Q4 2024 Earnings Summary
- Carlyle Group expects increased investment activity and realizations in 2025, particularly in Global Private Equity, with favorable market conditions such as active strategic buyers, attractive financing costs, and opening IPO markets contributing to a conducive environment for buying and selling assets.
- The company anticipates potential upside beyond its base 6% FRE growth guidance for 2025, driven by accelerated growth in Global Wealth, positive surprises in capital markets fees, insurance inflows, and stronger than expected growth in Global Credit.
- Carlyle is aggressively investing in high-growth areas like Global Credit, particularly in asset-backed finance, which is a massive market ($20+ trillion globally), and expects significant growth in this area along with their retail wealth product in Credit (CTech).
- Decline in Global Private Equity Management Fees with Ongoing Headwinds: Management fees in the Global Private Equity segment declined by 7% in 2024. The firm expects a more modest decline in 2025 before growth can resume, indicating continued pressure in this core business segment. This slowdown could impact overall revenue growth, especially if fundraising for the next U.S. buyout fund faces challenges.
- Increased Expenses May Pressure Margins Despite Modest FRE Growth: While the firm projects a 6% growth in Fee-Related Earnings (FRE) in 2025, this is described as a base case that does not assume significant increases in realization activity. At the same time, they plan to invest aggressively in growth areas like Global Wealth and Credit, with Global Wealth headcount expected to grow by at least 50% in 2025. These investments could lead to higher General & Administrative (G&A) expenses, potentially pressuring FRE margins and diluting earnings growth.
- Challenges in Certain Credit Businesses and Uncertainty in Carry Realization: The Global Credit segment faces issues as the Collateralized Loan Obligation (CLO) business continues to see headwinds in early 2025. Additionally, uncertainties exist around the realization of carried interest in key funds. For instance, Carlyle Partners VII is hovering around an 8% Internal Rate of Return (IRR), and while management is confident, there is a risk it may not remain above the hurdle rate to earn carry. Similar performance declines in other funds due to market volatility, especially in public equities, could further impact earnings.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Increased from $926.2M to $1,032.5M (+11.5%) | Total Revenue improved largely due to a stronger performance in segments such as Global Private Equity, which saw a 33% increase, offsetting challenges in other areas. This rebound builds on a previous base of lower revenue, where the mix of fee-related and performance revenues was subdued. |
Net Income | Reversed from a loss of $580.3M to a profit of $227.3M | The sharp turnaround in Net Income reflects a major recovery in operating performance, driven by a rebound in performance allocations and realized revenues compared to the prior quarter’s significant losses. This reversal indicates that underlying operational improvements and better market performance have helped overcome the previous period’s headwinds. |
Basic EPS | Recovered from –$1.91 to $0.59 | Basic EPS recovery mirrors the net income improvement, benefiting from a combination of higher realized earnings and possibly improved cost management relative to the diluted share count. This marked recovery follows a period of negative earnings per share driven by poor operational outcomes in the previous period. |
Global Private Equity Revenue | Increased from $577M to $766.2M (+33%) | The 33% increase in Global Private Equity revenue is due to stronger performance-related fees and successful exit activities that drove higher realized revenues compared to the previous period. This improvement builds on earlier performance, reflecting an enhanced fee mix and better market conditions in private equity investments. |
Global Credit Revenue | Deteriorated from $224.1M to –$159.9M | Global Credit revenue sharply reversed due to a severe downturn in fee revenues, where previous positive figures were turned negative. The drastic reversal likely stems from weaker transaction-related fees and a drop in fee-related performance revenues, indicating that challenges in credit markets and operational setbacks in this segment persisted into the current period. |
Global Investment Solutions Revenue | Declined from $95.2M to –$62.8M | The significant downturn in Global Investment Solutions revenue reflects a swing from modest positive figures to negative outcomes, primarily driven by a sharp drop in realized performance revenues and reduced fee contributions. This reversal from the prior period underscores ongoing challenges in this segment's ability to generate revenue under current market conditions. |
Net Change in Cash | Shifted from a positive $169.9M to –$112.4M | The net cash position contracted markedly as the previous period’s positive cash flow was reversed due to increased outflows from financing activities such as share repurchases and dividend payments, alongside lower operating cash inflows. These changes indicate that cash management initiatives and financing demands have shifted the liquidity profile unfavorably compared to the prior period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Fee-Related Earnings (FRE) Growth | FY 2025 | no prior guidance | 6% compared to 2024 | no prior guidance |
FRE Margin | FY 2025 | no prior guidance | Expected to remain at a level similar to 2024 | no prior guidance |
Inflows | FY 2025 | no prior guidance | Expected to be similar to 2024 levels, with Credit poised to raise the most capital | no prior guidance |
Compensation Ratio | FY 2025 | no prior guidance | Aiming for 35% or less | no prior guidance |
Management Fee Growth | FY 2025 | no prior guidance | Strong growth in Solutions and Credit, modest decline in CPE | no prior guidance |
Realization Activity | FY 2025 | no prior guidance | Expected to increase relative to 2024, but not a substantial pickup in the 6% forecast | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Management Fees | In Q1–Q3 2024, management fees grew in Credit (up ~2–11%), Solutions (up ~40–45%), with headwinds in Private Equity. | Strong growth in Global Credit (+9%) and Investment Solutions (+40%), slight decline in Global Private Equity (–7%) but expected to improve with new fund launches in 2025. | Recurring; bullish outlook for 2025 |
Fee-Related Earnings (FRE) and Margins | Q1–Q3 2024 saw steady increases (Q3 at $278M, up 35% YoY, margins ~47%) ; Q2 was $273M (up 30% YoY) ; Q1 hit $266M with margins ~47%. | Reached a record $1.1B for 2024 (up ~30% YoY), margin at 46%. | Recurring; still growing strongly |
Realizations and Performance Fees | Q1 2024 had $5.9B realized proceeds; net accrued carry was $2.2B. No details were provided in Q2 [“No mention”]. In Q3 2024, exits (e.g., StandardAero) and net accrued performance revenues rose +$600M to $2.8B. | Strong realization activity with several exits (Standard Aero, Rigaku) and doubled transaction/performance fees ($164M). Realizations expected to rise in 2025, though FRE guidance does not heavily rely on them. | Recurring; positive sentiment |
Fundraising Targets and Momentum | Validated a $40B 2024 goal in Q1–Q3; by Q3, $26B raised YTD with confidence in meeting the target. Q2 raised $18B YTD, $41B LTM. Q1 noted $5.3B in first quarter. | Achieved >$40B in 2024, third-best fundraising year ever. Expects similar inflows in 2025, especially in Global Credit. | Recurring; target met, strong push |
Global Private Equity IRR Performance | Q1–Q2 details were sparse; Q1 noted CP VII fell out of carry. Q3 reported CP VII at 8% IRR, CEP V at 4%. | CP VII improved around 8% IRR, with confidence it could keep rising. CEP V and others showed mixed performance. | Recurring; moderate improvements |
Global Credit and CLO Market Conditions | Q1–Q3 2024 showed strong growth and record CLO activity (over 20 transactions), robust loan demand, and optimism about credit pipeline. | CLO business rebounded from prior headwinds. Global Credit AUM grew to ~$190B, with management fees up 9% in 2024. CLO activity had “tremendous” improvement, offsetting past challenges. | Recurring; CLO recovery noted |
Retail Wealth and Wealth Management | Q1–Q3 saw steady emphasis on building wealth products (CTAC, secondaries product), record inflows (e.g., $1.8B in Q3 alone), and plans to launch PE wealth product in 2025. | Achieved $4.5B in inflows for 2024, up 65% in AUM to >$9B. Planning a new private equity product in late 2025. | Recurring; rapid expansion |
Asset-Backed Finance Initiatives | Q1–Q3 focused on growing this platform (e.g., $7B+ in AUM), large Discover transaction near $10B, seeing it as a multitrillion-dollar opportunity. | Team grew 30% in 2024; completed a major Discovery transaction; sees a $20+ trillion addressable market; anticipating continued strong growth in 2025. | Recurring; high growth priority |
Insurance Inflows and Block Business | Q1 discussed pipeline momentum (e.g., Lincoln National deal), Q2 mentioned a more competitive block market. Q3 had no mention. | Insurance inflows (e.g., Fortitude) would be upside to FRE guidance; more ongoing insurance conversations than ever. No direct mention of block competition. | Recurring; remains a future upside |
Equity-Based Compensation Pressures | Elevated through Q1–Q3 2024 (performance stock units front-loaded in expense). Q1 run rate ~$111M, Q2–Q3 noted step-down likely in 2025. | No mention in Q4 2024. | No longer mentioned |
Share Repurchase Program | Q1–Q3 saw ongoing buybacks: Q2 ($178M in Q2 alone), Q3 nearly $500M YTD. | Repurchased ~$550M in 2024 and authorized a total of $1.4B; first time share count has shrunk YoY for two consecutive years. | Recurring; continuing capital return |
Transaction and Advisory Fees | Q1–Q3: Notable increases (Q1 +60% YoY, Q2 +60% YoY, Q3 at record levels). Capital markets activities helped drive fees. | More than doubled in 2024 to $164M, largely due to capital markets business expansion, with ~40% from new areas like infra, renewables. | Recurring; strong growth |
Market Conditions for Exits and IPOs | Q1–Q3: Gradual improvement in IPO window and exit environment (e.g., StandardAero, Rigaku). Q3 saw better macro backdrop and increased M&A/IPO activity. | Expect 2025 to be “busy” for realizations, citing robust IPO markets (already saw Standard Aero, Rigaku) plus active strategic buyers. | Recurring; bullish stance on 2025 |
Headcount Expansion in Global Wealth | No mention in Q1–Q3 2024. | The team grew by over one-third in 2024 and is expected to expand 50% in 2025, indicating heavy investment. | New; first mention of hiring surge |
Geopolitical Headwinds in Europe/Asia | Q2 mentioned smaller fund sizes (CAP VI, CEP VI) due to geopolitical headwinds in Asia. No mention in Q1 or Q3. | No mention in Q4 2024. | No longer mentioned |
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FRE Growth Drivers
Q: What are the main drivers of your 6% FRE growth guidance?
A: John explained that the 6% FRE growth is a base case, reflecting aggressive investment in businesses where they see growth: Wealth, Credit, and Solutions. They are focusing on long-term growth over short-term FRE. They anticipate headcount in Wealth to grow more than 50% in 2025 , with significant investments in their asset-backed business and Solutions. They also see potential upside if wealth growth accelerates faster than anticipated, capital markets fees exceed expectations, and if they secure insurance flows. -
Outlook for Realizations
Q: How do you expect the pace of realizations to evolve in 2025?
A: John stated they are optimistic about 2025 being a busy year for realizations. M&A volumes were up 20% last year, IPO volumes up 50–60%, and they have capitalized on the opening markets with successful IPOs like Rigaku in Japan. Financing costs remain attractive, and strategic buyers are active again, contributing to a conducive market for buying and selling assets. -
Next U.S. Buyout Fund Timing
Q: When will you launch the next U.S. buyout fund?
A: John indicated they anticipate launching the next U.S. buyout fund toward the back end of 2025, with fee activation at some point in 2026. This will help return their Corporate Private Equity business to a positive trajectory. -
Capital Allocation and Share Repurchases
Q: Will you accelerate share buybacks given your outlook?
A: Harvey mentioned they have $850 million left on the authorization after repurchasing $550 million worth of shares in 2024. They view stock buybacks as an attractive way to return capital to shareholders and will be active in 2025. They are balancing buybacks with investing in business growth but still see their stock price as attractive. -
Confidence in CP7 Carry
Q: How confident are you that CP7 will collect accrued carry?
A: John expressed confidence in CP7, noting that its performance has improved dramatically over the last 12 months. While carry depends on fund performance and capital returned to LPs, they are confident the fund will hit carry. -
Fee-Paying AUM Decline Impact
Q: Why does the $6 billion decline in fee-paying AUM have minimal impact?
A: John explained that the decline is due to mark-to-market movements, particularly a $6 billion mark in credit market activity related to Fortitude, which has no significant economic impact. The impact to 2025 is literally a couple of million dollars, making it immaterial. -
Global Credit Growth and Fees
Q: Why did Global Credit fees decline in Q4, and what's the outlook?
A: John noted that while management fees in the CLO business were down an immaterial amount due to market headwinds, every other business in Credit is growing. Transaction fees are generated across the platform and are more diversified than before. They feel exceptionally good about the trajectory of Credit moving forward. -
G&A Expenses and Investments
Q: Can you discuss the increase in G&A expenses and investment plans?
A: John mentioned that G&A expenses were up 2% in 2020 and 4% in 2024, reflecting efficient operations. The fourth quarter had elevated G&A due to seasonality and one-off items like fundraising expenses. They are investing heavily in Wealth (headcount up 50% in 2025), Credit, Solutions, and the Japan buyout business. -
Compensation Ratio Expectations
Q: What are your comp ratio expectations for the year?
A: John stated they aim to reach a comp ratio of 35% or less naturally, relying on net realized performance revenues rather than cutting expenses. They reached 36% last year and believe 35% is imminently achievable as realizations accelerate. -
BDC Merger Impact
Q: What is the impact of the BDC merger on fees and growth?
A: John said the BDC merger will have a positive but not material impact on management fees and FRE. The merger is on track to close in late Q1 or early Q2. They are investing in the direct lending business, seeing strong performance and significant growth potential due to Carlyle's brand. -
Asset-Backed Strategies and Solutions Growth
Q: Are you forming dedicated asset-backed strategies, and what's the outlook for Solutions?
A: Harvey confirmed there's a dedicated fund being raised in the asset-backed market, built off their partnership with Fortitude. They've been investing heavily in the team and will continue to grow. The Solutions business is one of their fastest-growing areas, with impressive performance and expanding partnerships. -
Realization Assumptions Behind FRE Guidance
Q: Does the 6% FRE growth assume a pickup in realizations?
A: John clarified that their 6% FRE growth guidance does not assume a substantial increase in realization activity. They expect realizations to increase relative to 2024 but not enough to significantly impact their base case.