Q3 2020 Carlyle Group Inc Earnings Call
<unk> mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require any assistance. During the conference. Please press. The Star then zero and an operator will be de sharply as a reminder, this call is being recorded I would now like to surgical Oh over two years.
Most today Mr. Daniel Harris, Sir Please go ahead.
Thank you alluding good morning, and welcome to Carlyle's third quarter 2020 earnings call with me on the call today is our Chief Executive Officer, a few sung Lee and our Chief Financial Officer, Kurt user. This call is being webcast and a replay will be available on our website, we will refer to certain non-GAAP financial measures during today's call. These measures.
Should not be considered in isolation from as or or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliations of these measures to GAAP in our earnings release.
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 factor section of our annual report on form 10-K, and other SEC filings that could cause actual results.
To differ materially from those indicated Carlyle assumes no obligation to update any forward looking statements at any time.
Earlier. This morning, we issued a press release and detailed earnings presentation, which is also available on our Investor Relations website for the third quarter, we generated $119 million in fee related earnings and 152 million and distributable earnings with de per common share of 40 cents. We have declared a quarterly dividend of 25 cents per common share.
To ensure participation by all those on the call today. Please limit yourself to one question and then return to the queue for any additional follow ups with that let me turn the call over to our Chief Executive Officer to sung Lee.
Good morning, everyone and thank you for joining our call today, we hope you and your families are safe healthy and doing well Carlo.
Carlyle's third quarter results underscore our position of strength as we adapt and perform in the current environment.
The hard work and dedication of our people and the resilience of our global platform puts us on track to deliver attractive financial performance. This year.
Our portfolio continues to create value on behalf of our fund investors, which we believe sets the stage for higher distributable earnings for our shareholders for the next several years.
All of this momentum combined with our senior teams focus on the long term strategic direction of the firm positions Carlyle for accelerating growth.
I'd like to touch on four important points underpinning our momentum.
First we are focused on growing EPS R&D.
We've done this by scaling our largest fund platforms, while carefully managing expenses.
This has helped drive our FRC margins up more than 300 basis points. This year and margins have increased more than 1000 basis points over the past three years.
Problems with more expected in 2021 the.
The funds raised from fortitude are attractive because of the recurring permanent like nature of this capital.
The third point is our investment portfolio is performing well.
Overall carry fund platform appreciated 5% in the third quarter with our global private equity business, leading the way and up 5% as well with particular strength and our Asia portfolios.
R U S real estate funds continue to perform extremely well up 3% in the quarter due to discipline portfolio construction, resulting in virtually no direct exposure to the hard hit office retail and hotel sectors.
And our global credit teams are executing at a very high level with our <unk> now substantially recover and collecting all fees as a result of active thoughtful repositioning and trading within these portfolios.
Let me quickly also highlight our exposure to the energy sector, which is facing cyclical pressure as well as secular issues or investment exposure to this sector has been purposefully structured to be ring fenced in a few industry sector focused funds and as a result, much of our private equity in private credit portfolios.
A very limited exposure to energy specific investments.
As a result of strong value creation by are funded this quarter are net accrued carry balanced grew to $2 billion, increasing our confidence for significant earnings growth as realizations increase in performance revenues accelerate.
It's worth noting that we turned on carry for our largest fund carlyle's partners six.
And while we remain in the early stages of monetizing some of the public and private holdings across all of our maturing funds. We have line of sight to accelerating realisation activity over the next several years environmental conditions permitting.
The fourth and last point I'd like to make is that our activity is picking up as we use our platform to originate new investments.
We invested three $7 billion of new capital in the quarter and our pipelines are filling up as activity builds throughout our businesses.
Our private equity business continues to show resilience it remains our largest and strongest platform.
Growth investments are a key pillar and we're very pleased with the activity in this area, especially in our strong industry sectors like technology healthcare consumer in financial services.
Our global reach also continues to be a competitive differentiator.
We have been quite busy in Asia, notably China in the in Korea, and we are closed or announced more than one and a half billion a new investments in 2020.
And while the industry's large complex buyout volume has been muted.
Our teams are more active assessing traditionally larger opportunities like take privates and carve outs and this is demonstrated through the announcement. This morning that we have agreed to acquire blunder a global leader in mechanical and electrical drive technology and a carve out from Siemens for 2 billion Euro.
Lastly, and global credit, we're seeing good deal flow and are opportunistic credit funds as mid cap private companies have a growing need for transitional capital.
Before handing it over to Kirk a few comments on the environment.
The economic recovery continues to be uneven based on region, Nastic class and industry sector.
As the recovery progresses in different ways dispersion of outcomes is becoming apparent.
Some sectors of scene acceleration of growth.
While other sectors like energy retail travel and leisure continued to struggle.
Capital market conditions have been robust and accommodated to new debt and equity issuance, but we expect volatility to persist given the fits and starts nature of the recovery.
Disruptions from the impact of Covid are changing the way, we live and work accelerating trends and modifying behavior.
While no doubt uncertainty exists from the geopolitical policy healthcare and regulatory issues of the day.
Our global platform and deep industry and sector expertise is what sets us apart and will help us navigate through this environment.
We're very well positioned to be selectively aggressive and appropriately circumspect as we manage our existing portfolio and seek attractive new opportunities across regions asset classes investment strategies and industry sectors let.
Let me stop and hand, the call over to our Chief Financial Officer, Kirk Juicer, and then I'll come back and offer some final thoughts.
Thank you and good morning, everyone.
I will begin with a few observations on our expected growth and distributable earnings based on a strong fund performance.
Then I'm gonna wrap up with the review of our current results.
Q mentioned are one performance continued to build under the strong momentum from last quarter with third quarter carry fund depreciation of 5% in corporate private equity.
2% in real assets and 4% in global Crowder.
Investments solutions appreciation was 8% with the standard one quarter reporting lag and many of it's fun.
The strong performance is most visible and the growth of our net accrued performance revenue, which is queue indicated reached nearly $2 billion at the end of the third quarter up 14% on a year to date basis.
The increase this quarter was largely driven by strength and our six use power fun, which I appreciated 4% in the quarter and 28% year to date as.
As well as our fourth Asia buyout fund, which appreciated 17% in the quarter and is also up 28% year to date.
Both of these funds are fully invested in in a strong accrued carry position.
We expect these funds together with several others, including R. U S. Real estate funds will be strong drivers of continued growth and that performance revenues.
With regard to realization of performance revenues, we continue to be confident in a significant ramp over the next few years.
And the third quarter, we saw an important step in that direction.
With both Carlisle partner six.
And our Ireland fund realizing carry for the first time.
We are typically cautious when we first take cash Kerry as we look to minimize the risk of any future clawback.
We look at whether a fondness full invested the valuation in time buffer between the funds fair value in his preferred return hurdle and how much capital has been returned to our limited partners.
Our first carry realizations and a fund are also typically is less than our contractual 20% share, which we recapture with higher carry rates on later exits.
Once we turn on carrying a fun, we expect that fun to continue to realise carry on future exits absent some unforeseen turn of events.
The decision to initiate realized carry on these two funds demonstrates our confidence in their performance and maturity and they're just two of several funds with meaningful accrued performance revenue, which could begin to monetize in the near future.
Now, let me walk you through our third quarter of 2020 and year to date financial results in touch on some key business drivers as we look forward.
Fee related earnings were $119 million with a 30% margin for the third quarter of 2020 up from $109 million at a 27% margin in the third quarter of 2019.
On a year to date basis fee related earnings of $375 million and a 32% margin remain ahead of the 345 million and FRE achieved in the prior year to date period.
Though the current year result includes the positive impact of the $30 million of cost recovery in the first quarter of this year.
I have previously commented on the growth in revenues and our global credit business.
Together with our continued investment in that business.
It's now appropriate to call out that this after has culminated in nearly doubling FRE and global credit on a year to date basis to $65 million as compared to $34 million a year ago with FRE margins, increasing to 25% from 14% over that same time period.
The same story is true and investment solutions.
It is also doubled its year to date FRE to $34 million from $17 million a year ago with a similar improvement in this margin.
These businesses have each benefited from strong fund raising in the current year and we intend to continue to build on this success.
Fee revenues for the third quarter were $394 million roughly in line with the third quarter of last year.
Current quarter revenue includes the full recovery of the $8 million a previously deferred cielo subordinated fees as the repositioning an improvement in the underlying portfolios has supported a much faster than expected recovery.
To be clear all subordinated fees and our cielo portfolio are now fully recovered and we expect to collect all base and subordinated fees going forward absent a material change lower and credit markets.
We continue to carefully manage our overall compensation structure, which will help us drive higher FRE and margin across the cycle.
Cash compensation was $205 million for the third quarter and $690 million a year to date, approximately 3% higher than the year to date pace in 2019.
Equity based compensation was $87 million year to date and is running 25% below the prior year level.
G&A expense was $62 million in the third quarter and continues to track materially lower compared to the $81 million and G&A expense a year ago.
Travel and conference expenditures remain low relative to prior periods and we expect these costs to remain depressed for the next several quarters.
Some of these costs will return as activity levels increase post pandemic, but we believe many will prove to be permanent savings as we capitalized on learning is from this current environment.
Looking forward, we expect full year 2020 fee related earnings to be at or slightly above the high end of our prior guidance range of $475 million for 2020.
So I will reiterate that this result includes the aforementioned expense recoveries in the first quarter.
We are currently in the process of evaluating our 2021 outlook referee and consistent with past practice, we will share that with you next year.
Net realized performance revenues remained modest in the third quarter at $40 million.
Bringing us to $159 million, a year to date and approaching the $164 million, we generated for all of last year.
But as I've said, we are confident in a strong rebound and performance revenue realizations beginning next year and then further increasing in subsequent years.
Distributable earnings were $152 million for the third quarter and $525 million a year to date.
Compared to $475 million and the prior year to date period.
Per share was 40 for the quarter and $1 41 year to date and.
And we declared our quarterly dividend of 25 cents per share.
And some we're pleased with the durability and sustainability of our fee earnings and we are increasingly optimistic about the opportunity for growing distributing earnings over the coming years.
With that let me turn it back over to queue for some final thoughts.
Thanks Kirk.
The third quarter demonstrate that Carlisle is delivering attractive results.
We are focused on adapting and are evolving the way, we operate our business to accelerate our growth and what will undoubtedly be a very different environment in the years to come.
I'm very proud of our people around the world and what effect all of them for their dedication hard work and commitment to all of our stakeholders.
Our leadership team is excited about the strategic direction of the firm and we look forward to discussing this more broadly with all of you in 2021 with that we are now ready to take your questions.
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Our first question comes from the lineup Glen short term Evercore Your line thing.
Hi, Thanks very much.
So.
You had some good growth on fundraising said between sectors nurses and.
And and credit.
Sure, it's with the biggest by ads.
Pink in the range of 47, 26, and 25% committed.
Can we just talk about if anything's changed your outlook for the next.
Timing of the next round of.
Formed raising for that big Super cycle.
Thanks.
So that is kiera hey, thanks for the question.
You appropriately pointed out that actually momentum seems to be going really well. We're excited about our pipelines and really the deals that we think that can get done with that I would say that things are coming forward, a tad, but still too early to tell we're going to give you our full multiyear.
Of analysis, especially around 2021 at the beginning of next year well, let me just tell you know.
You are right that some of the big funds are well positioned but here in the short term, we're going to continue to have a variety of products in the market. Most importantly investments solutions and global credit and then we'll see also a few other of our growth funds coming to market as we speak so.
We're in we're in good shape at this point and more to comment that we we kick off at the end of next year.
Okay I appreciate that.
Thank you. Our next question comes from the line of can represent and JP Morgan Youre liable surfing.
Good morning.
There it seemed to be the potential for a higher use corporate tax rate and the potential for a much higher dividend and capital gains tax rate for the wealthy.
Does the potential for the higher corporate tax rate play into the way you think think about making and harvesting corporate investments here in the U S and what a much higher dividend and capital tax rate for the wealthy influence. The way you think about capital allocation between dividends buybacks and investments back into the business. Thank you.
Ah Hey, Kennedy Q look appreciate all the interest in this topic, but really it's just too early to comment and it's not worth speculating given the limited details that we do know, but suffice to say, there's a lot of work going on we're scenario planning thinking through all the implications but here.
The bottom line up look where long term investors we've been around for a long time working successfully through all types of environments markets administration and changes and changes in tax policy.
I am confident that the firm will be prepared regardless of whatever the outcomes are now there are maybe two other points I'd make one little bit broader than the other maybe a little bit more granular first.
The history and track record of our asset class suggests alternative assets generate relative outperformance for lp's, regardless of tax environment. So this is important to keep in mind because at the end of the day.
The alpha and relative performance, we're generating ought to continue to provide tailwind and demand for what we do regardless of any potential changes in tax policy.
Second and finally.
Please remember when we converted to a C Corp. The path Carlisle chose was to become a true C Corporation as opposed to an up see or a hybrid C Corporation.
As a reminder, our structure is really very simple, it's one class a shares one share one vote.
This means at whatever changes to current taxes, the simplicity of our C Corp structure makes it much easier to understand and manage through future tax changes.
It also means real alignments as we don't have private shareholders or public shareholder distinctions all of US are shareholders owning the same shares just like you.
Great. Thank you very much let me just add onto that one.
One quick comment can on your dividend question, we implemented a fixed annual dividend of $1.25 cents a quarter do not see any of the tax proposals is changing that fixed dividend or confident with that the real question is when do we increase our dividend and that will come as we continue to grow.
Awesome. Thank you very much.
Our next question comes from the lineup like a bank of America guideline 14.
Hey, guys. This is dean stepping on from my carrier it looks like some some investment solution funds moved into accrued Kerry and <unk> Carlisle has a higher performance revenue steak.
So I'm wondering if you could update us on the potential finance financial impact in these funds.
Carlyle's performance taken these funds versus prior funds and maybe how we should think about the potential timing a performance fee generation moving forward. Thank you.
Great observation look I'm really proud of our investments solutions team and how they've been performing the funds were up 8% year in the current quarter and you are right accrued carry it came back up now that's across the whole portfolio and so there is a blend so there's some that we know of.
Pieces that were our acquisition in terms of what we're entitled to a small and a 15% and then it's a much higher end at a 40% piece of all of that on a net basis. There is about 100 million net accrued Gary.
That's going to come over over time, These're European style, a waterfall, but what I'm really excited about with investment solutions is the FRE Ram is doubled versus last year and there continued strong fund raising is going to enable us to continue to see the ramp and FRE. This is a good FRE business for us plus.
It's also just performance really well so thanks for your question.
Thanks.
Our next question comes from the line of Gary he'll have been Jeffrey your line or something.
Great. Thanks for taking my questions. This morning, and perhaps just actually picking up a little bit on that on that ferry ramp, especially as it relates to global credit and investment solutions I. Appreciate the the pick up I guess here to date and year over year, but can you, perhaps help us frame where that FRE margin.
Could continue to go, especially within those within those two businesses as they still are kind of relatively early innings with that growth trajectory. Thank you.
Jared Thanks.
You're right I mean.
I am really pleased with the progress we've made we've gone from call at mid teens.
Mid twenties.
We need to continue to grow that in our credit business should be much greater so watch for that to continue to grow over the next several years, that's going to be a really good growth driver for FRE and won't Grauer overall margins investment solutions same thing as it kind of continues to perform as to its.
AUM base and as we've also been adding other products within that sector I see that also comedian of being a bigger driver of FRE and literally improvement margin credits will have a much better upward trajectory as you can see from just from an industry analysis.
Investment solutions would be a good driver of total FRE as opposed to say margin per se.
Great. Thank you.
And our next question comes from the line for the same kind of change your line is open.
Hey, good morning, Q current hope you're both feeling well.
Good morning, how are X Greg good.
Morning.
So I have another FRE question and if I can sneak in at two parter I would really appreciate it but.
First one just given the improving macro backdrop are we out of the woods with Cielo subsea deferrals and number two is G&A is down roughly 30% during the first nine months of 2020, where crate G&A head into 21, and 20 tail as bottini normalizes and also.
There could be some future investments.
Great. Thanks.
Clothes.
If you think about a broadly what's really happened here is we've got a big team. They work really hard and they've been successful and really taken advantage of what we've also seen as rating agency downgrades of really slow down.
Have seen a pick up from new Cielo formation.
We've issued new Clo's and they're really the question. The journal asking that I think about is really how is the real economy going to perform next year.
And if the M&A market.
In fact, and accelerates our seal of business will do really well, if we see some sort of big down.
Downturn in the real economy, which then also comes through into the credit markets, obviously that'll be a challenge, but right now our cielo to have done really well and really reposition recaptured all of those subordinated fee. So I'm feeling pretty good about where we are as I said in the opening remarks.
On your second question on G&A, you're right, we've had a real benefit in Jena expenses. This year now some of that in the first quarter.
The recovery of the litigation costs. So that portion you got to take out of the analysis, but even absent that it's a very good kind of improvement and obviously travel conference costs are down but also other things in professional fees litigation thoughts et cetera are also down there is a number of things that we think that we can <unk>.
Gently benefit we're changing the way, we live and work.
And I think a lot of that's going to be permanent savings so you're going to see some of this recovery, but I think a lot of it can also be permanent the exact amounts and it will tell you in time, but we're working through that I think that we can save a good part of this and really manage our expense lines very well going forward.
Great. Thank you.
Okay. Our next question comes from the line Michael sequence from Morgan Stanley Your line Okay.
Hey, good morning, Thanks for taking the question just curious to hear your latest updated outlook on investment returns on both existing investments you have in the ground today that may see some longer hold periods and then also on the new investments that you're putting to work here, what sort of return to your underwriting too across or different strategies, how does that attribution of the <unk>.
Term profile, maybe evolving a bit in terms of the key drivers of that in terms of the leverage and so forth versus operational improvements versus what you've done in the past.
Hey, Mike. Thanks for that question I mean look this is a challenging investment environment right you have.
Low yields a lot of competition and in the midst of all this we have dislocation and disruption as certain industries are in certain regions are doing really well and others are quite frankly being left behind given the dispersion that we're seeing as it relates to what's happening because of because of covid.
Having said that we do see prices still are very high for very high growth businesses.
But with low interest rates and low discount rates.
And if these growth rates can truly materialized into real businesses that are built you can see why those types of prices are justified, but we're also seeing good activity starting to build and what I would say more traditional sectors industrial sectors et cetera, like like the deal that we announced this morning, which are a little bit.
More I'll have a little bit more of a value.
Aspect to it, but but having said that the main driver of returns moving forward.
We're not underwriting too multiple expansion, we're not underwriting two more benefit for financial leverage given that quantum is pretty high right now and call.
Austin capitals pretty low so the real driver of an alpha in our asset class is going to be driven by making these businesses better by improving them by growing the top line improving margins increasing capital efficiency.
And this is what our platform is perfectly positioned to help our Madison partners execute against undo that's what we're all about that's why we partner with our teams over the long term. So when you start with this global platform great industry expertise and then you add on top of that all of our corporate resources from our capital <unk>.
Expertise for procurement experts are digital.
Digital experts human capital experts, all helping our teams and our management teams or portfolio companies grow you can see why we feel pretty good about our positioning to continue to drive performance. So yeah.
It's hard it's competitive but Mike it's always been competitive in our industry.
No. It's all about driving in creating fundamental value with a long term perspective working in partnership with our management team to do the old fashioned work of growing and making these businesses better.
And let me just add onto that Mike and because you have thoughts about our current.
Portfolio, So just to remind everybody corporate private equity are big business, 5% appreciation this quarter.
After 13% appreciation in queue, too and that results and an 11% appreciation over the last 12 months. So that business is doing very well from a performance perspective.
Great. Thanks, Thanks for the color I don't know if you had any specifics in terms of being targeted returns though.
That you're willing to share.
The target returns depends on the thesis in the underlying nature of the deal and the risks great the more growth fee and the more.
Risks there isn't in the business plan and and the deal the higher rates of return, we're going to be underwriting to those that are very very cash flow.
Generative with recurring late fee streams.
Clearly, we're able to push ourselves and stretch a bit more on price in terms of what we're shooting for we're still shooting for our funds to generate two times return on total capital in on a mullet basis in our in our major private equity funds and our Irr's are still in the high teens.
We underwrite too on average now it's really all about portfolio construction and what you really want to do is assemble a portfolio with a wide variety novelty of industry sectors, but the wide variety of different deceased different types of return and risk profiles and when you assemble all of that what you're shooting for is a portfolio.
Leo that is consistently generating on a gross basis the high teens type of returns in the private equity business. That's what we're still will.
We're striving for that and.
We think we're well on our way to continue to accomplish that given what we're seeing today.
Thank you very much.
Alright next question comes from the line of AD and D. D from you the yes, Sir Lionel.
Good morning, and thank you for taking the question.
Kind of along the lines of portfolio construction just wanted to ask about the credit business given the good clothes and.
And the upward trend there.
How is the book position right now just given some of the uncertainties you mentioned some of the bifurcation in pandemic impact.
Rating actions or probably been muted, so far, but but could take up in future. So just wanted to get your thoughts on the outlook, there and maybe the interaction with the insurance channel. Thank you.
Great Adam I mean, it's hard to to comment.
Monolithically on quote unquote credit because we have a platform that has a wide range a wide array of strategies.
Can tell you in our cielo business given where.
One of the leaders in the industry we have.
Full sector coverage across all industries and.
And that team is generating.
Has generated historically, great returns with lower than.
Industry average default and loss experience and so we're very confident that they always are thinking about constructing portfolios carefully look or direct lending business.
There is a lot of opportunity right now as the private markets continue to grow with respect to being able to provide direct loans, especially in our view in the small to mid cap segment of the market.
Let me, let me jump to the distress side I'd say the distress side.
We are not seeing as many actionable opportunities as we'd like in light of the fact that liquidity and what the fed has done is made our jobs harder as liquidity has in the bridge bridge available has extended the runways for many companies.
Having said that the the pipelines of opportunities that were interested and continue to build.
And we're monitoring it day to day and.
Our suspicion is going to be that there will be more activity on the distressed out of the equation sometime next year.
Infrastructure credit, which is a business. We recently launched is seeing a tremendous amount of opportunity.
In light of some of the the issues in that sector, but also our limited partners are looking for really interesting risk adjusted yields right now and that's one area that affords.
Very interesting returns and.
In this flood as a volatile environment and let me land on finally credit opportunities.
Is <unk>.
Really benefiting from volatility and the need of midcap companies seeking transitional capital.
And the volatility that we're seeing in some of the uncertainty actually is helping that team as more and more companies come to them looking for interesting ways to secure transitional private credit during a time when they are trying to sort through what's happening in the real economy. So broadly speaking, it's really hard to comment.
Generically on credit, but but if you're breakdown are different strategies I think I've, just give me a little bit of a snapshot in color on what we're seeing.
That's very interesting to aggregate.
But if you do kind of take this all together there is really strong momentum and the credit space.
If you look at the numbers.
53 billion, that's up 14% year over year, and it's more than 40% over the last two years, fearing num in this business is $42 million is up 12% year over year and similar up 40% in the last two years of I told you about the doubling of FRE. So all of what you just said is being recognized in both bond.
Raising and and the way our AUN was growing.
Perfect excellent. Thank you very much book.
Our next question comes from the lineup, Alex Blustein time Goldman Sachs Your line or something.
Hi, Good morning. This is Dan Hunter Kobe filling in for Alex thinks we're taking a question.
Just on the $475 million or better of 2020, FRB guidance, if I'm doing my manager correctly. It looks like the implication is your guidance something like $100 million or better in the fourth quarter.
Which obviously.
There's some peroxide, but it looks like there is also some include that the kind of come down versus.
Where we've been the prior two quarters of closer to about $120 million a quarter. So.
Can you just help us bridge from kind of the we're we're kind of running at about $120 million.
Per quarter to kind of the range of outcomes, you're projecting for the fourth quarter.
<unk> a great observation, let me give you some time just as you noticed 375 year to date that includes the $30 million in the first quarter.
And we just did $190 million fee related earnings. During Q3 does include the 8 million of the CLO recapture sub puts us at 110, 110, and 375 and it puts you above though for the 475, which is what I was pointing out so thanks for highlighting that and if you.
The real question I think that you have is really what's that core run right now I would tell you that right now and we're expecting to grow this for right now we're on that 110 to 120 range and so when you're back ista to push it back down to the 110 kind of level, but we have a lot of product coming online do Japan by out of $2.
$5 billion fund for example, activates its feet here in the fourth quarter on October 1st and so that coupled together with a lot of the growth and credit and an investment solutions and other things that we have.
That we're going to see top line growth and that'll that'll really contribute to the FRE as well.
That gives us a good color.
Yeah that makes sense. Thank you.
Next question comes from the lineup Robert Lee Lemke VW online.
Thanks.
Great. Thanks, So good morning, everyone everyone's doing well.
I'm just curious as maybe you can update will.
Trying to getting some since 14 or anything.
Maybe helps contributing it's notes I know, it's early days, but kind of update us on that.
And its contribution Joy Marlon how.
Maybe think about.
Bob flowing through to the.
Coming up.
Next year or so.
Sure Robert It's Q look we're pleased with our progress with Fortitude. It's now fully carved out of AIG, it's completely standalone and fully operational it's got a great management team and.
Fortitude.
Is an organization and if you include dedicated employees will read service companies close to 900 employees. So it's a real platform.
That is up and running.
It's very differentiated from other approaches in our industry. It's got a diversified global book of business and both P&C in life and.
And in terms of its source of growth.
Re ensuring our acquiring legacy liabilities as you know as opposed to trying to reshape organic growth in a single product like annuities and the reason I point out those two things with respect to differentiation the diversified focus important because it provides more capital efficiency.
And it's recognized as such versus that of a monoline insurer.
And then obviously, we like our beta B approach.
Where we are looking to acquire legacy liabilities as opposed to trying to originate in dealing with the end consumer in terms of originating new policies.
The way forward it to this contributing to Carlisle really is in three ways and it's been.
Great thus far first our balance sheet investment.
Is is growing quite nicely fortitude is generating right now.
Close to mid teens types of return on equity and so we're quite pleased with how our balance sheet investment is gone.
And as I mentioned in my commentary, we've already rotated over $4 billion of capital, which is pretty sticky and nature right. So that $4 billion has come over into a y smatter.
Saturday Karloff funds anything from private equity real assets.
<unk>.
Our credits products and.
And we do expect more to come and obviously those funds generate fees for us as well as carry over time.
And then finally Felix.
<unk>, we raise more have little or fortitude, we have been able to do that by creating vehicles for our limited partners.
And as we raised that money.
We do earn.
Related revenue from those assets that we are managing so there are three ways that Carlisle benefits from from Florida.
Looking forward we.
We are quite.
Excited about this platform growing via acquisition.
The space is large trillions and trillions of dollars of legacy liability that we think are available and as 42 grows that will benefit Carla.
Okay. Thank you for taking my question.
I like.
Our next question comes from the line of clean Studzinski term Oppenheimer your lines everything.
Yeah. Good morning, and thank you I'm, just kind of curious to get your thoughts on the.
The real estate business just in the sense I guess, that's just one world that really has been kind of disrupted in the very significant way bye bye Covid and and your your current flagship fund is is is roughly half invested and so I guess I'm curious.
And how is covid impacted the existing fund and has it made you think about.
Investing.
The remaining half and then.
I guess I'm also curious about when it comes time to start.
Raising for the successor fund.
In real estate has had the discussions under the dynamics changed with the with the with the LP is are they looking for different things.
In this new world.
Okay. There are a lot of questions and that but let me let me try to hit the high points.
Look we're investing over <unk> real estate fund, it's five $5 million of capital and I've got to tell you were exceptionally pleased and proud of our team and their performance we pride ourselves on very disciplined for fully construction. Their approach is to set up a bunch of subsectors within real estate in at a.
Very granular level looking at demographic trends.
Make investments, which they think makes sense on a risk reward basis and being very disciplined as they were starting about two three years ago. They pulled back and as a result, we currently have virtually no exposure to the office hotel and retail sectors in CRP eight and in <unk>.
Which is which is a huge.
Complement to our team for having constructed the portfolio. This way that explains why despite all the destruction you're seeing in the broader real estate market. This fun it continues to perform consistently and quite well.
Looking forward.
They are sticking to their approach very demographic driven.
Are looking at and trying to distinguish between cycolor secular and cyclical trends.
And based on what they are seeing with consumer and markets and actually industrial.
Markets and behavior.
It informs them on how they're going to be positioning and making investments in their asset by asset strategy. So look I don't want to get into exactly when they're going to start fund raising or exactly.
Where we think this could all go but suffice it to say, we're very pleased with the team they've done a great job with portfolio construction. The results speak volumes in terms of their disciplined approach and we're optimistic about.
The future of behind this platform and team with respect to how they approach the U S real estate market.
Okay. Thank you that's it for me.
Can I am showing no further questions at this time I will now turn the color. They can I get the more high sparkle will relax. Thank.
Thank you <unk> and thank you everyone for listening to a call. This morning. If you have any additional follow ups feel free to reach out to Investor relations. After the call and we'll look forward to speaking with you next quarter.
Hi, Ladies and gentlemen. This concludes today's conference call. Thank you for speeding the largest can I have a wonderful.
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