Q4 2022 Carlyle Group Inc Earnings Call
Speaker 2: Daniel Harris, Head of Investor Relations. Please go ahead.
Speaker 3: Thank you, Kevin. Good morning and welcome to Carlisle's fourth quarter 2022 earnings call. With me on the call this morning is our interim chief executive officer and co-founder Bill Conway and our chief financial officer, Kurt Bueser.
Speaker 4: This call is being webcast and a replay will be available on our website. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or to substitute for measures prepared in accordance with generally accepted accounting principles.
Speaker 5: We provided reconciliation of these measures to gap in our earnings release 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.
Speaker 6: including those identified in the risk factor section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated.
Speaker 7: Carl Altsu was no obligation to update any forward-looking statements at any time.
Speaker 8: Early this morning we issued a press release and a detailed earnings presentation which is also available on our Investor Relations website.
Speaker 9: I'm going to begin with a quick discussion of our results, and then they hand the call over to Bill.
Speaker 10: For the fourth quarter, we generated 202 million in fee related earnings and 433 million in distributive loan earnings or $1.1 per share.
Speaker 11: Fear-related earnings for the full year 2022 of $834 million increased 40% compared to 2021, and FRE margin expanded to 37% from 33% last year. Strong organic growth and several strategic transactions combine to deliver another year of substantial growth.
Speaker 12: We generated $1.9 billion in distributable earnings in 2022, or $4.34 per share, with a good balance of earnings from FRE, net realized performance revenue, and realized investment income.
Speaker 13: We enter 2023 in a strong capital position. We have $1.4 billion in cash, $2.4 billion in firm investments, and $4 billion of net accrued carry on our balance sheet. In total, over $20 per share. We have nothing drawn against our $1 billion dollar revolver.
Speaker 14: and our debt ratings from both S&P and Fitch improved to A- ratings. The strength of our balance sheet gives us confidence that we can continue to pursue growth strategies, both organic and inorganic, to help continue to deliver additional FRE growth.
Speaker 15: We delivered a quarterly dividend of 32.5 cents per common share.
Speaker 16: The combination of our balance sheet strength...
Speaker 17: and sustainable growth in FRE allowed our board of directors to approve another increase in our fixed dividend to $1.40 per share per year, an increase of 18% year over year and up 40% over the past two years.
Speaker 18: This higher dividend will begin with Q1.
Speaker 19: And with that, let me turn the call over to our Interim Chief Executive Officer and co-founder, Bill Conley.
Speaker 20: Thank you, Dan. Good morning, everyone, and thank you for joining us today. I am pleased to be on the call to discuss Carlaw's fourth quarter and full-year results.
Speaker 21: As you've heard, Crowdlaw delivered strong results to our stakeholders despite the challenging market environment.
Speaker 22: The firm is operating well and I have tremendous confidence in our ability to capture investment opportunities and to continue to grow our platform in 2023.
Speaker 23: I want to talk about three topics this morning.
Speaker 24: The outcome of our CEO's selection.
Speaker 25: strong financial performance of Carlisle in 2022 and some general thoughts on our outlook.
Speaker 26: First
Speaker 27: We are incredibly pleased that Harvey Schwartz will join Carlisle as the new CEO on February 15th.
Speaker 28: As you all know, this was an incredibly important decision for Carlisle. In the search committee of the board
Speaker 29: which on which I serve, draw a robust and exhaustive search for a new CEO .
Speaker 30: Following a thorough and competitive process, Harvey was unanimously chosen by the board as the right leader to move Carlisle forward in its next phase of growth.
Speaker 31: Harvey is a widely respected business builder with significant leadership experience in a high performing, highly competitive global financial institution.
Speaker 32: He is a seasoned operator with a proven record of leading and developing a wide range of businesses and a demonstrated ability to invest in and develop the talent and organizational structure to manage and support these businesses.
As we look to the future, there is tremendous opportunity to grow and to continue to transform revolution Epicpmstru Von Cworthyell and
and deliver sustainable results over the long term.
Harvey brings the experience and skill set to fully capture this opportunity.
As CEO , he will set an executed strategy that advances and accelerates the diversification plan the firm has successfully pursued.
as well as identify new investment opportunities to further scale the business, drive performance, and deliver growth.
I am confident in Harvey's leadership and look forward to introducing him to you in the very near future.
Moving on, I'd like to discuss our 2022 results.
Kurt will dive into our results in more detail, but I wanted to touch on a few notable points.
As Dan mentioned, we generated record free earnings of $834 million in 2022, an increase of 40% over 2021, which demonstrates the strategic focus to grow FRE and diversify our earnings mix is paying off.
And we earned $1.9 billion in distributable earnings despite a volatile exit environment.
We delivered investment returns that were attractive across our portfolio.
Our aggregate carry fund portfolio appreciated 11% in the year. Well, the public markets were down about 20%.
And as I said last quarter, portfolio construction and risk management matter, and we believe that this is the key differentiator that positions our investment teams to deliver superior relative performance across market cycles.
Turning to our outlook, as we enter 2023, we are confident in the strong foundation of the firm and believe that we are well positioned to capture new growth opportunities. And Harvey will focus on building up this strong foundation.
At its core, our business involves raising money and investing money and then making that money that we've invested worth more.
Let me begin with some thoughts on fundraising.
No doubt, the backdrop for raising new capital remains challenging.
with headwinds more pronounced in certain areas than others.
However, today's environment is different from what we faced entering 2022.
Early last year, an unexpected and sharp change in market sentiment had investors on their back foot for most of the year.
with rapidly deteriorating public equity and debt prices.
The denominator effect greatly reduced LP interest and ability to make new commitments.
Over the past few months, at least until last week, we've seen a gradual reduction in market volatility.
Investors still believe that they have a better handle on the magnitude of further interest rate changes.
In addition,
Kral has longstanding relationships with the largest and most sophisticated investors around the globe as a benefit. And we continue to see strong demand for many of our investment strategies across our three global segments.
Our platform has continued to diversify and it's important to note that roughly two-thirds of our fundraising last year came from areas such as global credit, global investment solutions, natural resources, and real estate.
While corporate private equity may continue to face headwinds, we see significant capital raising opportunities across our platform.
We will have more strategies raising capital in 2023 than we did in 2022, including our next-of-bidage flagship funds in credit opportunities, secondaries, co-investments, and bio-puns across the globe.
We anticipate that our overall dollar volume of fundraising in 2023 will be higher than the $30 billion we raised in 2022.
Over the past few months, I've been around the world speaking with our teams and investors and feel confident in the power of our platform.
Our investors value our partnership, our global reach, and our ability to construct diverse portfolios that perform across market cycles.
Now that Harvey is here, it has also taken away some uncertainty about our path forward as a firm. And we think that will also have a positive impact on fundraising.
Regarding capital development, today's market conditions create new opportunities to invest capital across all of our global businesses.
Recently, there's been a wider than average spread in pricing expectations between buyers and sellers, which has impacted capital development.
This spread is across most asset classes, but it's been more pronounced in private equity than other strategies. But we are starting to see evidence of this spread narrowing.
As debt and equity capital markets continue to reopen, the pace of deal activity is poised to accelerate.
We deployed a record $35 billion in capital in 2022 with a good balance across equity, credit, and solution strategies.
And we are well positioned for further investment with $72 billion in dry powder to capitalize on an improving environment.
We expect to find ample opportunities to make new investments in 2023 and beyond on behalf of our fund investors.
In addition, the improving deal environment presents an opportunity for our global credit business to provide unique capital solutions to the marketplace.
In 2022, we underwrote $3.9 billion of new loan activity in our direct lending strategy. And our CLO team issued nine new CLOs while also trading $30 billion across their portfolios to better position the CLOs for the expected economic environment.
And as fund investors need for liquidity persists, we are well positioned to capitalize on this need to our secondaries and co-investments business.
Overall, 2022 was a solid year across most financial metrics for Carlisle, and we entered 2023 with strength and momentum.
With Harvey as our new CEO , alongside our strong leadership team, Carlisle is well positioned and we're confident that he will build on his momentum to bolster the firm's position and create value for all our investors and shareholders.
With that, let me hand the call over to our Chief Financial Officer, Kirk Buser, to discuss our financial results in more detail.
Thanks, Bill. Good morning, everyone.
I want to start by reiterating many things Bill mentioned that emphasize the strong position Carlisle finds itself in as we begin this year.
We believe our investment portfolios are in good shape and are well positioned to weather economic volatility.
And we expect to deliver long-term, attractive performance for all of our stakeholders.
We produced a robust $4.34 per share in distributed earnings in 2022, displaying the significant cash earnings power of our firm. We've now earned over $9 in DE per share in just the past two years.
We remain focused on growing fee-related earnings, and it grew by 40% in 2022. And over the past five years, our F.R.E. CAGR has been a robust 34%.
Our overall earnings mix continues to diversify as we have grown our credit, insurance, capital market, and solutions capabilities.
Our strong growth in fee-related earnings is not driven by a single fund or strategy. Rather, our performance owes to driving broad-based, top-line fee growth across our global platform.
Top line fee revenue growth was 25% in 2022 and was driven by the following. First, raising capital for and growing our traditional high performing investment strategies across each of our three global segments.
Second, organically building out new fee-generating businesses like opportunistic credit, insurance, capital markets, and infrastructure credit, to name just a few. Each of which added significantly to our growing fee-revenue pool throughout the year.
And third, we've been actively adding new, inorganic streams of earnings, such as our transactions to further scale our CLO business with CBAM and our advisory agreement with Fortitude.
These efforts have scaled our platform and helped drop more of our top line revenues to the bottom line.
as we expanded our full-year FRE margin to 37% in 2022, an increase of nearly 400 basis points compared to 2021.
FRE margin has more than doubled over the past five years.
We have done this while concurrently investing in new product development and enhanced distribution capabilities notably across the private wealth channels.
We expect to continue to grow FRE in 2023.
FRE in the first quarter will likely be similar to Q4 of 2022 before increasing in the second half of the year.
In addition, we remain highly confident in our ability to grow FRE well into the double-digit range over the mid to longer term, in line or better than the market trends across the private capital industry.
Consistent growth and fee-related earnings is supported by the attractive investment returns we produce for our fund investors.
Our investment teams again delivered appreciation that out-perform public benchmarks, even with increasingly higher discount and cap rate assumptions and evaluation models, and elevated concerns about a global recession.
While only 6% of our carry fund portfolio was publicly traded at year-end, public market comparables are an important input to our valuation methodology. And generally, we're a downward driver of valuations across our private assets during the year.
Of course, the most important valuation driver of any investment is underlying asset level performance.
which in general continued to reflect growth in revenues and earnings, though this growth generally slowed in the second half of 2022.
Our strong performance also owes to our focus on deploying capital into sectors where we have deep industry expertise and experience.
Our real estate funds appreciated 16% during 2022.
Our infrastructure and natural resource funds appreciated a very strong 48 percent. And corporate private equity funds were up 6 percent.
We realized $34 billion in proceeds for the year.
which produced another year with $1 billion in net realized performance revenue.
about what I previously indicated would be a good target in most years.
Looking forward, net accrued carry increased 2% year-over-year to $4 billion, a solid portfolio appreciation more than offset strong carry realizations.
And we ended the year with $138 billion in fair value in our carry funds, up more than 10% compared to year end 2021.
In general, we continue to expect to generate, on average, $1 billion in annual net realized carry.
So, depending on the year, realized performance income could be elevated as it was in 2021 when market factors were favorable, or lower in years where uncertainty diminishes capital market activity.
Industry-wide activity rates slowed considerably in the past few months, as buyers and sellers continue the search for a valuation middle ground.
and funny markets, while available, are less amenable than they were just a year ago.
For Carlyle specifically, new investment and realization activity has also been slower.
And so we expect a muted start to 2023 for both deployment and realizations.
Thus, transaction revenue and realized performance income will be lower over the next quarter or two.
If our activity rates across the industry improve over the next few months, then our expectations for higher performance and transaction revenues will also increase.
Let me now turn to some quick thoughts on each of the business settings.
Global private equity had another strong year with fee-related earnings up 34%.
Strong appreciation across real estate, infrastructure, and natural resources helped Net Acruit Carry increase to $3.5 billion after more than $900 million of net carry realizations.
$20 billion of invested capital was generally similar to $23 billion of realized proceeds.
which positions global private equity to continue to deliver attractive levels of distributed earnings in future periods.
Global Credit remains our fastest growing segment.
And it benefited from both organic growth activity as well as the positive impact from strategic transactions.
Top line fee revenues grew 46% in 2022.
resulted in fee-related earnings more than doubling to $225 million dollars and fee-related earnings margins increasing by nearly 1,000 basis points to 37%.
Strong investment performance across various strategies produced $70 million of net realized performance revenue.
Our credit interval fund delivered attractive performance with a 10% dividend yield, while continued net inflows grew managed assets to more than $2 billion.
We raised $15 billion in new capital across 11 strategies and global credit in 2022.
And we expect to have an active year fundraising for additional strategies in 2023, which should position global credit for further growth.
In addition, we remain focused on helping Fortitude evaluate new growth opportunities which would help us benefit from incremental advisory revenues.
And in Global Investment Solutions, we are well positioned to see growth in this segment as we begin fundraising for our flagship products.
including next vintages in our co-investment and secondary strategies.
Fee related earnings of $69 million in 2022 was lower than 2021, but we expect to see growth later in 2023 as these strategies attract new capital.
In addition, with $374 million in net accrued carry and very strong fund performance, performance-related revenues are well positioned to increase over time.
We see tremendous opportunity to deploy capital in what we think will be a great investment for our portfolio and fund investors. Now let me turn the call over to the operator so we can take your questions. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, you were seeing yourself from the queue. Please press star one one again. And we ask that you limit yourself to one question and one follow up. One moment for our first question. First question comes from Glenn. Sure. With Evercore, I saw your line is open.
Hi, thank you, appreciate it. So maybe for Bill first.
I think a lot of investors have been getting on board the direction of travel for Carloff the last couple of years. FRE growth, margin expansion, diversification. So we had to pause for six or seven months. We found Harvey.
maybe talk a little bit more about Y Harvey and then most importantly
What's he here to do relative to the strategy that all these investors are on board? And I want to know, like, is that strategy important to you and the co-founders? Because the process we went through is what it is. So just curious if you could talk to that.
Sure, and thank you for the question, Glenn. You know, first of all, I am very excited that Harvey's going to join us. He was our first choice, and he is a great leader in the field of health and safety.
And I think it should be pretty obvious why. We were looking for somebody who had a real proven track record.
We look for somebody who had experienced building businesses.
We were looking for somebody who had a record of managing and recruiting and training and developing talent and working in a collaborative environment.
We were looking for somebody who could relate to people like you and Wall Street and tell our story.
to people like you and Wall Street and tell our story.
A wide range of skills and frankly there are a lot of people who have have all those skills and Harvey I think we found that person he is Really fantastic yesterday he and I were walking around our New York office
We went on all the floors, we were talking to people and he was happy to see them and they were happy to see him. And it was really not so much they wanted to get rid of me, but rather they were excited to see him there. We obviously have a lot of people just to work for Goldman and they were happy to see him.
And people who just had heard about him and his track record and his skill set. So I think why Harvey and who he is and what his track record is, that was pretty clear to me that we couldn't get anybody any better than Harvey. He was fantastic. I think that's pretty clear to me that we couldn't get anybody any better than Harvey.
and his track record and his skill set. So I think why Harvey and who he is and what his track record is, that was pretty clear to me that we couldn't get anybody any better than Harvey. He's fantastic. Now, what's he here to do?.
I think in some ways the path that we have is set. First of all, we want to increase the stock price.
You know, even though we've got a great investment track record that doesn't show up in their stock price.
We have a.
And you know, how is he going to do that? Well, we have to grow our business. We have to grow our business. We have to grow our business.
particularly the fee-rated earnings, but other parts of the business as well that assets and the like. He's got a great set of experiences. Remember he was at Goldman during the time of a financial crisis and you know talking about having to deal with situations that were risky and yet had great opportunity.
So I don't see dramatic changes in the basic strategy, but it'll be up to Harvey. You know, he's going to be the CEO of the company and I'm going to do everything I can to help him be successful, including staying out of his way if that's the right part of the solution. I can't tell you how happy I am that he's here.
Well, long track record with him, so I totally agree with that. Maybe just 1 numbers question. I'm interested in your comments.
about the improving bid-ask dynamic. You have $11 or so in net accrued performance revenue, which is a lot relative to your stock price, like you said. So you realize the billion in performance revenue, but you picked up another billion basically on the back of infrastructure and natural resources.
So could you expand a little bit more on what you talked about, the improving bid dynamic, a bid ask dynamic. Is that like a near-term-ish thing or is that a hopefully second half thing? Just curious on what you think it takes to get the wheels moving again.
You know, that is, that's the real question, isn't it? And of course, what we're talking about there is that...
Sellers think their businesses were worth what they were worth a year or two ago.
And buyers say, well, I don't want to pay those prices anymore. And so there's been a gap. I've mentioned in my remarks that it's been both in the prices of equities, we see it kind of on the value of the companies that you own, but it also applies to credit. For example, and there was a deal recently we looked at where the
credit spread or all in price of the credit a year ago might have been
six or six and a half percent and now it's double digits. So there there are still certainly some disparities in valuation.
However, it is getting better, Glenn, and I'd say it's getting better slowly. It's not rapidly. This is not going to be something that I think it's going to bring the buzzer, and we're going to know that it's where it should be.
You know, private equity has the advantage and private debt too as well. Being.
you know, able to evolve and able to function in lots of different kinds of environments and to adjust to those environments.
And I see that in the types of deals that we do now.
We're not doing deals that are giant deals that require, you know, billions, 10 billion of equity and 10 billion of credit. Those deals would be almost impossible to do today. But the market is gradually healing. Buyers and sellers are gradually coming together. And I think it's on both sides. I think buyers are dropping, the price is down. And I think
what they're willing to pay. And the sellers are saying, well, maybe we're gonna have to just be able to settle for a lower price than we thought. And I think that's across the board. It's not gonna be just in private equity, and it's not gonna be just in America, it's everywhere.
More in the second half probably than the first.
One moment for our next question.
Our next question comes from Bill Cads with Credit Suisse. Your line is open.
Okay, thank you very much and congrats on adding Mr. Schwartz. So a question for you guys, you mentioned that you think that asset gathering can be better in 2023 than in 2022. I was wondering if you could unpack that a little bit and maybe bifurcate between where you stand on sort of the three flagships, corporate private equity portfolios versus the rest of the business with some input.
year. And between 22 and 23, it was a motify better than what had been in all prior years.
Bill talked about some of the challenges here recently and we think that that's going to pick back up. The diversification across the platform and deployment, I was really proud of because what you saw in 23 was much more coming out of global credit.
and other aspects of even private equity outside of corporate private equity. And so all of that was really good. So the deployment piece was really good. That leads us into a good place from a fundraising perspective and sets us up well for fundraising.
And so, you know, because the first and foremost thing I think is kind of how the portfolios are performing and then how you think about fundraising.
So, from a fundraising standpoint, a couple of high-level things for you to keep in mind. Our portfolios are performing really well and this sets us up nicely to go as we seek to raise more capital. Let me back up once again, as I transition from talking about low income, mostly-isch Madden
Second, Bill said we expect to raise more in 2023 than we did in 2022, and we'll have more products in the market to support this.
The third thing from a number standpoint I want you to keep in mind is in 2021, the beginning of the year, we said we would raise $130 billion over four years.
So two years in, we've raised $80 billion dollars, 50 last year, 30 this year. And we added $65 billion through strategic transactions. So that's $145 billion of new fee earned in AOM in just two years. And you see that in our fee related earnings.
up 40% 30 plus KGRO over the last five years and so that's done really well. And we've seen a lot of that growth really in credit and in our solutions business.
Now in the buyout funds we still have obviously some congestion in that space, but there's a number of reasons to have optimism there.
First, as Bill said, I think there's less uncertainty about the global markets today than there was a year ago. Second, public markets seem to be improving here in early days of the year, but it's still early.
You know third we're in 23 so that's a new set of allocations for investors And last you know with the appointment of Harvey Schwartz We have a lot of reason to be excited And we hope that that carries forward to our investors and taking away some uncertainty that may linger there in certain situations But look you know I'll reiterate that I think that our buyout funds
will be similar in size to their previous, you know, vintages. And so I'm confident in that and very excited about kind of our overall growth in the firm and think that this will be a better year from a fundraising perspective than it was in 2022. And again, you know, helping us in our focus on driving fee-related earnings.
Okay, thanks. And just to follow up, maybe stick with you, Kurt. So just to try and glating the notion of F-R-E up in 23 over 22, just sort of wondering how you might be able to ring fence that. And then just given the sort of, you know, yet to be determined incremental strategy with Mr. Schwartz, how should we think about margins? Because I hear a lot of grow-the-business, grow-the-business, grow-the-business. And then just to try and glate the notion of F-R-E up in 23 over 22, just sort of thinking about margins.
Can you drive FRE up and FRE margins up if you still need to grow the business? Thank you. Bill, look, you know, I said we're confident we're going to grow fee related earnings in 23. I think the first quarter will be a little flat, as I said in my remarks, but thereafter, I think things are really set up nicely.
You know, this is a challenging environment and we are continuing to invest and that's why I think this might be a little lower rate of total growth than saying the past but feeling really good about our ability to grow if we related earnings. I think with Harvey coming on.
His past experience in helping companies or helping situations improve profitability will be a good addition to the team, will bring new thoughts to this. I also want to be careful and give him the opportunity to put his imprint on things. And so I want to be a little cautious in terms of how much...
specificity I give the guidance, but we're really well set up to begin 23.
I give the guidance, but we're really well set up to begin 23. Thank you.
Thanks everybody. Good morning. Thanks for the question. Maybe just to follow up the prior discussion from Bill's question, it sounds like you guys still feel pretty confident about the overall fundraising targets that you laid out a couple of years ago, but the mix might be slightly different. Obviously, you highlighted the private equity business is a little bit slower. Can you expand on that a little bit? As you think about the ramp that you're talking about into 2023 from FIE growth, what are some of the key products and strategies that you expect to be the biggest contributors to that ramp?
But I think it's always a heavy weight in the room. And then in the solutions business, we've got our co-investment products and our secondary products and a couple new things that we'll bring to market this year. And so again, more products in that space, think of the solutions business as really being a nice way to kind of really increase from where they were in 2022. And then in private equity, look, we're going to have more product in the market in private equity. So a number of buyout funds, US, Europe , Asia will either begin or will be in the market from a fundraising perspective. There's other products in private equity that'll be in the market. And so that too, I think is well positioned to do better. I don't know if Bill, you have anything to add. I think solutions are certainly, certainly better than manufacturing as a financial nonprofit.
funds is a little easier because the opportunity is greater, the spreads are wider, and more money can be made by the investors in those funds. But I don't want to confine my answer in any way that will limit Harvey and his ability to do a great job. Got it. All right, we'll stay tuned for when Harvey's on. My follow-up. Let's go, Harvey.
Do you know Harvey? I've met Harvey, yes. Okay, good. I didn't know what another Goldman Sachs person might weigh in on what a great guy he is. Well, thanks for that. My quick follow up for you guys was around fortitude. That's something you mentioned in your prepared remarks as well.
I think, Kurt, you highlighted some new growth initiatives within that that can help expedite some of the growth as well. Can you expand on that a bit as well?
Sure, Alex. So look, Fortitude's got, you know, $50, $51 billion of AUM. You know, the way we've set up, you know, the services arrangement, you know, we fee off of all of that. In addition, they've invested about nine, or I should say committed about $9 billion into our funds. So all of that has been working, you know, as planned.
They also have about three and a half to four and a half billion of excess capital, which positions them nicely to continue to grow. Very active pipeline, working really hard on that. We said before that we fully expect that for them to be able to double in size because of that and fully expect that.
that that will occur and we have more to be able to say on those fronts, you know, we'll be sure to mention that to you but remain very optimistic about kind of how 42 can continue to benefit Carl out. I also tell you that 42 has, we have four or five institutional partners who are in that business and have fellow shareholders.
with us in Fortitude and they have been fabulous partners helping us grow that business. For us it still is a you know we got a lot of capital invested but we have less than we otherwise would thanks to those those great partners we have and as Kurt said we do expect to double that business over the next few years at least.
I got you. Great. Thanks very much. One moment for our next question. Our next question comes from Patrick Davitt with the Ponomous Research. Your line is open.
Hey, good morning everyone. I want to get a little bit more on on the CP, the, the fundraising issues. Please give update us.
Is it fair to say 4Q is about as bad as you think it could get in that line? Let me start on this. I'm always sensitive about trying to read into the minds of others or really try to figure this out in detail. Look, we have great relations with our LP investors. I think they're pleased with what we're doing. A lot of our portfolio performance has been just fantastic and well constructed. I already went through a litany of things in terms of what we've done well. $145 billion of capital formation in the past two years. I think that we can continue to do that in terms of growing and looking at organic things.
So look, I think the tone is good, but it's still difficult in different places. And tone, you got to be specific, really, to kind of individual situations and the given funds and the like. And there's a lot of reasons to be optimistic as we start 23.
But Bill, I don't know if you have any data. No more specifics to give at this time, Kurt. Sorry.
of giving that. No more specifics to give at this time, Kurt. Sorry. Sorry. Thank you.
One moment for our next question. Our next question comes from Kenneth Worthington, which AP Morgan, your line is open. The first question comes from Kenneth Worthington.
Hi, good morning. Thanks for taking the question. Maybe 1st, private markets investing in energy as you start to come back to market with more of these funds. How does the better environment and energy mesh with pension a pension fund community? That seems more reluctant to invest further and traditional energy. And what does this mean for your ability to grow your energy franchise?
and what seems like a more constructive energy environment. Well said, I mean, I do think that we're optimistic on the energy platforms. Our partners and colleagues at NGP are excited about their opportunities that got a fund in the market now. I don't want to comment specifically on that. But...
expecting good things out of that. Our renewable platform, our power business, our international energy platform all give us a number of products. They're not all in the market, but you're right. Right now, there's a lot of good opportunity in energy, but different LPs based on their constituencies.
have different perspectives. The limited experience that we have is that generally we're seeing a nice uptick from existing investors in existing product, which is different than kind of going after new or different, but it's a good opportunity at the present time. And I think its returns are pretty uncorrelated with all the other returns available in the market too. And that...
that appeals to a certain group of investors as well. Okay. So, do you think the business can grow or does it just sort of stay here as those two transoms at each other?
The needs are really significant. I think a lot of that has played out. So it's too early, Ken, to really call that definitively. But I feel a whole heck of a lot better about that whole sector than say,
two years ago where it felt a lot more difficult. Right now, everything, performance and the chance forward on a lot of those different aspects I think are really, really good. Thanks. Equity comp fell a bunch during the quarter.
What drove it? And I assume we see that sort of snap back next year?
Again, that's like a lot of things in this business looking at any individual quarter is a mistake you've got to look at over a longer period of time. The fourth quarter has some unusual things and essentially the fourth quarter is always a little bit like because you've completed a vast enough of big trance in the third quarter.
a significant uptick in our equity-based comp next year, you know, in 2023. Both, we've made some big grants in February , you know, to just a number of our key people and to ensure retention and to make sure to reward people that have performed really well. And then also, you know, bringing on Harvey, and that'll, you know, also have an increase on the equity-based comp in 2023.
Thank you. One moment for our next question. Our next question comes from Brian McKinnon with J&P Securities. Your line is open.
Great, thanks. So, realizations have been pretty resilient despite the tough backdrop. I'm curious, what parts of your portfolios are you most active monetizing today? And then it might be tough to answer, but what's the base case expectation for realizations in 2023, assuming no material shift in the backdrop? Do you think you can get back to that $1 billion level again?
So Brian , it's a great question and I always am polishing my crystal ball to fine tune this as best I can. A year ago in the fourth quarter of 2021, we earned about $700 million in net realized carry off of a very strong realization period.
It's a great question and I always am polishing my crystal ball to fine-tune this as best I can. A year ago in the fourth quarter of 2021, we earned about $700 million in net realized carry off of a very strong realization period.
That was like not only impossible to you know forecast and predict until kind of as it was happening It also shows the power of what can occur in a single quarter So we're sitting here today with four billion dollars of net accrued carried on the balance sheet our Underline portfolio of 138 billion dollars of fair value is up 10% from a year ago
transactions occurring as we speak. That gives me a lot of confidence. But the big stuff that will really drive it will be more in the back half of the year. Keep in mind, you actually sign up a transaction, and it takes often a couple quarters to actually close the transaction. The transaction will be more in the back half of the year.
And so the level of announced transactions far lower today and say a year ago and so, you know, therefore, you know, it's going to be the back half of the year.
Helpful thanks Kurt and then just with respect to CP7 gross return to the fund total 14% or 8% on a net basis. So how are you thinking about returns for this fund as it continues to mature over time? And then, if you look back historically, what's the average markup on realized investments relative to the prior unrealized marks? So, you know, I wouldn't be very careful in terms of, you know, we have a fund.
of where this fund and the similar vintage funds will continue to perform and do just as I said with respect to carry. So I think we're well set up for this and keep in mind you know our portfolio construction whether it's in private equity or real estate or credit is very diversified and you know we tend to invest in good assets.
where we have deep industry experience and knowledge, where we understand the macro environment where they're operating in, and most of our value creation comes from driving revenue and driving earnings.
It's generally not, you know, hey, how do we figure out how to buy low, sell high? It's generally not kind of, you know, boy, we can turn this business around because, you know, we're smarter than everybody else. You know, we bring tools to add to revenue, to add to profitability. And that's what, you know, turns into success. Great. Thank you.
It's generally not, hey, how do we figure out how to buy low, sell high? It's generally not kind of, boy, we can turn this business around because we're smarter than everybody else. We bring tools to add to revenue, to add to profitability, and that's what turns into success. Great. Thank you. One moment for our next question.
Our next question comes from Rufus Hall with the Emolar line is opened.
Great. Good morning. Thanks for taking the question. I wanted to come back to some of the comments you made around the growth trajectory. I guess, could you give us a better sense of when you anticipate getting into the double digit growth rate you mentioned in the prepared remarks? And do you think you can get to double digits organically or is that dependent on inorganic growth? Thank you. Rufus, thanks.
Look, you know, we can definitely get double digit organically. We're, you know, the business is going fast. You know, and it's very possible that we'll get there in 23. But I would say it's on the lower side of that. And it really depends upon activity level. And fees can be a big help.
transaction fees, you know, essentially, if you look on detail, you know, while 2022 was up over 21 and was our best year ever on transaction fee revenues, you know, in from Q2 it kind of peaked and came down in Q3 and came down in Q4, which, you know, put a downward pressure on fee related earnings.
I think they're going to remain like in the first quarter or so. And then as they stick back up, that will be a big help. In addition, there's a number of things that we think will also turn on later in the year. And keep in mind, our credit business generally generates fees off of invested capital. So as we raise capital in that business and raise a lot of money.
And that's across the platform and we notice that that's in the private wealth channel as well. So those are things that should help us drive organic new growth over time in addition to, of course, in organic opportunities that show up and all the things that Kurt just mentioned.
Thank you. One moment for our next question.
Our next question comes from Craig Secantal with Bank of America. Your line is open. Your line is open.
Good morning everyone and we just want to congratulate you on naming a top notch CEO . Thanks, thank you.
So, we wanted to start with an update on fundraising for the Flagship P Fund starting with CP8. I think there are a number of large LPs that wanted to wait until 2023 for when their anal deployment allocations were reset before they committed to 8. I just want to see how this is playing out now that we're more than a month into 2023.
Craig, it's really too early and really don't like to talk about details on a given fund, but remain optimistic in terms of where all of our fundraising can turn out. And as we said, I think we're going to raise more money this year than we did last year. Got it. Thanks, Kurt.
And just as my follow up, you know, a big question for us is the long-term growth trajectory. And I know there's not a ton you can say on this, but when you wrap up your fundraising super cycle with Asia 6th and Europe 6th this year and start to exit the cycle, can you talk about the potential for every growth to decelerate and help us kind of with this risk really framing into 24?
And I think it really comes down to the dynamic of, you know, can you raise enough capital and insurance solutions and credit to offset the net realizations that your private business will generate? And if you buy mutual hemisphere in will, someday you can't get your boss your neighbors the kimchi
So, Craig, I am very optimistic. Let's just start with solutions. Solutions, pre-21 or so, for five years was averaging about $30 million or so in fee-related earnings.
Had a very successful, you know, fundraise and growth in that business and stair stepped up essentially doubled, you know, initially to 80. We're now in the 70s or you know, 69 million and 22 for fee related earnings. Does everything that I'm expecting it to do. I see it doubling again. I won't double in 23, but think 24.
that business can double. We're very bullish on what our credit business can do. And we think with both products that we can really drive, hopefully another doubling of that business won't be again in 23. It's going to take us some time.
But you really kind of think that we can kind of make some real progress there. And that's off the back of continuing to build out our capital markets business, which by the way, I had zero exposure on my balance sheet in terms of hung deals or bad things. So really, really proud of our team in capital markets in terms of how they've operated and operate in a very smart way. They we measure their railway loans,
We talked about fortitude and what it can do and just the strength across the rest of the structured credit as well as a number of new products. Don't forget our opportunistic credit business which is very bullish and is going strong. So there's a lot of great things in credit and in private equity, still remain interested in what we can do outside of traditional buyout which is very much a focus of our business.
Look, I actually think our buyout business is amongst one of the best. And with a little bit of good news in some places, we'll be right back to kind of doing what it's always done. And you think that we're well set up for real progress there. And then you just think real estate has just a phenomenal track record. They can add to the picture and see much further growth in real estate.
It's too really to really call out what can happen in energy, but I think in infrastructure you've got a nice upside lift kind of there. It'll take some time, but it's a nice upside lift. I think across the platform lots of great things and looking forward to what we can collectively do as a team going forward.
Craig, I think as you reference the term super cycle, as we've continued to pursue this diversification strategy, we've been on for quite some time. That term has less and less meaning for us. Yes, we raise closed end funds. But if you look at the number of significantly large funds across our platform in every different.
conviction and confidence that we're going to be able to grow FRE in a very substantial way over time and just to reiterate what we said during our prepared remarks. We've grown FRE at 34% keg over the past five years and that's not an accident it's because of this process as we look forward we're very hopeful and we're a lot of confidence that we're going to be able to deliver great results to.
Thank you, Dan, Kurt, and doubles are great. One moment for our next question. Our next question comes from Michael Cypress from Morgan Stanley . Your line is open. Hey, good morning. Thanks for taking the question. Maybe just circling back to some of the fundraising commentary, just as you guys are out on the road meeting with us.
expenses, all of those sort of pieces. What sort of changes, if any, are you seeing in the marketplace? Michael, it's Kurt. I don't think that we're seeing anything significant one way or the other as we are on the road talking to people. The stuff that was always kind of the case still remains the case, which is access to co-investment.
And so that's really where more of the discussions really go as we're talking to LPs and fundraising. Thanks. And maybe just to follow up to that.
And so that's really where more of the discussions really go as we're talking to LPs and fundraising. Thanks, and maybe just a follow up to that. Today's open party is for those who spoke, you know, have your hand raised or maybe your anywhere at this time you've been you know, leaders supporting twelve unicorn
Maybe more on the portfolio company side, just around performance revenue, EBITDA growth trends. Maybe you can just give a little bit of commentary there. What are you seeing margin trends? Inflationary pressures, tight labor conditions, how's the portfolio adapting to the sort of backdrop? And if you're able to quantify any of that, that'd be helpful too. Thank you. The portfolio grew really nicely first half of the year in particular.
optimistic around what that can continue to do. Across many of the businesses, we saw continued pricing power that enabled that to occur. To be seen in terms of how strong that pricing power continues and inflationary pressure and how that works against us.
But the good news is, I will say that the way we've constructed the portfolios, we're generally in good shape. So again, cash flowing businesses, real estate is not in the bad areas, so almost nothing in office orETER than Waymo Interstellar, daymer in the ford You know there's it seems like that might've changed pretty much the way that we strips
hotel, or retail. So again, very good construction across, you know, both our private equity, inclusive of real estate. Great, thank you. One moment for our next question.
Our next question comes from Jerry O'Hara with Jefferies. Her line is open. Great, thanks. We've covered a fair amount of ground here this morning, but maybe just kind of touching base on the expense side and clearly saw a pretty meaningful step up in GNA year over year.
Obviously, a lot of growth initiatives going on, investing in the business, but perhaps, Kurt, you could give us a little sense of how to think about that as we look to the next 12 to 24 months.
Thanks, Jeff, for the question and good to hear from you. Any year where I can grow FRE 40% over the prior year, I'll take it however I can get it. And if that means investing in the business, that's a great outcome to generate 40% FRE margin. With respect to cash and with respect to G&A, I think that's a great outcome to generate
If you look at it on a quarterly basis, Q4 versus Q4, pretty much flat, yes, on an annual basis up. But you know, actually think that we're very focused on, I know that we're very focused on managing costs and managing where we deploy our excess expenditures and it's really around investing in new product development in distribution.
and investing for the future, there are clearly things that we're making investments in that will benefit us 24, 25, 26 to enable long term growth. Things like retail and private wealth really matter for that. Less so in terms of what it does to 23 FRE. Great, that's it for me. Thanks gentlemen.
Thanks, Jerry. One moment for our next question. Our next question comes from Brian Bedell with Doshamek. Your line is open. Great. Thanks very much. Most of my questions have been answered as well. But I just want to come back to the investor day targets that you laid out in 2021. You're tracking ahead of those targets.
Brian , good question and I look, I'm incredibly proud of what Carlisle and the entire team has achieved 21, 22, because we set out a target of a billion six for 24, 800 million of F-40, 800 million of carry for a billion six of pre-tech DE. We've swamped.
You know that from an outcome perspective already in 21 and in 22. So FRE at $834 million this past year, 40% up. I care much more about FRE dollars and growth and FRE dollars than I care about margin. From what I understand as a tool To be just as abstraction
to generate FRE dollars. And so whatever we can do to create more dollars, one tool is creating is by margin, but however I can get it, I'm going to get it. And you're right, you know, we set a target of 40% of FRE margin by 2024.
23 I think will probably be more on the flattish side to 22, which will then cause pressure for 24 to get to that number. I still think we can do it. We grew from 33 to 37, 21 to 22. There's no reason we can't do that in 23 to 24, but time will tell.
And look, again, it's about growing FRA dollars. And so if I can get FRA dollars going the right way, that's what I'm going to do. That's loud and clear. Thanks for that. And then maybe just one last one. Just, I guess you talked a lot about fundraising and the headwinds obviously in the on the private equity side. Maybe if you just characterize.
what you're hearing from LPs and other investors in terms of now having Harvey on board and how much of a ballast that is to confidence in the franchise or was that not so much of a headwind anyway, it was really just the headwinds in the overall industry and less related to your leadership. You know, this bill in my discussions with the
was going to be before they committed. But I don't think there was any, I couldn't point any investors and they didn't do it because we didn't have the CEO . I think they made them, they didn't do it now because we didn't have the CEO . And we'll see what happens with the CEO's name. I do think a far bigger factor than the CEO is the market.
And you know the CEO is, most of the fund investors, they care much much more about the performance of their fund and the individual deals than they care about who the CEO is. So although I'm very excited about Harvey and I think he's going to be fabulous.
The market, I think, is a more important factor in terms of growth in the P.E. business fundraising.
That's great color. Thanks very much, Bill. You're welcome. One moment for our next question. Next question comes from Adam Beatty with UBS. Your line is open. Good morning. Thank you for staying on. Just one question. It's got three parts about the fundraising.
How far along are LPs in terms of realigning around that and kind of getting past that? And number three is the reopening of LP budgets with the new year. Is it similar to what you've seen in past years or better or worse? Thanks a lot. I'll start and then Bill can add in. Look, it's always
difficult to generalize these types of questions across all the different investor classes and everyone. So everyone just take that caveat very seriously as I attempt to address some of this. LPE liquidity needs in general are really due to the fact that a number of funds invested in ones that are AMC hasdi
very quickly across the industry and have come back for greater needs faster than expectations. And then with the slowing down of the equity capital markets in particular, just as we're talking about bio in general, that has put some liquidity needs on some investors.
Not necessarily all. I mean, there are parts of the world, the Middle East in particular, where I don't think that those needs are as apparent as in other places. On the denominator effect, look, there's some green shoots early in the year in terms of potential changes with that, some resetting. I think that that will get better over the course of the year.
But again, it comes back to each individual investor type and how they're viewing it. And so I think that that will play out. And also, again, all investors are going to be seeking yield. And I think alternative assets is a great place to seek yield. This industry has proven well, and it's just generally done better. And so it's more about getting them all access to this.
And then the new year, yes, that has an impact on again, certain LPs in their allocations and how they work with their own investment committees. And yes, it is an impact for some, but you know, it began in terms of quantifying on a broader basis, really tough to kind of do.
So how have you done? Well, I would say I can't break it down by category in terms of what the impact is going to be. I think it's going to be better than it was last year. I do think that the LP liquidity creates an opportunity for Carlaw. You know, we have a big solutions business of about $70 billion.
and both in secondaries, primaries, co-investment, I think there's going to be a lot of opportunity there perhaps in some ways offsetting some of the primary opportunity. SLPs either reposition their portfolio or need liquidity for some reason, as Kirk pointed out, not so much in some parts of the world but in others.
That's great. Appreciate the nuance around liquidity. Thank you guys for tack on that. Thanks, Adam. And I'm not showing any further questions at this time. I turn the call back over to Daniel Harris. Ready for closing remarks.
Thank you all for your time and interest this morning. We look forward to talking with you again next quarter. Should you have any follow-up questions after the call? Feel free to reach out to investor relations at any time.
Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day. The conference will begin shortly.
To raise and lower your hand during Q&A, you can dial star 1-1.
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