Q1 2022 Carlyle Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Carlyle Group first quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
If you require any further assistance. Please press star Zero I would now like to turn the conference over to your speaker for today, Daniel Harris head of Investor Relations you may begin.
Thank you to Wanda.
And welcome to Carlyle's first quarter 2022 earnings call with me on the call. This morning is our Chief Executive Officer of Kyu song, Li and our Chief Financial Officer, Kurt you. Sir earlier. This morning, we issued a press release and detailed earnings presentation, both of which are available on our Investor Relations website at IR Dot Carlisle Dot com.
This call is being webcast and a replay will be available on our website.
We'll 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 reconciliations of these measures to GAAP in our earnings presentation 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.
Turning to our results for the first quarter, we generated $183 million in fee related earnings and $303 million in distributable earnings with de per common share of <unk> 74.
We produced net realized performance revenues of $118 million and grew our accrued carry balance to $4 3 billion, we declared a quarterly dividend of <unk> $32.05 per common share.
To ensure participation by all those on the call. This morning. 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 <unk> <unk>.
Thanks, Dan Hello, everyone and thank you for joining us today.
We're accelerating carlyle's growth by diversifying our global business and running the firm better than ever before to drive long term shareholder value.
This strategy helped us continue to deliver for our shareholders and investors in the first quarter.
Our FRE grew over 40% compared to the first quarter last year, our leading investment platform demonstrated continued excellence as witnessed by record accrued carry balances.
We are increasingly diversified is over two thirds of our total AUM is away from corporate private equity.
We are pleased with our progress and we will continue to pursue organic and inorganic opportunities to drive further growth and diversification, while maintaining investment excellence and business discipline, as we navigate market and geopolitical uncertainty.
The start of 2022 has been complex on many fronts, including the war in Ukraine, and rising inflation and interest rates and the world is now in a more tenuous place.
Specifically on our exposure to this conflict in region across our global portfolio and distribution platform, we have minimal direct exposure to Russia, Belarus, Ukraine and have not seen significant impact to carlyle's business.
Having said this there are major paradigm shifts occurring which are driving complexities and volatility in the investment environment.
Carlyle continues to perform and importantly, our focus on thoughtful portfolio construction over the years is paying off this quarter.
Our aggregate investment portfolio appreciated, 5% led by a 7% increase in global private equity or public markets were down approximately 5%.
We saw particular strength in our real estate platform with 10% appreciation in our infrastructure and natural resources platform with 19% depreciation.
These were the major drivers of our net accrued performance revenue balanced growing to $4 $3 billion a record level for our firm.
Our credit strategies are also performing well our direct lending strategies are currently yielding approximately 9% and the portfolios in our market, leading CLO business continue to have a default rate less than half the industry average.
This broad based performance across all asset classes is a testament to the value of our diversified global platform time tested investment approach and world class teams.
Markets continue to outperform public markets over the long term and our portfolios are well positioned for the current market environment.
Turning to our growth and strategic plan to drive shareholder value. We are executing on what we told you and pleased with our progress.
In the first quarter, we generated a record of $183 million of FRE up 42% over the first quarter last year.
This reflects the organic growth in our business over the past year, and importantly does not yet capture the impact from several strategic growth transactions, we recently announced.
To that end, we're also pursuing growth by Repurposing balance sheet capital for strategic inorganic opportunities.
On last quarter's call. We told you 2022 was going to be a breakout year for credit and insurance two key areas identified for growth as part of our strategic plan.
And we are already delivering on that with.
We're continuing to scale, our global credit platform with FRB accretive acquisitions as evidenced by our recent <unk> transactions.
And we also saw major milestones and insurance solutions for their $2 billion capital raise and creation of a new strategic advisory services agreement with Fortitude.
Our strategy in this area is differentiate it providing a real engine for growth and alignment for all stakeholders.
This new agreement better aligns Carlos financial growth with the strategic interests of fortitude and a significant and immediate impacts to our FRE in total AUM, which on a pro forma basis for this agreement is now approximately $375 billion.
Keep in mind with this new advisory relationship we have a fee stream, which is more perpetual in nature and will grow as fortitude continues to scale.
Turning to fund raising which continues to fuel our growth.
In the first quarter, we raised more than $9 billion.
Changing dynamics, mostly related to a crowded private equity fund raising marketplace is affecting the timing of some of our private equity funds in the market, but the breadth of our platform and the strength of our brand and LP partnerships remains a differentiator for Carlyle.
We continued to benefit from our diversification beyond traditional private equity as demonstrated by our second credit opportunities Fund, which recently had a final close at $4 $6 billion almost twice as large as its predecessor fund as well as increasing traction within our infrastructure and renewable strategy.
We have also added and launched additional products and global credit and global investment solutions to meet the rising demands of investors for these asset strategies.
Putting it altogether I want to underscore the real magnitude of the acceleration in FRE that we've delivered by executing against our strategy.
In 2017, we delivered approximately $190 million in FRE.
Last year, we reported almost $600 million.
That is more than tripling our FRE in just four years.
And now we've said, we expect to deliver $850 million in FRE for 2022, which is 40% projected growth year over year.
If we achieve that we will have grown FRE by more than four times in just five years that has significant value creation for our shareholders.
I'll end today with this.
We are transforming carlyle into a more diversified global investment firm, helping us capture growth and expanding strategic areas like global credit infrastructure, and renewables insurance and global investment solutions and we are doing this while building our probable private equity business.
We feel confident in our strategic plan and our ability to drive future FRE growth.
Our leadership team is focused on managing through the complexities presented by the current market and geopolitical landscape and I'd be remiss, if I didn't continue to stress that this complexity and volatility also creates opportunity we.
We have built an increasingly diversified business mix that positions us well to continue capturing opportunities across the expanding private markets and to perform across cycles for all of our stakeholders.
With that I'll turn it over to you Kirk Thank you and good morning, everyone.
I want to focus on three areas in my remarks that complement <unk> comments.
Also a follow up on our presentation from just a few weeks ago.
First our strong start to the year and fee related earnings underscores the work we've done to broaden our earnings stream and provide increased balance to our distributable earnings.
Second our thoughtful and differentiated portfolio construction underpins our ability to deliver strong distributable earnings and third we're poised for additional FRE growth further diversifying our earnings streams.
Let's begin by discussing our strong start to the year and fee related earnings.
We generated a record level of fee related earnings.
42% higher than a year ago, and our FRE margins increased to 36%.
Up 500 basis points from a year ago and all of this is before any meaningful contribution from our recently completed acquisitions that will be additive beginning next quarter.
Management fees of $454 million increased 19% year over year with the most significant growth in global private equity and global credit driven by solid fundraising activity and active deployment.
Compared to the fourth quarter global private equity management fees declined due to strong realization activity in the second half of 2021, alongside a step down in Carlyle partners seven management fees.
In global credit you will see a material step up in quarterly FRE from our most recent acquisitions beginning next quarter with C band, which closed on March 21, and Fortitude, which closed on April one both adding high incremental margin FRE.
In global private equity Fr Asia continue to build throughout the year as we raise additional capital in our new buyout and growth vehicles, and we expect to see higher levels of topline fees throughout the year.
This quarter, we began reporting a new line item in our non-GAAP results, which was historically reported as a component of fund management fees.
Fee related performance revenue.
This presentation is similar to the disclosures from others in our industry <unk>.
Included in this line item are regularly recurring performance revenues, we earned from our perpetual products such as our credit interval fund Seatac, our bdcs and core plus real estate.
The latter of which accelerated meaningfully this quarter as we pass through the third anniversary of the CPI Fund.
We expect to generate significant revenues in this line item every year, so certain quarters throughout the year will be higher than others.
Moving on.
Our portfolio performed incredibly well in the first quarter as Q summarized with 5% overall appreciation or portfolio construction diversity of investments and strong underlying performance of our portfolio companies more than offset the negative impact of increasing market uncertainty and the downward pressure from our public.
<unk>, which currently make up only about 10% of our portfolio.
The only area, where we have meaningful direct exposure to Belarus, Ukraine, and Russia across our investment platform is in our credit aviation portfolio, which resulted in downward valuations in these funds for the quarter.
As <unk> noted the portfolio appreciation drove our crude carry balance to a record $4 $3 billion.
To put that in perspective, our accrual is up about 35% year over year and has more than tripled over the past two years.
This level of net accrued performance revenue provides us further confidence that carlyle expects to generate our previously indicated average of $1 billion.
Of annual net realized performance revenues over the next several years dependent upon market conditions.
First quarter's net realized performance revenues of $118 million was up 55% from last year's first quarter well below recent record levels and was driven by exits and our Japan buyout funds U S real estate funds in our credit opportunities fund.
Now as we look forward.
After a strong start to the year with distributable earnings this quarter up more than 40% higher than a year ago and we have already signed several large transactions that are expected to close in the next few quarters.
Adding to this growth will be the three transactions, we discussed in March that add $120 million in annualized run rate FRE and $65 billion in both AUM and fee, earning AUM.
That is more than 16% in annualized FRE on a run rate basis that has us up for 40% FRE growth in 2022.
That's attractive growth highlighting both acceleration in our organic investment platform and Optionality driven from strategically utilizing our balance sheet to drive inorganic growth.
We have purposely shaping our business to grow FRE.
<unk> margins diversified earnings and now increasingly access larger sources of perpetual capital.
In sum we are on track to grow in the short term, while continuing to also invest in our longer term growth.
Our portfolio is performing well in a challenging environment.
We are moving forward with active fundraising deployment and exits across our global investment platform with that let me turn the call over to the operator to take your questions.
Thank you, ladies and gentlemen, as a reminder to ask the question you will need to press Star then one on your telephone.
Joanne Your question press the pound key again Thats star one to ask the question.
As a reminder, please limit yourself to one question and then return to the queue. Please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ken Worthington with Jpmorgan. Your line is open.
Hi, Good morning, Thanks for taking my question there is a ton to ask.
Im limited to one we've.
We've seen a real increase in energy prices and the outlook for the energy business seems to have improved meaningfully from say four months ago.
Evidenced in part by $300 million I think of extra carry in your energy funds.
Does this mean if anything for Carlyle in terms of launching new products like <unk> 13, a reincarnated energy Mezz Fund you have got a real sort of expertise and reputation and debt and equity energy investing.
The market's better market environment better.
Should we think about this for Carlyle.
Hey, Ken it's Kew. Thanks for that question look we've been very focused on energy and energy transition in particular and you are right to note that we do have a lot of capabilities across the broad spectrum of energy and an alternative forms of energy investing.
So let me just take a step back our firm view is we need to invest through this period of energy transition. Our platform is very well set up to do that we can invest in traditional carbon businesses.
Lee with a real ESG lens on it yet we have a spectrum of products <unk>.
Including a very strong renewables platform.
And we have all of this.
Supported by World Class ESG teams and an infrastructure business as we look around the world trying to think about what's happening to the energy sector. The focus on energy security and really the need to keep investing in energy transition. So we are very well set up to.
To invest in all of the opportunities that are going to come up and down the spectrum and we're excited about the prospects moving forward.
Okay, great. Thank you.
Thank you.
Our next question comes from the line of Gerry O'hara with Jefferies. Your line is open.
Great. Thanks, perhaps perhaps a question on just retail and if you could perhaps give us a little sense of.
You are.
Yes.
What the firm approaches here and how you kind of see the opportunity playing out over perhaps the next couple of years. Thank you.
Sure Jerry.
Look retail is one of several alternative channels for us in terms of capital formation, which are clearly.
We are paying a lot of attention to it will be important to do that as we supplement our institutional fundraising platform and to reiterate just to you know we're already raising approximately 10% to 15% of our capital from the retail channel broadly defined now what's important for us and how we're thinking about this is we need to access is developing channels.
The appropriate product architecture and.
And I've said this before it's mostly this channel.
Fits really well with products out of credit real estate and the solutions segments of our business. So for instance, we've developed the strategy Kurt mentioned it for the retail customer call Seatac Carlisle Tactical private credit fund within global credit, which without much fanfare at all is already raising on a run rate basis about 1 billion.
A year from retail and Thats before we've accessed the wire houses, which we expect to start later this year and.
And of course, we've got other products, we are developing to raise capital from this growing channel now I want to temper this with the obvious.
We have to make sure our operational technology and all the regulatory issues that are being considered very carefully but no doubt there is real long term opportunity here given the strength of our brand and similar to what we've done with our credit strategy, we're going to be very thoughtful and patient as we develop the right product architecture and our organizational.
Abilities to access capital formation successfully and this clearly attractive channel.
Great. Thank you.
Thank you.
Our next question comes from the line of credit <unk> with Bank of America. Your line is open.
Good morning, Q hope, you're both doing well.
Good morning, Craig.
Q I heard your prepared comments on the crowded private equity fundraising backdrop.
You also may be seeing some impact from the denominator effect of lower public markets and also general client de risking in addition to some competition maybe give us some color on how those three factors are impacting fundraising today and test yes.
Just mean, it's just going to take a little more time to raise funds or is there some risk that you may Miss targets.
Yes. The upshot is I think it's more timing issue than anything else. The demand obviously for a private market products are very strong, but let me. Let me just provide a little bit more color on some context for you. So look over the over the last 12 months, we've raised $53 billion.
A little more than $9 billion, just this quarter. So we do have strong momentum across our platform and we are seeing real demand and real strength in areas like private credit real estate infrastructural infrastructure natural resources and solutions with respect to private equity there are some changing dynamics, mostly driven by.
The record number of funds that are coming back to market much faster than lp's bought in large part because of the success that the private equity asset class has had over the past few years. So this is going to result in longer timeframes to traditional private equity fund raising but taken a big step back I think this is where the <unk>.
Diversification that we've undergone in the breadth of our platform is so important because we have a broad array of fund raising going on across the firm any given point in time, and we really feel good if you take a step back about the products, we have and the progress we're making in the market.
Importantly, you just saw the performance we're generating.
Consistently across cycles.
<unk> demonstrated this quarter.
That type of performance the historical strength of our partnership with Lps the strength of our brand.
It's a huge differentiator for us in these types of markets.
Craig Let me just add one other comment which I think is really important which is to take a step back and think about Carlyle and capital formation in totality.
Everyone's focused on fund raising but keep in mind, we just acquired $65 billion of AUM between C. Pam about $15 billion and fortitude about $50 billion, that's outside of traditional fundraising that $65 billion that seven times the amount that we fund.
Raised this quarter so.
So the point being that fundraising is just one aspect of our capital formation strategies, we're continually looking for new inflows of capital to.
To drive our future growth.
Thank you kyu.
Alright.
Thank you.
Our next question comes from the line of Michael Cyprus with Morgan Stanley .
Hey, good morning. Thanks for taking my question I was just hoping you could just give a little bit of perspective around how you see the deployment environment.
Taking up and how that opportunity set is evolving for putting capital to work or they're more compelling deals today are the deals getting harder to get done because of less willing sellers just given valuations. How is financing trending is that getting any sort of tougher in this volatile environment and just overall how is the landscape changing and how are you adapting at Carlisle.
Yes.
The Big picture is the type of issues youre, raising the complexities actually I think favor platforms like ours.
It is a broad platform as you know globally lots of industry sector expertise.
And we're across all asset strategy, so we're continually pivoting and adapting to.
Go to where the opportunities are.
In a world of let's just start with volatility there is higher volatility that for sure is creating deal flow for us in our credit business, particularly in credit opportunities and in our solutions business piece need to rebalance and rejigger their portfolios in light of what's happening in the markets and and we are seeing increased activity levels in.
Our solutions business.
As you see rates rise there is increasing demand for private credit strategies that are floating rate based which the majority of our strategies are in our private credit business. So we're seeing real demand for direct lending for for CLO business in and that's all.
Positive as it relates to private equity.
I referred to this.
And other commentary, but but there was a slight pause in M&A activity, which was everybody saw it buyers and sellers, we're taking a step back to recalibrate in light of the obvious environmental issues, but we are seeing that activity come back pipelines are about as full as ever and I really.
Like the architecture of our private equity business because in the world.
Mike.
Decoupling.
Our strong Asia platform Europe platform America's platform, Japan platform.
Really plays to our advantage because we have deep local teams that have already been set up within the regions. So as regionalization occurs.
Regional ecosystem has become more important as supply chains need to be reassessed et cetera, youre going to see our platform have much more advantage in the private equity business. So taking a step back we've demonstrated this over the years, which is with complex new volatility comes opportunity and our platform.
The culture of our teams working well together, we pivot we adapt and we go to where the opportunities are.
Great. Thanks, so much.
Thank you.
Our next question comes from the line of Brian Bedell with Deutsche Bank. Your line is open.
Great. Thanks, Good morning folks. Thanks for taking my question, maybe just to talk about the FRE margin a little bit.
Kurt.
If.
Hi.
With the acquisitions, obviously, an incrementally very high margin businesses.
Just the timing of when you think youll be surpassing.
Percent level, whether thats in the second quarter or just more in the second half and then.
As we think about growth in the retail business.
<unk>, maybe if you can just talk about how you think you might scale that your scale your existing product architecture versus investing more on operational technology, and sales and marketing and how that might impact the FRE margin.
Hey, Brian . Thanks for your question. So look I'm really pleased and excited about where we are so $850 million of FRE is what I told you guys. Just a few weeks ago in terms of what I expect for us to do on fee related earnings. This year, that's really nice growth over the $600 million, we did last year not to mention.
Where we were in the past and margins, we just did 36% this quarter.
It's up 500 basis points from 31% Europe .
And with the deals that will turn on here in the second quarter in particular in global credit Youre going to see that margin expand you're going to see it going up to 40% over the year in global credit. So I can take the whole firm to that level, but youre going to see continued growth in our margin over the balance of this year and I am very excited about that.
We're continuing to focus on that but just as I've said before first and foremost as FRE growth and then secondly margin as a way to kind of get there, but we're really optimistic about the growth that we've had.
And where that's going from a retail standpoint.
I would be.
While this is if you go back to what Q said, it's about getting the right products in the market. We have some really nice products that we're putting in the market right now <unk> is showing really good growth in the <unk>.
Space, we have a number of things coming in a couple of things early on even the solution spectrum.
Really going to take advantage same token our team is really in the focus of ramping up in terms of our capacity to do that.
Not to mention it kind of just the <unk>.
Oracle, 10% to 15% that we've always kind of done out of the retail space broadly defined.
Look it's we're going to pick our shots carefully as we go through retail and back specific products as opposed to trying to turn everything into a retail solution. The institutional market remains a good market for us and it really is.
Platform, we're coming off a year of very strong momentum over $50 billion raised first quarter was good we're doing well.
Okay. Okay. That's good.
Color. Thank you.
Thanks.
Thank you.
Our next question comes from the line of Chris Kotowski with Oppenheimer. Your line is open.
Yes, I guess.
Wondering about.
<unk> had three kind of major initiatives on inorganic growth.
And.
And knowing that you can't be very specific about.
Other opportunities that you see.
I guess.
I'm thinking about can you kind of.
Us frame.
The opportunities that are there and are there opportunities and solutions.
What is the white space as you see it in terms of are there other inorganic growth opportunities.
And Hey, Chris.
Go ahead. Please ask your question.
Did you add on question.
Related to that I mean.
Do you feel like that kind of your firm with these three initiatives youre kind of tapped.
Tapped out for the moment when we should expect a 12 to 24 months of integration and consolidation before you can move on to them to the next thing.
Yeah, Okay, Chris it's Kew thanks.
Thanks for that question, Yeah look obviously, we have been busy we've announced four balance sheet transactions.
Already this year and in aggregate.
They're going to move the needle for us.
We're going to add approximately $120 million of high margin FRE, it's going to continue to diversify our earnings stream and business mix and continued to help us accelerate.
Perpetual capital in our in our.
Supporting our earnings base rates so.
On that front by the way about 20% of our AUM is now perpetual capital so.
As I said, we continue to look for opportunities to repurpose balance sheet capital R. Criteria. It has to be strategically adjacent it has to be scalable and high growth. It has to be fr regenerative and ideally it has to be perpetual capital in nature of course all of these <unk>.
<unk> needs to be compatible with our culture, which is a huge criteria for me and the team.
We've been very busy there is no quota there is no timeline.
In particular I said this in the past I think the credit business in the solutions business are the areas, where there tends to be a lot of activity.
But there is no like.
I said no quarter timeline.
We're needing to do anything, but I want to make sure. You. Appreciate we have a very intentional strategy to drive inorganic growth.
We're very much out there looking for things to do that make strategic sense.
So it's a proactive approach, but there's no way to predict when we're going to do the next one and obviously win.
There's something important to announce you'll be the first to know.
Okay.
Right. Thank you that's it for me.
Thanks, Chris Thank you.
Our next question comes from the line of Francis Hong with BMO. Your line is open.
Great. Good morning, Thanks for taking my question I wanted to ask about your solutions business, you mentioned rising demand for our solutions products generally.
Investment performance in solutions has been really strong IP.
I'd be interested to hear some of your thoughts around the potential for growth there and new products, whether it's on the institutional side or perhaps something that might be introduced in the retail channel.
Some kind of a democratized products is that something youre seeing demand pool. Thank.
Thank you.
Hey, thanks, Thanks for the question.
<unk> solutions is an area that we're very excited about first and foremost the performance there has been really strong.
4% appreciation this quarter to 35% in the last 12 months the funds and performance have been great.
That's really translated you can see that in the net accrued carry is now up about $340 million in that business. The distributable earnings potential out of solutions is very good.
Keep in mind those are European style waterfalls, there, but then.
Going to ramp up this year and then $23 24, we should see some really good realizations out of this sector.
The growth that we have in solutions, it's still keep in mind that these are still funds and so theres a natural stair step aspect to it but the deployment in particular in our secondaries business has been really strong and so we see that kind of really kind of propelling our ability to grow that business.
And then otherwise would've occurred and Theres a lot of white space. So we're active in looking at kind of how to fill in and add new products, one of which is exactly what youre thinking around is how do we kind of tapped out from a retail perspective in the infancy stages.
But you'll hear more about it over time and give us little patients because we want to make sure. It's all done right, but there's lots of great opportunities here for long term growth.
Hope that hits your questions Rufus.
Thank you.
Thank you.
Our next question comes from the line of Alex <unk> with Goldman Sachs. Your line is open.
Hey, good morning, Thanks for taking the question as well.
I wanted to start maybe with a question around the new breakout you guys are doing within fee related earnings breaking out the fee related performance fee revenues against similar to I guess, how many of your peers do now as we think about the trajectory and the baseline of kind of how to think about this revenue stream going forward can you help us frame either the asset base.
Kind of the growth in the asset base that consistency in these fees just to kind of help us better think through the impact on our part going forward.
And then just secondarily to that.
Just any comments around compensation rates or any or any other expenses, we should keep in mind as we're building this out.
Alex Great question and thank you. So so look.
The way I think about this these are recurring revenue streams generally from perpetual life products not subject to clawback and not dependent upon divestment of the divestiture of the underlying investments. So it's really a quarterly revenue piece and you see it really interestingly.
In our credit business.
So we now give you the transparency it was about a little over $9 million a year ago about $14 million or so this quarter. So <unk> seen real nice growth and Thats really as in particular like the C Tech business that product that we referred to has grown so as those perpetual in nature products grow.
You see it really kind of increase in size and Thats why.
While the numbers are relatively small 48% growth in our global private equity business.
Our core plus real estate platform same characteristics now an $8 billion platform and its <unk>.
Since we've now kind of gotten to the point of scale and where we have visibility on that.
Thats really kind of came in really strong this quarter, it's going to be more volatile.
Quarter to quarter basis, but really seeing the strength of that really on a year to year basis being real nice and continuing to grow as that business continues to perform well.
Our U S. Real estate team has really done a nice job in all of their products and this one as well the thing to keep in mind on your question on the compensation generally speaking think about 45% of those revenues drive compensation. That's included in the cash comp. So if you think about it in the car.
Current quarter, some of the increased $15 million or so $60 million or so of the increase in the quarter is really due to the increase in those performance revenues and so thats why youre cash comp this quarter is a little bit higher than you might otherwise expect if you were to strip that out we're at essentially about an eight.
<unk>.
Our growth rate versus a quarter a year ago. So Q1 dollars 21 to Q1 'twenty two exclusive this is about an 8% growth in comp and the way I think about that is that's not too bad with the growth that we've had in FRE.
Hopefully that helps in terms of clarification on that great. Thanks, so much I'll jump back in queue.
Thank you.
We have a follow up from the line of Michael Cyprus with Morgan Stanley . Your line is open.
Hey, Thanks for taking the follow up I, just wanted to circle back to the private equity business.
Just curious how your portfolio companies are navigating through the sort of current backdrop with inflationary pressure supply chain bottlenecks rising interest rates, maybe you can just talk a little bit about how the portfolio of companies are navigating how carlyle's, helping those portfolio companies navigate through this environment, maybe you could give us a flavor for how much floating rate debt exposure there.
Is that the portfolio of companies, how you're navigating around that and what are you seeing in terms of revenue and EBITDA growth trends. So there is accelerating decelerating just any color there would be helpful. Thank you.
Hey, Mike Thanks for the question in queue and I will.
Team. This one in terms of responding so so look the underlying portfolio in private equity has done really well, obviously in energy and in real estate and infrastructure I think it's kind of obvious to see kind of a lot of the drivers of that happy to kind of dive back into that in private equity traditional private equity.
What youre seeing just amazing growth. So we're seeing really strong growth in terms of both top line and underlying EBITDA now.
Exceptions, obviously in the portfolio, but generally the performance has been really good the other thing and look we've got teams that focus on helping companies grow improve et cetera, and that's been working continuing to invest in that from all areas human capital technology data management et cetera.
The other thing that Theres really also been playing out is the number of transactions that we have teed up so theres a number of signed transactions drove put that in terms of Kerry it's $500 million or so of net realized carry that we have signed up to that we think will come through in the next couple of quarters. So that.
Connection with not only just good growth in the companies and underlying stats plus kind of what we've done to build a sign that stuff up I think it's been really good from a debt structure perspective in Q can weigh in here generally the strategy is always to get stuff converted to more of a fixed rate debt once we.
We invested in the company and so I don't know the exact percentages, but it is it's a relatively high percentage that we've tried to get converted over to fixed.
Yes, Michael the only thing a couple of points to highlight first of all as we look through our private equity portfolio, obviously, its very well constructed from a diversification basis, but the underlying operating metrics are quite strong and obviously every fund will have one or two issues here or there, but taken as a whole.
Our companies are managing inflation quite well and are finding ways to pass through higher input costs and currently.
The operating margins are about as high as they've ever been.
Would point that out second we tend to invest in companies that are in the higher growth parts of the economy.
And so it's much more of a.
There's a lot of growth and when you marry that with the.
The things that are happening with the use of digital to drive productivity. The changes in processes that have been made over the past two years.
Period of Covid.
Youre seeing productivity increases, which also enables these companies to perform better than they've ever performed better before which is which is kind of our mantra and how we drive value creation at all of our portfolio companies. So I think the first quarter performance of our portfolio highlights.
Lot of the strong operating performance of our of the underlying private equity portfolio.
And as we told you the marks were quite attractive and were up nicely. Despite the market volatility that we witnessed.
So we're pretty comfortable with with how our portfolio companies are managing through this.
In a volatile environment, thus far and then as it relates to.
Floating rate versus fixed rate debt look we have a lot of discipline about hedging out floating to fixed as soon as we sign up deals or closed deals.
We have a capital markets team that works with all of our portfolio companies to ensure that we obviously don't swap everything out and in certain instances, we do have a little bit of a floating rate exposure, but we're always looking to manage financing cost risk.
Because we want.
The real driver of value creation at our portfolio companies to be growth.
And we'd like to remove certain variables out of the equation and that would be obviously interest rate volatility. So we do have real active hedging that we've put in place too.
Immunize ourselves from from real big swings in rates.
Great. Thanks, so much really appreciate all the color and including the carry pipeline. Thanks, so much.
Thank you.
Our next follow up comes from the line of Craig Siegenthaler with Bank of America. Your line is open.
Great. Thanks for taking the follow up.
Realization activity and <unk> benefited from a few large deals that were announced before January and I heard your response to that last question that there is a few more transactions out there but in aggregate how does the realization pipeline look heading into <unk>, just given the prospects of lower exit valuations with the public.
<unk>.
And also less activity on the private side.
So Craig that number I just quoted is our signed transactions should be Q2, or Q3, I can't guarantee closings.
But the team has done a really nice job of getting stuff lined up and that's all private transactions.
<unk> exclusive of <unk>.
Exits of any of the public portfolio, there will be some of that as well.
But the real thing that we're focused on is being able to exit.
Our appropriate some of the larger transactions.
That coupled with what we're seeing both in credit opportunities, where you see the carrier turned on there as well as in the U S. Real estate continue to perform strong.
Underpins a lot of strength in the year for Kerry look it's always.
An imprecise science in terms of exact amounts per quarter, but still feel really good about the $1 billion.
Half of the year.
Obviously, that's dependent upon capital markets.
Thank you Kurt.
Thank you.
Our next follow up comes from the line of group. This fall with BMO. Your line is open.
Alright, thanks for taking the follow up.
Just wondering how you think rising interest rates might have an impact on the potential for inorganic activity at <unk> and any commentary you can give around the competition for blocks would be helpful. Thank you.
Yes, Hey, Rufus since Q look as rates go up Theres clearly recalibration of some valuations that are going on and to the extent that we do decide to make more moves.
Strategically with respect to corporate development activity, obviously, we will be factoring that in to how we think about value valuation and pricing.
So to the extent that there is more volatility to the extent that there is rising rates to the extent that.
That we see assets that again are strategically.
On target for us.
<unk>.
We will be recalibrating valuations as the market environment changes.
I'm not quite sure how to say anything more than were going to be quite sensible about making sure our acquisitions reflect conditions in our future the future prospects and are strategically.
Accretive and financially accretive for us.
As it relates to blocks <unk>.
You are referring to our fortitude business and I would just comment to say that our pipeline of reinsurance and deal activity in fortitude, which is the way we scale is about as high as I've ever seen it.
There is a tremendous market for legacy liabilities.
That are very.
Very attractive target set for fortitude.
It is a differentiated platform.
It is a diversified liability streams that it can go after.
It is not focused just on a mono line consumer facing product is very differentiated in terms of.
It's the liabilities that.
It's targeting and as such.
I suspect that fortitude is going to be busy for many years to come in.
In light of the fact that we do believe we have a differentiated platform thats quite scalable.
And a very large addressable target market for us.
Thanks.
Thank you.
I have a follow up from the line of Alex Blaustein with Goldman Sachs. Your line is open.
Hey, Thanks for taking the follow up.
I wanted to ask a question around.
Cash utilization and just capital management broadly since the Investor Day, you guys made it very clear that there is a lot of cash on the balance sheet, you will generate a lot more cash and the goal is really to convert some of that cash into FRE, which should theoretically drive a higher multiple.
That hasnt really happened yet the stock has been under pressure the implied multiples are quite low what are your thoughts around deploying some of that capital back into the balance sheet and effectively buying back some stock.
In a more aggressive fashion here.
Thanks for your question look.
Odd things happened in the market due to the factor that we can control and we're playing long ball here and we're applying to grow a company that has a strong characteristics of growth.
Re growth earnings growth delivering value for shareholders and we think that that's best done by investing in the business for you spelled out strategy pretty well.
And look at the same token we do buy back stock.
So we spent $80 million this quarter buying back shares you will see US also use stock as part of <unk>.
The business in issuing stock and acquisitions. So we had a little over 4 million shares issued in connection with the <unk> transaction.
We will continue to manage dilution for the shares that we issued to our people and manage that below the 1% dilution as we've historically done and try to drive that even lower than that on that side of the equation not making that same guarantee with respect to how we issue shares for acquisitions.
That will cause probably some more aggregate dilution because of acquisitions that will do but.
As time goes in and based on capital flows and where things are we'll pivot back and forth again focused on driving shareholder value.
Got it alright makes sense figured out with Jack Thank you.
Thanks.
Thank you.
Im showing no further questions in the queue I would now like to turn the call back over to Daniel for closing remarks.
Thank you Tony and thank you everyone for joining our call today I know, it's another busy earnings day. If you have any follow up questions feel free to reach out to Investor relations at any time, otherwise, we'll look forward to speaking with you again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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