Yahoo Finance The Carlyle Group Inc (CG) Q1 2024 Earnings Call Transcript Highlights: Record Margins and ...
FRE (Fee-Related Earnings): $266 million, up nearly 40% from Q1 last year.
FRE Margin: 47%, a record high and up from 35% in Q1 2023.
DE (Distributable Earnings): $431 million or $1.01 per share, the best quarterly result since 2022.
Assets Under Management: $425 billion, up 12% year-over-year.
Capital Raised: $5.3 billion in the quarter, on track for $40 billion annual target.
Management Fees: $516 million, increased by about 2% from the previous year.
Transaction and Advisory Revenues: $27 million, up over 60% from Q1 last year.
G&A Expenses: $80 million, lower compared to Q1 last year.
Net Accrued Carry: $2.2 billion, a key future earnings source.
Stock Repurchase: $150 million, reducing adjusted shares outstanding by 1%.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
The Carlyle Group Inc (NASDAQ:CG) reported a record quarterly FRE of $266 million, a near 40% increase over the first quarter of the previous year.
CG achieved a record FRE margin of 47%, significantly higher than the 35% in Q1 2023.
Assets under management grew to $425 billion, up 12% year-over-year.
CG successfully completed significant sales including McDonald's China and Neptune Energy, generating strong returns for LPs and performance revenues.
The company remains on track to meet its 2024 financial targets, including a targeted $40 billion of inflows.
Negative Points
The macroeconomic environment remains somewhat fragile, which could impact investment and market activities.
Management fees only saw a modest increase of about 2% compared to the previous year, indicating slower growth in this revenue stream.
The fundraising environment in Global Private Equity remains challenging, although there are some pockets of strength.
Net accrued carry balance of $2.2 billion declined relative to the last quarter due to fund realizations and a relatively lower level of appreciation in carry funds.
General and Administrative (G&A) expenses are expected to increase in the coming quarters, potentially impacting margins.
Q & A Highlights
Q: Could you discuss the trajectory of Fee-Related Earnings (FRE) for the remainder of 2024, particularly in relation to expenses and fee-related revenue? A: Harvey Schwartz, CEO, noted the record FRE of $266 million for the quarter, a 40% increase from the previous year, with a strong margin of 47%. He mentioned that the G&A expenses were unusually low due to seasonal factors and one-off items, expecting them to normalize in the coming quarters. Management fees met expectations with no surprises, and with $15 billion of pending fee-paying AUM, an acceleration in fee growth is anticipated throughout the year.
Q: What were the drivers behind the decline in private credit fee-paying AUM this quarter? A: John Redett, CFO, explained the slight decline as normal course runoff, emphasizing strong fundraising momentum across various products, particularly in secondaries and co-investment strategies. He expects an acceleration in growth in fee-paying AUM.
Q: Can you provide more details on the $15 billion of pending fee-paying AUM and the components contributing to achieving the $40 billion inflow target for the year? A: Harvey Schwartz highlighted the momentum across various segments, including Solutions, Wealth channel, and Credit. He stressed the importance of new wealth partnerships and upcoming product launches, indicating strong potential for meeting the annual targets.
Q: What is your outlook for share repurchases for the rest of the year? A: John Redett mentioned that $1.25 billion remains in the share repurchase authorization, with Carlyle actively buying back stock. He also discussed equity-based compensation, noting it was elevated due to grants to key investment team members, aligning their interests with shareholders.
Q: How are you thinking about the dividend moving forward, particularly in light of potential increases in the payout ratio? A: Harvey Schwartz indicated no immediate changes to the dividend, emphasizing flexibility in capital allocation to invest in the business and return value to shareholders. The focus remains on maintaining flexibility rather than adjusting the dividend.
Q: Could you comment on the increase in U.S. and European CLO default rates and your exposure to Altice in the global CLO business? A: John Redett reassured that the credit quality in Carlyle's CLO business remains strong, with default rates in the U.S. half the industry average and European rates also better than average. He expressed confidence in the long-term performance and management of the CLO portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
