Q3 2022 Carlyle Group Inc Earnings Call

November 8, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Carlyle Group third quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.

The speaker's presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone keypad at this time I would like to turn the conference over to Mr. Daniel Harris head of Investor Relations. Mr. Harris, you may begin Sir.

Thank you Howard.

Good morning, and welcome to call our third quarter 2022 earnings call.

With me on the call. This morning is our engine.

Chief Executive Officer, Bill Conway, our Chief Financial Officer, Kirk user several leaders from the office of our CEO .

Declare chief investment officer for corporate private equity Mark Jenkins head of global credit and woke up by game had a global investment solutions.

Kurt will begin with some prepared remarks, and then the entire Carlyle team will be available for your Q&A.

This call is being webcast and a replay will be available on our website.

I'll refer to certain non-GAAP financial metrics 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 reconciliation of these measures to GAAP in our earnings release.

Forward looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These.

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.

Oh I 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.

Let me begin with a quick discussion of our results and then hand the call over to Bill.

For the third quarter, we generated $213 million will be related earnings $644 million of distributable.

The related earnings of $213 million increased 40% compared to the third quarter of 2021.

Year to date.

$132 million, it's 49% higher year over year through a combination of strong organic growth as well as the positive impact of various strategic transactions completed earlier this year.

FRE declined sequentially from the second quarter, largely due to two items, we think the last quarter catch up management fees totaled $10 million compared with $19 million in the second quarter and fee related.

Performance revenue was also lower sequentially.

Tribute of learnings of $644 million this quarter and year to date GE of one 5 billion, 10% ahead of last year $1 3 billion and is already more than double any prior full year result, other than our record result from last year.

On an after tax basis, we generated $1 42 per share for the third quarter and $3 33.

32% year to date.

We declared a quarterly dividend of $32 five per common share.

Let me turn the call over to our interim Chief Executive Officer, and co founder Bill Conway.

Thank you Dan Good morning, everyone and thank you for joining us today.

A while since I've spoken with many of you that I am pleased to be on the call today to discuss <unk> results for the quarter.

While Carlisle is in a transition period as we move towards the new CEO . The firm is operating well and I'm proud of our teams around the world as we continue to perform for all of our stakeholders.

There are two important points I'd like to focus on today.

First I'll touch on the results and highlight the strength and diversity of Carlyle's global business.

Second as we navigate challenging markets in a difficult economic environment.

Just how our approach and investment experience is helping us manage through economic uncertainty and positioning the firm for the future.

Just to give a brief comment on the status of our search for a permanent CEO .

First let me provide some perspective on Carlisle today.

In the third quarter.

Carlyle delivered solid results for our fund investors and our shareholders. Despite the market volatility.

And year to date, our results are just as strong with FRE up almost 50%.

None of this is by chance we were.

We're able to deliver this outcome due to the breadth and depth of our businesses strong business leadership and highly capable investment teams around the world.

Let me be very clear.

<unk> strategic focus on growing fee related earnings diversifying our business mix and earnings stream and improving the way in which we operate has not changed at all.

These core tenants will not change regardless of who is leaving the firm.

We have three global business segments that are run by three strong leaders each of which serves as stewards of investor capital and drivers of growth for our shareholders.

We'll go behind in global investment solutions declare and global private equity and Mark Jenkins and global credit are all on the call with me today and you'll have the opportunity to ask them to your questions later.

As we navigate through more challenging markets than any of us have seen in a decade. The firm is in an enviable position.

Parallel and I have been doing this for 35 years, and we've seen all types of markets and economic cycles.

We are confident that each of our businesses have the resources investment talent and capital of over $74 billion of dry powder to capture opportunities for our stakeholders.

Our teams are highly experienced and have worked together through various cycles. In fact, the partners of our investment teams have worked together at Carlyle for more than 15 years on average with decades more at firms across the globe.

Moving on let me discuss the broader environment and how that impacts impacts our investment outlook.

All of you will see the same things we do.

Racking interest rates high levels of inflation geopolitical uncertainty.

Each of which lead to increased market volatility and headwinds for investors and operators.

This is unlikely to resolve in the short term. So our teams are not sitting back and waiting for better days.

Certainly this market is tougher for some parts of our businesses than others.

But on some parts of our business this environment will create opportunities and two examples come to mind, our credit opportunities business, which should see far more lucrative places to put money to work in our solutions business, which will have even more chances at attractive returns to finance buyers and sellers of existing fund positions.

One of our core strengths has been in the area of investment risk management, particularly in the construction of our portfolios.

We certainly take risk you can't make money without doing so, but we need to get paid for the risk we take.

Until recently the investors who have made the most money have taken the most risk.

That isn't our style.

Portfolio construction matters.

Differentiator that continues to position our business to deliver outside relative performance for our fund investors across market cycles.

Our portfolios are built with diversification by geography industry deal size and risk.

In portfolio construction isn't just in our private equity business, but in global credit and global solutions as well.

For instance, in our CLO businesses, CLO portfolios, where we manage hundreds of credits.

This investment strategy has led to default rates at half the industry average.

Another example would be our U S real estate business, which is investing its ninth closed end fund with committed capital of $8 billion.

This is an experienced team with a long and successful track record.

In terms of portfolio construction, they favorite demographics over GDP.

Their current fund has almost no exposure to office hotel and retail, which represents 60% of a typical real estate fund.

In volatile markets like today's our fund results should reflect the benefits of our strategy and so far they have.

Before I close let me comment on our search for a permanent CEO .

In short the search continues the board and search committee are making good progress finding the right leader and we do not have any additional information to provide at this time.

I'll finish where I started.

<unk> has the capital and expertise to have a long term focus which has served our investors well for decades. We have three strong segments that are well positioned to navigate the current environment and capture value.

Our quarterly and year to date results underscore the strength of this platform and Carlyle has delivered through various market cycles and transitions.

I'm proud of where we are today and feel that we can continue to driving long long term shareholder value with that I'll hand things over to Kurt user our chief Financial Officer.

Thanks, Bill and good morning, everyone. As you have heard Carlyle delivered strong third quarter and year to date results and a particularly challenging quarter.

Estimates of the strength of our investment platform and quality of our three global business segments.

While economic and geopolitical uncertainties are creating headwinds our business continues to deliver impactful results.

Consider the following.

Fee related earnings of $632 million year to date are up almost 50% from the same period last year and are already higher than any full year in the firm's history.

Our carry funds across asset classes and geographies have appreciated 10% year to date as Bill noted our portfolio construction and proven investment approach.

Why we are delivering outsized returns and we are well positioned to continue to do so.

Our net accrued performance revenue of $4 $1 billion is up from $3 9 billion at the end of last year and that is after realizing $780 million of net performance revenue year to date.

And while fundraising is clearly more challenging this year, we have raised $25 billion in new capital year to date that translates into almost $90 billion in new capital formation. When you include completed strategic transactions, such as Fortitude and C band.

With that backdrop, let me provide an update on each of our global business segments, and then I'll dig into the financial results.

Our global private equity business continues to deliver solid results across corporate private equity real estate infrastructure and natural resources.

Fee related earnings year to date in global private equity of $409 million has increased 45% with both topline growth and margin expansion.

Our current vintage of funds taking carry has led to current strong current carry generation and as we look forward. We note that we have an equivalent amount of net accrued carry and funds that had not yet taken carry as we do from those currently generating cash carry.

So we believe we are well positioned to continue to generate strong performance revenues in future periods.

Global private equity is also poised for future growth, having raised almost $10 billion of new capital year to date, and having deployed almost $16 billion into new investments.

While in the near term the pace of corporate private equity deployment and realization is likely to slow given challenging capital markets and we've already seen the impact of solar CPE fundraising over the long term, we see significant opportunities for continued growth across our global private equity investment platform.

A global credit are assets under management have nearly doubled in just this year to $141 billion.

And therefore, he has more than doubled year to date as the impact from our strategic transactions has been highly accretive.

Our investment teams are active across the liquidity spectrum taken advantage of market dislocations to invest in opportunities with increasingly desirable risk reward characteristics.

Many of our largest strategies are floating rate in nature.

So fund investors benefit from increased current yields.

At the same time, while current credit quality remains good we are actively positioning our portfolio to withstand worsening economic conditions and potentially higher default rates.

We do not anticipate any near term challenges that put existing management fee streams at risk. So a slower pace of activity may slow capital markets transaction fees.

Looking at future growth Global credit has raised $12 billion of new capital this year across 11 strategies.

Year to date CLO formation has been strong with seven new CLO priced for $3 billion.

So velocity is falling due to market conditions.

Direct lending generated near record originations in the quarter with gross new loans of more than $1 $5 billion and we are seeing significant demand for private credit across our asset type and geography.

And fortitude continues to perform well with a robust pipeline of growth opportunities and we continue to expect it can double its size over the next few years.

Moving to global investment solutions.

This business is well positioned to support the increasing liquidity and portfolio management needs of global fund investors.

Secondary investment activity is poised to accelerate as fund investors seek to optimize their own portfolios given market volatility.

Global investment solutions has seen year to date, FRE tick lower to $55 million, partially owing to the negative impact of foreign exchange rates. However, ALP invest is making strong progress investing their current vintages of co investment and secondary funds and are likely to be back in the market to raise their next generation of funds.

Sooner than expected.

Global investment solutions appreciation was flat in the quarter and is up 9% year to date with net accrued carry of $365 million up more than 14% year to date.

Summarize we expect the pace of activity to slow over the next few quarters in certain areas, while others will remain active.

This is why our diversification strategy remains core to our future growth and importantly, as we've seen in past cycles to work and diligence, we do now positions us to come out on the other side of that much more ready to act.

Turning back now to firm wide results, let me dig deeper into third quarter earnings.

Let's start with fee related earnings.

Dan mentioned third quarter fee revenues are down about $24 million from the second quarter due to lower catch up management fees and fee related performance revenues.

That said fee revenues are up a robust 31% from a year ago and as a reminder, more than 90% of our management fee revenues are in closed end fund structures and not subject to redemption.

Cash based compensation expense in the third quarter was down sequentially largely as a function of lower fee related performance revenue and the impact of foreign exchange on translation of compensation in Europe .

G&A expenses of $101 million in the third quarter increased as we hosted our global investment conference and travel and entertainment largely returning to pre pandemic levels.

<unk> continued to be impacted by inflationary pressure and the strong labor market that will continue to impact expenses into 2023.

FRE margin was 37% in the third quarter and year to date FRE margin of 38% increased more than 400 basis points year over year.

For the full year, we now expect fee related earnings to be between 825 and $850 million with the headwinds from foreign exchange translation slowing by our fundraising and unit transaction fees each impacting expected full year results.

That said, we still expect 2020 to FRE to increase more than 35% compared to 2021 and.

We remain confident that our long term FRE growth trend remains intact.

Net realized performance revenues of $391 million in the third quarter were our third largest quarter on record.

Year to date net realized performance revenues of $780 million highlights the strength of our portfolio and our team's ability to monetize investments despite difficult conditions.

I said last quarter that I expected, our second half of 2022 net realized performance revenues to exceed the first half of the year.

With just the third quarter's result, we've already surpassed that goal.

Our net accrued performance revenue balance of $4 $1 billion and remaining fair value of investments in our carry funds of $136 billion gives us confidence that over time, we will realize a high level of performance revenue and distributable earnings.

Our crude carrier remains near record levels, despite significant declines in public market valuations and increasingly higher discount and cap rates used in our valuation process.

They are accrual represents over $11 per share and future earnings power.

So let me wrap up.

We're performing well against the challenging backdrop.

We're focused on growing and diversifying fee related earnings and expanding the capabilities of our firm to drive long term shareholder value.

More broadly each of our three global business segments are well positioned to deliver growth and outsized returns for our stakeholders now let me turn the call over to the operator, so we can take your questions.

Okay.

Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

Again, if you have a question or comment at this time. Please press star one one on your telephone keypad.

Please standby, while we compile the Q&A roster.

Our first question or comment comes from the line of Bill Katz from Credit Suisse. Mr. Katz. Your line is open.

Okay. Thank you very much for taking my questions. This morning.

Maybe first question Bill Thanks, so much of it <unk>.

Just as you think about I. Appreciate you have nothing else to say it but maybe you could help us understand what factors or dynamics youre looking for in a new CEO .

Are you thinking about internal versus external candidates and what if anything did you learn in terms of this transition about with air France franchises. Thank you.

Yes.

Thank you for the question Bill and you know I really can't answer it.

And because of that we're going to give you a bonus question, but having having said that we are making good progress on finding the right leader.

We want to find somebody that is better than I am would be one of the comments I'd make and we don't really have anything additional to add at this time, but as soon as we do.

We'll report to you and of course in the interim.

<unk> is operating well and from a position of strength.

Take your bonus question.

Alright, well. Thank you gave a shot so just maybe in terms of one of the biggest things we hear on the storyline is that without the leadership as can be very difficult to grow the business.

On top of sort of a very difficult backdrop in your AUM SKU. So I appreciate you raising the three businesses, but could you just sort of level set where we are in terms of your prior goal is to raise assets and as you look ahead help us understand where you see the best opportunities maybe it sounds like the the investment solution side, but just anything to help us frame out sort of the path to higher fee paying AUM.

Thank you.

Hey, Bill it's Curt let me kick it off and then I'm going to have smaller partners maybe to join you and afterwards. So let me just bring me back to the beginning of 2021, which actually wasn't that long ago, and we set a goal for 2024 to generate $800 million of fee related earnings.

$800 million.

Net realized performance revenues and $1 $6 billion of pretax PV.

We've met those goals.

Where this year year to date $1 $5 billion of BD and Thats just through three quarters last year, obviously record numbers from a fund raising and capital accumulation perspective.

We generated about we raised about $50 billion last year. This year $25 billion year to date, but more importantly, roughly $90 billion of capital accumulation. When you consider the strategic transactions. We have also had our relationships are good with our Lps were continuing to.

Work on those relationships pizza on the road as we speak here today doing just that and I would just say that the prospects for the future remain really good and I'm eager about all of the market dislocations that we're seeing in here because I know that my colleagues are going to really take advantage of it.

So I'll pause there and see if any of my colleagues, we're enjoying in a what I just said.

Yes, Bill Thanks for the question and obviously on our perspective on.

On fund raising on the global private equity side.

Yes.

Overall.

As you heard from Kirk our funds are performing really well with.

10% appreciation across all of our carry generating funds a little bit higher than that.

The global private equity business.

And as Bill mentioned.

Portfolio construction really matters and one of the hallmarks of our investment strategy.

To build portfolios that have less risk and really resilient earnings power businesses that we invest in and it will outperform in tougher economic times.

As our funds have done historically in tough economic times.

That track record.

<unk>.

Returns in tough economic environment going to help us on the fund raising front, so even though.

The market's clearly congested fundraisings for large buyouts has slowed down.

We do expect the MTV.

All of our funds that we're currently raising now with an aggregate commitment of similar size to the current vintages.

But it's important to remember even prior to the broader today than just than just buyouts and we're growing in many other areas.

Our U S real estate business is growing significantly our Europe technology business has grown a lot.

And Youll, probably hear more of a market.

The growth that we're seeing in credit and in global solutions.

Yeah, Hi, Bill, it's Mark Jenkins here on the credit side I would say similar to Pete I mean I've been on the road talking with our investors. There is a sense of opportunity when we talk to our investors about what's going on in the credit markets in particular as they've seen a repricing of risk and we're taking advantage of that.

That.

Similar to <unk> I mean, we have a broad platform here at Carlisle that spans everything from liquid to illiquid private credit and real asset and I would say across the opportunistic way and frankly, even on the CLO space, we continue to see growth.

And as we go down the various channels, whether that's institutional insurance retail we continue to see those as great Avenue of growth for the business and opportunities for our investors.

Yes. This is George.

Okay.

In terms of growth.

Our platform is very well positioned to benefit.

The market conditions, especially with liquidity needs increasing across markets and let me also remind you about I'll take that.

Hey, Manny.

Assets under management and secondary is our largest and most profitable part of our business managing 21 billion of assets under management. We also have leading co investment and fund investment basis.

<unk> has been strong.

With long term net outperformance across all strategies of around 500 to 1100 basis points for the last 10 years.

Over the last 20 years.

<unk>.

We continue to deploy.

Also despite the current market conditions, and we expect equity to be back end market.

Next year with several strategies and being able from the opportunities that we see in our markets we care, especially obviously also.

In our secondary business when the clinical needs increase.

Increasing across markets at this point in time.

Thank you very much.

Thank you. Our next question or comment comes from the line of Ken Worthington from Jpmorgan. Mr. Worthington. Your line is now open.

Great. Thank you good morning.

Public shareholders seem to be concerned about the leadership uncertainty and I think we can see that and the underperformance of the shares.

Commitments this quarter seem so so and logic would suggest that leadership uncertainty could be a factor here. So the question is do you think leadership uncertainty is having an impact on fund raising.

So how meaningful is that uncertainty having on either the size or timing of commitments and then I guess most importantly.

Do you think the choice of a new CEO kind of wind back concern clients or is the damage somewhat irreversible for funds in market right.

Right now thanks.

Thanks, Ken well the short answer would be no in terms of the impact of the CEO change on fundraising I've been on the road a lot myself.

Talking to investors.

Pete was right when he said that it has slowed down to the congestion in the markets, but I think I don't see any long term damage at all and this and remember.

I'm, an investor and have been an investor for 35 years.

I was the chief investment officer of the Carlisle before I was the CEO . The first time and I think the investors in our funds they like seeing somebody at the top who they know understands exactly what they are trying to accomplish.

And let me just add onto that can occur.

Look I think there's a couple of things that are really important year first the aggregate dynamics.

A lot of the private equity players not just us.

Denominator effect the congested in the market et cetera, So we're falling prey to that like.

Others are but our diversification and other products, whether it's in energy natural resources.

Credit solutions as you've heard.

The experience is very different based on that performance in industry and sector matter a whole lot. We are seeing a lot of good opportunities there and so I think that the comment that you started out with around leadership people are seeing the very strong leadership that we have across our filing and our team.

And who is at the top matters, but not to the extent that you're implying in your question.

Okay, great. Thank you I appreciate your comments.

Thank you. Our next question or comment comes from the line of Patrick Davitt from Autonomous Research. Mr. Davitt. Your line is now open.

Hey, good morning, everyone.

My question is on solutions, you and others are obviously hyping up how big of an opportunity this could be as investors increasingly look for liquidity, but to your point on the ALP invest needing to be back in the market. There's obviously another sides of the equation right you need to raise the dry powder to take advantage of that so why is this a strategy that you think will really.

Have a lot of demand given where we are in the cycle as it seems LP demand is really skewing more towards things like real assets infrastructure and private credit.

Yeah, I think that's a great question.

Yes.

To be clear I mean, we do have a very significant dry powder at this point in time to fashion, which is good because the market is changing changing.

As we speak.

What we've seen is that public market valuations have decreased much faster and private market valuations and I think as you are aware the percentage of illiquid holdings.

Total AUM.

Larger investors in the U S has increased very significantly as a result of the denominator effect and lp's are considering.

That portfolio stay considered portfolio rebalancing, they consider selling part of their portfolios and that's typically an area.

That can be extended at these or considering to sell part of their private equity exposure that is an area. We can.

Incorrectly benefit as a platform with our secondary business.

At the same time, it's broader than that I think the liquidity needs of the markets are increasing.

Subtype of <unk> GDP.

Do you see the market changing their exit opportunities generally are are becoming narrower which actually is a positive support for.

Significant trends like continuation vehicles in which we play a very markedly enroll so whether you look at the GP side of the market or LP side of the market with our secondary and portfolio fine I think that for them.

Where we have market leading positions, we think we can benefit.

Competitors they are unrelated.

Really briefly.

<unk> is not going to.

Trump of her own great performance, but the performance in our solutions business has been really strong and so once the times for those products.

Come back to market feeling really good about how they'll be positioned and so very optimistic about the future and it's been a really.

Good store for us the growth really through 2019 has been very strong in this business.

Taken it from almost nothing to a really interesting story and one that we remain very optimistic about going forward.

Thank you.

Our next question or comment comes from the line of.

Brian Mackinnon from JMP Securities Mr. Mckenna. Your line is now open.

Great. Thank you so I know the broader capital management strategy will likely be determined by the new CEO , but how are you thinking about the trajectory of the dividend into next year, particularly given the level of FRE growth in 2022, and what will likely be some incremental growth in 2023, and then related just given where the stock is.

Trading how are you thinking about buybacks here.

Hey, Brian It's Craig Thanks for those good questions. So first let me just remind everybody we increase the dividend from a dollar per share to $1 30 per share at the beginning of this year.

30% increase we are very much focused on continuing to grow our business, we want our dividend to be sustainable fixed we wanted to move in one direction up.

Something that the board will consider typically at year end in terms of how much and also in terms of viewing kind of our various capital needs and requirements to grow the business and also consider buybacks as you talked about.

Look we're thinking about just that in terms of how much to go up but we expect us to.

Think about that in that context of how to appropriately allocate capital from a buyback perspective look theres a good opportunity here, we actually think that will continue to manage our dilution from equity grants and as we think about balancing those buybacks with other capital needs.

We're going to lean into growth, but clearly the.

Tractive price of the stock right now really raises the bar in terms of how we think about <unk>.

Acquisitions and the other external uses of capital to grow the business, but make no doubt about it we're focused on shareholder value growing shareholder value and you pointed out a couple of the levers in the toolbox to do just that so thank you for your question.

Yes, thanks Kurt.

Thank you.

Our next question or comment comes from I'm sorry.

Our next question or comment comes from the line of Glenn Schorr from Evercore ISI. Mr. Shaw. Your line is now open.

Thanks very much.

So I heard from you and heard from others about the pace is likely to slow that goes for deployment fundraising monetization is kind of everything in this backdrop also heard its going to take a while from you and others. So get it the world is pretty disruptive I'm curious on how you might attribute.

Slowing to is it the lack of available funding.

<unk> cost higher cost of funding that's producing these of Hawaii did ask and then maybe turn it.

And so a potential positive what are going to be the signs that you look for or we should look for to see that the environment's improving.

Sure. This is Keith I'll take that question first.

Perspective from the private equity side of our business I think it's certainly a combination of factors that leads to slow.

Slow down.

Youll blow first I would say that the level of deployment of investment activity. In 2021 was unusually high so that was really a peak. So there's no doubt that we're going to come off that the level of overall investment activity. This year was more in line with our typical annual run rate.

For deployment and investing in the private equity side moving forward into 2023, I do expect the investment basis.

A bit further.

Really two or three factors driving that first obviously the increase in interest rates.

Hasnt impact.

But for all private equity buyers unit.

Active that you can buy SaaS with them.

You go out and get debt financing commitment with the cost of it is because that cost is higher and prices come down a bit ultimately because we're going to require the same region returned to higher rates of return in this environment.

<unk> would be lower because of that.

You get less people coming to market to sell.

Business is right now because we know they are not going to get top tick valuation between what the public markets have done in terms of trading off a bit and and higher interest expense. So you got enough sellers willing to sell.

Well in that environment in the third and last factor I would touch on is of course the.

Uncertainty out there in the environment or certainly the expectation that the company is going to slow.

Because of that buyers and sellers are less likely to agree on.

The price.

For our business today, which makes fewer transactions happen.

I don't want to be overly.

Overly negative a lot of transactions are still happening and we have invested a lot over the past quarter and everything one of those deals we got get financed and yes. The financing is more expensive.

But deals are getting done.

I do expect across the market to.

A slowdown on deployment in 2023.

Yes, Hi, Glen its mark here on the credit side I would say that we've got a different dynamic going in that.

We think the opportunity set is increasing.

Typically in private credit, where the capital markets as effectively.

Less liquid if you want to call it that I wouldn't say that sees that.

And until really the bank at most of those commitments off the balance sheet is going to be a very good opportunity and we see that as very good opportunity not just for the next six to 12 months, we think that'll be given the slowdown in the economy at 12 months to 24 month opportunity, where the pace of employment can pick out.

In that period of time I think when you look in the liquid book, we still have had good formation on the CLO side, despite what's going on in the marketplace and if we see a liabilities the jobs, which we expect they will we will see probably more continued pace on that side as well. So I think for credit we feel very good about the opportunity set in the funnel of opportunities that are.

Coming down to US right now and we're quite bullish on what we see.

Mark I Wonder if we could just follow up on that.

Okay.

A question I was going to ask what's going to be on CLO performance.

Okay hung in there in the quarter.

Down a few percent.

Both U S and European.

For the last 12 months, which is a lot better than the public markets, but still down I was curious.

Does that kind of performance profile, and then just a higher rate environment, how the typical CLO investor.

Purpose that and so I wonder if I could get a specific.

CLO.

Formation thought process over the next year so thanks.

Yes, I think.

Obviously, two components of CLO formation, the asset level right now, which is very attractive and that is where we form the liabilities as well and I think the past six months in particular has been more challenging on the liability side. So the leverage that we put on those vehicles and we're going through a period, where that formation has been more talent.

That being said Kurt that we've completed seven CLO this year to date, which would be more in line with our regular year correct.

And so I think the challenge will be for managers is generally is that access to the liability side, which got Carlyle given one of the world's largest CLO manager and one of the better performers.

<unk> positioned our portfolio quite well, we're able to attract those liabilities in particular, the equity as well and we commit to the equity ourself off the balance sheet. So that does perpetuate the formation of CLO for our business in particular.

Okay. Thanks, Paul.

Thank you our next question or comment comes from the line of Chris.

Chris Kotowski from Oppenheimer. Mr. <unk>. Your line is now open. Thank you most of mine have been asked but I noticed that on CPA. There is another couple hundred million dollars of commitments there and Im wondering is the fundraising on that done or is there a chance to extend the fund raising into calendar 2020.

<unk> so that.

Lp's could use their.

Next vintage year commitments.

To come into that fund.

Thanks for the question.

Yes, so on Tpa, we do intend to keep one rig going into 'twenty three we thought was our attention all along.

So we will do that and you are right that we will open up a number of investors and a number of our investors have come to us.

<unk>.

You can come back into the vision 2023, and had more allocation and so we do intend to keep fund raising going in 'twenty, three and that'll be with full catch up fees and all that.

Yes.

According to the terms of the LP agreements and that would be included.

Great. Thank you that's it for me.

Thank you. Our next question or comment comes from the line of Gerry O'hara from Jefferies standby.

Great. Thanks, I was hoping maybe we could get a little bit just an update around the.

Fortitude.

Outlook and kind of how youre, how youre balancing what you see or where you see the opportunities for both organic or organic versus block transactions and what appears to be an increasingly competitive market, but also more attractive, but any comments or context would be would be helpful. There. Thank you.

Hey, Jerry it's Craig I'll start with some numbers and then Mark will provide some color around it. So look fortitude is doing really well just as a reminder to everybody. This is about $45 billion of fee, earning AUM. There was also about $9 billion that they've invested directly into our funds.

And maybe more importantly, they have over $4 billion of capital within Fortitude itself and that's important because that's the capital that they can use to essentially double their business, which we think we can accomplish over the next couple of years and so we're optimistic in terms of kind of how they are.

And both of them and also just from an adjusted book value and from a return on equity perspective that business is continuing to perform well, but mark I don't if you have more color that yes, the only thing I'd add Curt and Mark here is that.

The macro backdrop and with what the.

The transaction is that insurers are looking for ways to better manage their capital in their operations and more efficient manner and that Hasnt changed and in fact in this higher rate environment, all else being equal generally made it more attractive or more favorable for sellers to.

Transact on the legacy block, which is what we traffic in some quantity perspective, so that that pipeline that we see continues to be very strong.

And the timeline on these transactions are traditionally longer than our regular corporate M&A process and given the complexity of the books and we're involved in many.

Processes right now and we feel very positive about what we see in that regard.

So we're quite comfortable with with <unk>.

Great. Thank you for that.

Okay.

Thank you. Our next question or comment comes from the line of Adam Beatty from UBS. Mr. Beatty. Your line is now open.

Alright, Thank you and good morning, just wanted to follow up on capital management I appreciate curt's comments earlier about wanting to maintain.

A steady dividend and what kind of ratcheted it up year. After year. My understanding is that that's primarily that process has been primarily based around FRE in the past and just wanted to ask about the potential for incorporating realized carry and the level of the dividend.

You've managed to to maintain that fairly well this year indicated that maybe averaging a $1 billion or so in the out years. So it seems like something that might be able to be incorporating capital distributions to investors, but wanted to get your thoughts on that thank you.

Adam It's Craig Thanks for that and thanks for recognizing the strength of <unk>.

Our accrued carry and carry generation that we've had $4 $1 billion of medical care on the balance sheet roughly $11 per share and future earnings power, we think that that's going to come out.

Capital market permitting roughly a $1 billion per year purchased as Pete noted.

We'll see some slowdown so next year it could be a little lighter than that.

Approach on the dividend. However, really is wanted to making this a fixed dividend that we that is fully sustainable that we can grow.

Think using really kind of recurring revenues primarily out for you is the way to look at that but we also have to balance it amongst all of the capital needs that we see how to invest in growth. How do you consider buybacks and managing dilution and also how to return capital to shareholders and look there is a variety of levers.

I said before to grow shareholder value and that's what we wanted to do.

Fair enough. Thank you Kurt.

Yes.

Thank you. Our next question or comment comes from the line of Mike Brown from K B W. Mr. Brown. Your line is now open.

Great. Thank you for taking my questions.

I appreciate the updated FRE expectations for 2022 any early read on expectations for next year or any color on how we should think about that FRE growth and.

Yes, sorry margin as we think about 2023. Thank you.

And Mike It's Curt Thanks for the question look just as consistent with our past practice, we will provide more granular detail on 23 at the beginning of 'twenty three after we completed all of our year end processes and the like but let me just reiterate this year, we have grown FRE 50 person.

<unk> past decade, with a 15% CAGR. So we're focused on we are you heard bill say, we remain committed to growing FRE. We think our diversified business model helps us do that we're very focused on efficiently and effectively run the business, we will continue to make investments.

Thats been growing our distribution platform or in technology to help us operate more efficiently, but we're going to make sure that working to either focus on how do we grow FRE in the aggregate because that matters more to me than just margin, but margin is also important as a tool to grow more FRE and I'm confident that we'll continue our FRE.

Growth trend as we go forward.

Okay, great. Thank you for taking my question.

Thank you. Our next question or comment comes from the line of Alexander <unk> from Goldman Sachs. Mr. <unk>. Your line is now open. Good morning. This is Ryan Bailey on behalf of Alex maybe piggybacking off the prior question a little bit.

So if we come back to private equity fundraising, obviously and you've reiterated business, it's a challenged environment for the industry you're.

Do you have a number of flagships in the market over the next 12 months and <unk> had fairly strong realizations year to date out of private equity with.

With the delayed fundraising do you still expect management fees to be able to grow in 'twenty three 'twenty two within private equity.

Yes.

So Brian it's Kurt here, let me take that so we're focused on a lot of things to grow the business I'm going to give you more granular detail on 23 next year, we've had very nice top line growth this year in private equity.

Any given quarter and really any given year is always tough to call exactly but we're focused on long term trends.

What I really liked here in private equity we have a number of things to focus on natural resources energy, our real estate business, our technology initiatives, our European technology platform very strong.

So theres a number of things for growth in that business and we're focused on growing FRE on all of our big businesses in the aggregate. We believe we can do that in 2003 as well I will give you more detail next year.

I appreciate it thank you.

Thank you. Our next question or comment comes from the line of Michael Cyprus from Morgan Stanley . Mr. Cypress. Your line is now open.

Good morning. This is truly a standing in for Mike. Thank you very much for taking my question. My question is more about how you think about the way the mark to market valuation of carry or lack thereof.

How what do you think the market is missing around how the way to think about carrying.

So thats, how should I be thinking about carlyle's ability to realize the over 4 billion of accrued carry you have on the balance sheet right now thank you.

I Love your question.

Yes.

The mystery around valuation of carry with I think it's been underappreciated for a long long time. This is a vital that we have we have fought for years in terms of trying to educate people I'll just reiterate what we had for over $4 billion of net accrued carry on the balance sheet underpinned by a one one.

Wondered $36 billion remaining fair value in our funds.

This has been a tough and challenging market and a lot of fronts, but even in all of that our funds have appreciated 10% year to date, which is really good I mean, if you think about how P and market rules and all other team has built their fund portfolio construction as Bill said in his opening remarks really matters all three of them.

It really in ways that are key to their I think if this really positions us well.

There is no I don't have the magic perfect Crystal ball on the future and I wish I had better but I'm feeling really good about how we continue to drive carry you saw almost $400 million of realizations this quarter.

And it will get will probably slow a little bit here or there, but overall really strong even with the difficult backdrop, so I guess.

Fully agree with you that why this is undervalued that $11 of value in terms of future earnings.

Within the portfolio.

Thanks for your question.

Of course, then if I could just making a quick follow up assuming this undervaluation carries on for an extended period of time.

Levers.

So I guess I have a better align.

Incentives.

Perhaps with those who place a high value on it at all in terms of.

Kind of turning that back to shareholders in some way some shape or form.

But look all along.

That matters in terms of compensation strategies.

Also in terms of being able to drive continued growth in our business and so while we continue to embrace a balance sheet light model.

Being able to use capital that has generally been generated from carry production to be able to reinvest that into fee related earnings businesses to grow just like we did with fortitude and the C. Band earlier. This year, we will continue to look for those opportunities obviously today.

Bar for how we look at those things is higher than before but we're going to continue to aggressively use our balance sheet to grow but also balancing that with growing dividends buying back stock and the other in other tool to grow the firm, but but carry is a key component of generating that that capital to enable us to do all of those.

Yeah.

Thank you so much for all the color.

Thank you. Our next question or comment is a follow up from Mr. Patrick Davitt from Autonomous Research. Your line is now open.

Alright, thanks for the follow up could you give us some perspective on the underlying corporate p/e.

Portfolio operating trends kind of from quarter to quarter. This year revenue EBITDA gross margin vis vis inflation.

Patrick It's Curt I presume, you're asking about the underlying portfolio companies.

The question then.

It will chime in here on that yes, that's what I'm asking.

Sure.

Across our corporate private equity portfolio.

Companies continue to perform.

Very strongly revenue growth overall has been in the low double digits across that portfolio and many companies are passing on price increases, but also demand has remained really strong.

Most areas of the economy so far.

On margins clearly there is some cost pressure so on margin margins are growing.

The mid single digits, so roughly half the level of revenue growth is.

The level of earnings growth that we're seeing.

Our business has continued to perform well we continue to get earnings growth and that's what's supporting the valuations in the portfolio as the earnings growth that we see across the portfolio that's corporate private equity.

Overall across natural resources and infrastructure the results have been even better.

With what's happened with energy prices and that's one of the portfolios perform even stronger.

And Thats LTM I assume the.

The revenue and EBITDA.

Sorry can you repeat that I'm, sorry, I missed that.

That's L. P M I assume the revenue and EBITDA growth.

Or is that <unk> got.

That is.

That is year to date.

Year to date results.

Thank you.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing remarks.

Thank you all for your time this morning with US and should you have any follow up questions feel free to reach out to Investor relations at any point otherwise, we'll look forward to speaking with you again on next quarter's call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day speakers standby.

The conference will begin shortly.

To raise your hand during Q&A you can dial one one.

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