ensure we're providing the most efficient access to alternative markets alongside the best funds for our end clients. Our credit fund CTAC had another strong quarter, and our secondary focused investment solutions product, CAPM, saw a ramp-up in sales. These funds have historically provided strong performance for our investors. We continue to expand our footprint, adding new wealth distribution partners in the near term. More broadly in Global Credit, we're focused on driving growth and capturing share. We see opportunity to continue to scale our asset-backed finance offering, a trend that may persist for years as market participants increasingly look to partner with firms like Carlyle to address their capital solutions. We have mobilized and scaled our credit strategic solutions team to address this opportunity.
This strategy has grown to more than $7 billion in assets with good opportunity for continued growth. And finally, in Global Investment Solutions, we continue to see strong momentum. This is helping us both in the institutional channel as well as in the wealth channel with our secondary focused CAPM fund. And obviously, this business is somewhat countercyclical to the rest of the franchise. To wrap things up, we entered 2024 with solid momentum. We continue to execute against our financial targets and strategic areas of focus. All of this positions us to deliver significant growth and shareholder value. With that, let me now turn the call over to John.
John Redett: Thanks, Harvey. Good morning, everyone. As Harvey said, our first quarter results were in line with our expectations, and we remain on track to achieve the 2024 financial targets we outlined on last quarter's call. For the first quarter, we generated record FRE of $266 million, nearly 40% higher than the first quarter last year. FRE margin of 47% was also a record and up from 35% in Q1 2023. We produced $431 million in DE or $1.01 in DE per share, our best quarterly DE result since 2022. We finished the first quarter with $425 billion of assets under management, up 12% year-over-year. In the first quarter, we completed the sales of McDonald's China and Neptune Energy, both of which produce attractive returns for LPs and strong performance revenues for our shareholders.
Over the past year, we have returned $22 billion in capital to our LPs, highlighting the ability of our investment teams to find liquidity opportunities in difficult and challenging capital markets. We raised $5.3 billion of capital in the quarter and remain confident in achieving our target of $40 billion of inflows for the year. In Solutions, we raised $2.3 billion in the quarter and nearly $14 billion over the last 12 months, as we continue to have success attracting investors to our Secondaries and Co-Investment strategies. And we are starting to see momentum building in our global wealth product, CAPM. In Global Credit, where our CLO platform is one of the largest in the industry, we had an active quarter in a very active market. We priced seven CLOs, including three new issue CLOs. We also saw a strong inflow activity into our global wealth product, CTAC, and continue to see capital raise for our asset-backed finance strategy.
And in Global Private Equity, the fundraising environment remains somewhat challenging, but we do see some pockets of strength like real estate and Japan. Management fees totaled $516 million in the first quarter, up about 2% compared to the prior year. We have $15 billion of pending fee-earning AUM that has yet to activate fees. Capital markets activity remains constrained, but it is showing signs of improvement. Transaction and advisory revenues of $27 million increased more than 60% from the first quarter last year. G&A expenses of $80 million were lower compared to the first quarter last year as we benefited from expense discipline and had some one-time items that lowered the quarterly G&A level. We expect G&A expense to shift back towards the recent run rate in the second quarter.
Our net accrued carry balance of $2.2 billion declined relative to last quarter due to fund realizations and a relatively lower level of appreciation in our carry funds. And at $6 per share, it remains a substantial source of future earnings. We repurchased 150 million of stock, decreasing our adjusted shares outstanding by 1%. Our remaining share repurchase authorization is approximately $1.25 billion, and we remain active buyers of our stock. Wrapping up, we are optimistic about market conditions improving, and we are on track to meet our financial targets for 2024. With that, let me turn the call over to the operator for your questions.
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