Q4 2023 Carlyle Group Inc Earnings Call
That's new.
As our competence around the.
The margin the one.
$1 $1 billion of FRE target.
On the fundraising.
And of course, obviously the announcement around our share repurchase capacity.
So we feel highly confident around those numbers, but we're giving you some insight into how we think about things the leadership team.
Speaker Change: Got it.
Speaker Change: John though you referenced a phase in period could you help us understand what that would look like.
Speaker Change: Yes.
John: Thank Harvey covered that I mean look at it we're going to phase it in over a couple of years, we're going to be very deliberate in terms of how we do. This. This is this is compensation, we're a human capital business. It's a very important component of our business. So you should think of it over a couple of years and quite frankly.
John: I don't know what the markets look like so.
John: We're going to kind of react to how the markets are again I think the important thing to walk away from is not only do we create better stockholder alignment. Our intent is not to pay people more or less our intent is really to have a performance based success based compensation compensation structure in place in that and that's what we've achieved with this structure.
Great. Thanks for taking my questions.
John: Thanks.
John: Right.
John: Thank you. Our next question comes from Bill Katz with T. D. Cohen Your line is open.
William Katz: Okay. Thank you very much for taking the questions. This morning. So I was wondering if you just unpack good morning, and thank you again for the question.
William Katz: Wonder if we could unpack the 40 billion just a little bit further and I know you went through with a very broad level, but could you sort of underlying just in terms of where you think you are in terms of Europe, and Asia and share success upon opportunity and then perhaps you said this in your prepared comments I missed it in the supplement how many incremental shares are you issuing to management and what are some of the sort of the kiwi.
William Katz: Turn assumption to best that stock. Thank you.
Speaker Change: Yeah in terms of let me, let me take the fundraising first.
Speaker Change: As Harvey said in terms of investment solutions, we have great momentum in secondaries and co investment.
Speaker Change: In terms of private equity.
Speaker Change: Have we have great demand for our Japan buyout fund.
Speaker Change: Cindy in the market with our real estate product, which is fantastic returns.
Speaker Change: In terms of our Asia Asia buyout and European buyout.
Speaker Change: I think they will they will continue to face in 2024.
Speaker Change: Industry headwinds that we're seeing in inner appears as soon as well.
Speaker Change: But we do have a couple of private equity products in the market that I think will be very well received with good demand and I covered some of the the multiple credit products in the market, which we're very very optimistic about in terms of the psus again these were.
Speaker Change: These were targeted to the senior most level professionals in Carlisle. These professionals are really the individuals that are accountable for growth.
Speaker Change: These are the individuals that are driving growth I think these are very shareholder friendly instruments.
Speaker Change: I think our shareholders would want these the best thinking of is roughly $300 million of value.
Speaker Change: And the share price appreciation targets are 20%, 40% and 60% again. These are these are very shareholder friendly instruments, if our share price doesn't hit those targets. These shares do not vest.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Daniel Fannon with Jefferies. Your line is open.
Daniel Thomas Fannon: Hi, Thanks, Good morning wanted to follow up on non comp expense you know John I think last quarter, you mentioned $40 million and run rate savings so far with more to come can you talk about you know kind of 'twenty 'twenty four and what are what those numbers might look like and or other initiatives you have in place to also compliment that FRE margin.
Daniel Thomas Fannon: <unk> in addition to the comp stuff you announced today.
Speaker Change: Thanks Daniel.
John: Look I I think if you look at our fourth quarter margin of 43%, which is a record for us I think it really shows the progress we've made to be honest I think we've made progress faster than I anticipated Oh, we're just going to continue to focus on expenses, we're not done.
John: We're just going to manage the firm prudently in terms of expenses I still think theres some opportunity going into 2024.
John: But you know look more importantly, this is this isn't going to be an expense story, where we're much more focused on growth or.
John: We're investing in the businesses.
John: But I would say theres, probably some additional opportunity on expenses that will get out in 'twenty 'twenty four but that's not going to be that's not going to be the story, it's going to be more about growth.
Speaker Change: Thank you.
Speaker Change: Thanks, Dan.
Speaker Change: Thank you. Our next question comes from Stephen Shoebox with Wolfe Research. Your line is open.
Stephen Shoebox: Hey, good morning.
Stephen Shoebox: Hey, so wanted to ask on the on the CLO business the originations in our liquid credit business picked up nicely in <unk>.
Stephen Shoebox: Admittedly remains fairly subdued but the outlook in this space appears to be improving and how is the deployment landscape evolve just given the improving capital markets backdrop that you sided and how should we think about the pickup in that business as we look out to 'twenty four.
Speaker Change: So it's again.
Speaker Change: An incredible franchise business for Carlisle market leader.
Speaker Change: In the quarter.
Speaker Change: We raised our first captive equity fund.
Speaker Change: CLO partners.
Speaker Change: I think it's accurate to say Ah against what many people would've thought it was a tough market backdrop. It really speaks to the shrink of the franchise the quality of team and a 20 year.
Speaker Change: Franchise with a long history of performance.
Speaker Change: The fund.
Speaker Change: Raise was oversubscribed and they were literally getting out of the market in a few months.
Speaker Change: I think it's a passion.
Speaker Change: CLO captive equity fund raise maybe in the history of time.
Speaker Change: And so really really proud of the work they've done and the momentum they have now against the market backdrop has been improving.
Speaker Change: We're starting to see banks picking up investing in trouble as again. This is all a reflection of credit spreads coming in tighter. So we feel we feel good about the business momentum here and the team is extraordinary.
Speaker Change: Yeah.
Speaker Change: Great. Thanks for taking my question.
Thank you. Our next question comes from Mike Brown with K B W. Your line is open.
Michael Carrier: Okay great.
Michael Carrier: Hey, Mike.
Michael Carrier: Hey, good morning.
Michael Carrier: The large share buyback authorization certainly makes sense here given the valuation disconnect versus the peer group I just wanted to ask about the potential for strategic M&A and in fact could start to enter the equation a little more when you think about capital allocation I know it hasnt been.
Michael Carrier: A top priority for your RV in your first year, but it seems like that could eventually become an effective lever for Carlyle could consider down the road.
Speaker Change: Yeah. So I would say certainly open to it let me give you my framing again many of you know me, but I'll give you my feeling sort of a first principles approach.
Speaker Change: We see marginal opportunity, that's very clear to us and growing and building on the base of the franchise, where we have all the things.
Speaker Change: We have a world leading corporate corporate private equity business.
Speaker Change: World, leading real estate franchise world, leading secondaries business.
Speaker Change: World, leading credit growing business I, just talked about this a little bit so all footings of what we need to as a global <unk>.
Speaker Change: Private markets.
Speaker Change: Manager, they're all in place and the brand. So we have a lot we can build off of and you're starting to see again that momentum and our record results from last year and in the numbers. We've given you for this year.
Speaker Change: I think again first principles.
Speaker Change: We would never take anything off the table.
Speaker Change: I think it would be industrial logic makes sense, it's good for our investing clients.
Speaker Change: Our teams and our shareholders we'd be open to it.
And we'll certainly consider things.
Speaker Change: But we're not feeling any pressure at this stage not.
Speaker Change: Just kind of momentum.
Speaker Change: Okay. Thank you for the color.
Speaker Change: Thank you. Our next question comes from Michael Cyprus with Morgan Stanley. Your line is open.
Michael J. Cyprys: Hi, Good morning, Thanks for taking the question just wanted to ask on credit.
Michael J. Cyprys: Hey, good morning, if you could just elaborate a bit on the deep pipeline of growth opportunities that you alluded to for credit insurance, maybe you could just update us on some of the steps that you're taking to accelerate growth there and best capture the opportunity set that you see in credit and insurance, what new products can make sense and there are any areas that could make sense to fill in with hiring.
Michael J. Cyprys: So again, you saw really strong performance.
Michael J. Cyprys: Out of the credit insurance platform.
Michael J. Cyprys: John referenced.
Michael J. Cyprys: $9 billion.
Michael J. Cyprys: Inflows in the fourth quarter I think that.
Michael J. Cyprys: We really like our positioning here so the capital light model gives us a huge amount of flexibility.
Michael J. Cyprys: And allows us to be able to pivot in a number of different directions.
Michael J. Cyprys: And so I feel very good about our future here I think the pipeline.
Michael J. Cyprys: Potential activity really reflects the partnership we have with fortitude and really what will be happening for the foreseeable future.
Michael J. Cyprys: In the insurance sector.
Michael J. Cyprys: And the opportunity to to build on our Florida two platform. It is quite clear. So we have a number of different steps, we can take to keep growing.
Michael J. Cyprys: So the outlook over the next couple of years feels quite good.
Michael J. Cyprys: Thanks.
Michael J. Cyprys: Thank you as a reminder to ask a question. Please press star one one hour.
Michael J. Cyprys: Our next question comes from Glenn score with Evercore ISI. Your line is open.
Glenn: Hello there.
Glenn: Hey, Glenn how are you.
Glenn: Alrighty, sorry, one more I'm curious to put a finer point on the buyback versus investing conversation. So part a is just.
Glenn: Will this result in a net reduction of shares or is this offsetting stock based comp, but the bigger point that I want to make is.
Glenn: I hear you on all the growth areas and in there I see the momentum there are also a bunch of areas that you're not yet scaled in across private markets and there's so much growth. So I'm just curious on how you balance.
Glenn: This return of capital versus.
Glenn: This plethora of opportunity across private markets that you could be.
Putting money to work and thanks, Yeah. So again, that's why I underscoring Glenn you've known me for a long time, that's why I underscored and I took a step back and said listen we want to think about the <unk>.
Glenn: <unk> approach to capital management.
Glenn: This gives us the flexibility to.
Glenn: Returning capital to shareholders, because we think the enterprise value is so compelling here.
Glenn: At the same time, we're not sacrificing growth.
Glenn: And so when we look forward over the next couple of years, we wanted this flexibility.
Glenn: And we will move back and forth, but we are.
Glenn: 100%, making sure we invest in growth.
Glenn: And we agree with you we think the growth opportunities for Carlyle.
Glenn: A pretty extraordinary and we have the momentum and I think you see it in the financial targets. So I would agree with you.
Glenn: Net buyback shares go down.
Glenn: I think.
Glenn: I don't know what John said earlier, what is it about 10% of the March 10% of our market.
Speaker Change: It should be pretty easy on that.
Speaker Change: So.
Speaker Change: I think if we ended up utilizing all of this over the next several quarters.
Speaker Change: I think the math pretty easy.
Speaker Change: Yeah.
Speaker Change: Thank you there are no further questions I'd like to turn the call back over to Daniel Harris for any closing remarks.
Daniel F. Harris: Thank you operator, and thank you everyone for joining our call today for your time and for your questions. She had anyway follow ups. Please give investor relations a call otherwise we look forward to talking with you again next quarter.
Daniel F. Harris: Thanks, everyone.
Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Mhm.
This call is being recorded I would now like to hand, the call over to Daniel Harris head of public Investor Relations you may begin.
Thank you operator.
And welcome to Carlyle's fourth quarter and full year 2023 earnings call with me on the call. This morning is our Chief Executive Officer, Harvey Schwartz, and our Chief Financial Officer, John <unk>.
Earlier. This morning, we issued a press release and a detailed earnings presentation, which is also available on our Investor Relations website.
This call is being webcast and a replay will be available we will refer to certain non-GAAP financial measures. During today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available.
Any forward looking.
Looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated.
<unk> assumes no obligation to update any forward looking statements at any time.
In order to ensure participation by all those on the line today. Please limit yourself to one question and then return to the queue for any additional follow ups in.
In our earnings presentation. This quarter Youll find several additional pages in the front of the release, starting with page six that Harvey and John will refer to during our remarks as I mentioned you can find the presentation on our IR website to follow along with that let me turn the call over to our Chief Executive Officer Harvey Schwartz.
Thanks, Dan Good morning, everyone and thank you for joining us.
Our firm finished 2023 with significant momentum.
We set several records last year, which you see on page six.
They include record FRE at $859 million Rep.
Record Q4, FRE margin at 43% and we finished the year with record AUM at 426 billion.
We also raised $17 billion of capital in the fourth quarter, our third largest fundraising quarter in the history of the firm.
We want to thank our investing clients for the trust they put in us as their fiduciary and the entire Carlyle team for their hard work.
Again, we finished the year with significant momentum, which sets us up for success in 2024.
Now please turn to page seven in the document.
Today's discussion and John and I are going to focus on four key areas.
First enhancing stakeholder alignment and changes we plan to make to our compensation model.
Second optimizing capital and our approach to returning capital to shareholders.
Third strategic initiatives in 2024, and lastly, we will delineate explicit financial targets for 2024.
Now turning to page eight enhancing stakeholder alignment.
Today, we are announcing a shift in our compensation strategy explicitly designed to enhance alignment across all of our stakeholders, our investing clients our employees and you our shareholders.
Carlyle has a performance driven culture, and our senior investing professionals want their compensation more tightly tied to performance.
Shareholders also get more of what they value most.
Significant step up in steady recurring fee related earnings.
And FRE margin.
And our investing clients also benefit from our teams having more skin in the game.
It is a win win win for each of our stakeholders, our investing clients, our senior employees and our shareholders.
Second I'd like to discuss changes to our capital allocation strategy. Please turn to slide nine.
We've increased our share repurchase capacity by an incremental $1 billion for a total of $1 4 billion.
Given our strong balance sheet and positive outlook. This incremental capacity provides us flexibility to return excess capital to shareholders.
At this share price, our board and senior leadership see tremendous value in the enterprise.
The opportunity to return capital to shareholders is clearly quite compelling.
John will walk through our thinking about capital management and our approach in more detail.
Now moving to page 10, I want to touch on several strategic initiatives.
Global credit insurance is positioned for strong growth global credit is now our largest segment with almost 190 billion of AUM.
We have driven a nearly 300% increase in credit AUM over the past four years.
In insurance, we added $29 billion AUM in 2023 from fortitude, including the Lincoln financial transaction.
We have strong momentum coming into 2024, and a deep pipeline of growth opportunities.
In investment solutions, we also have great operating momentum.
We've grown AUM, 70% over the past four years to $77 billion.
Our secondaries and co investment strategies are producing attractive returns for their investors and are well positioned to capture opportunities in the current environment.
Global investment solutions should see FRE shift sharply higher in 2024 has the effect of strong fund raising impacts our results.
We've also made progress growing our wealth strategy.
The Carlyle brand is a unique and powerful asset.
Since inception, we raised nearly $50 billion of wealth assets.
We are incredibly appreciative of the trust that our wealth management partners have placed in us on behalf of their clients.
We look forward to continuing to work with them as we grow this business together.
We're excited to have our credit interval fund Seatac and ERP Secondaries fund <unk> in the market today.
And we will have a product in the market in the next several quarters.
Now switching to expense management.
While we focus on growth. We are also keeping a careful eye on expenses.
In 2023, we grew head count as we continue to invest across our platform.
At the same time, we delivered expense savings in other areas.
Again, while growth remains our key area of focus executing our strategy in a disciplined manner will allow us to expand margins at the same time.
Before I pass it to John turning to page 11, let me give you a quick preview on our 2024 financial targets.
We are targeting FRE of $1 1 billion.
We are targeting FRE margins to increase to a range of 40% to 50%.
We are targeting inflows to exceed $40 billion in 2024.
And again, we have significantly increased our ability to return capital to shareholders by expanding the share buyback capacity.
Again, we intend to be active buyers of our stock as we see strong value in returning capital to you our shareholders.
We begin 2024 with clear momentum and with that let me now turn the call over to John.
Thanks, Savi good morning, everyone.
I want to cover several topics this morning, and Echo a few comments RV made first stakeholder.
Alignment and changes to our compensation strategy.
Second.
Capital allocation.
Third.
I want to provide some comments on our 2023 results and lastly, our 2024 financial targets.
Updates to our compensation strategy were driven by our desire to create an even better stakeholder alignment and drive fee related earnings to our shareholders.
Essentially compensation for our senior people will become more success based.
As a result, our earnings mix will increasingly shift to a more shareholder friendly fee related earnings model.
As our compensation changes phased in over the next few years.
This should show up in two main ways and if you want to follow along flip to page eight.
Our FRE related cash compensation ratio will decline to 30% to 35%.
From 45% to 50%.
Our realized performance revenue compensation ratio will increase to 60% to 70% from 45% to 50%.
I want to be clear this is not about changing the overall level of compensation, but rather having a higher portion of compensation being success driven.
This change should be neutral to day over time.
In connection with these changes we incurred a one time non cash GAAP charge of $1 1 billion largely related to the value of future carry going to employees.
This will allow us to generate higher FRE for shareholders more quickly.
Even after this charge our net accrued carry balance ended the year at $2 $4 billion and continued to represent over $6 per share and future earnings for our shareholders.
In addition.
We awarded performance stock units to a select number of senior professionals that have the accountability to help us achieve our growth objectives.
These units are highly aligned with shareholders.
As the only vest with significant share price appreciation.
As Harvey mentioned, we now have the capacity to buy back one $4 billion in stock.
This is in addition to an expected annual dividend to shareholders of over $500 million.
Our strong balance sheet provides us the flexibility to both returned meaningful meaningful capital to shareholders in.
And importantly invest for growth.
These are not mutually exclusive decisions investing into our businesses remains our top priority.
Moving on let me highlight just a few of our year end results.
We generated $1 $4 billion in day or $3 24 per share or.
Our third best year on record.
We produced $531 million in net realized performance revenues, despite a difficult market backdrop.
Turning to fee related earnings we produced a record $254 million of FRE in the fourth quarter with a FRE margin of 43% also a record and for the year, we produced a record $859 million in FRE.
As we already noted we expect a meaningful shift higher in 2024 for both FRE.
And margin.
Finally, as Harvey mentioned, we had a strong finish to the year in terms of fundraising, bringing in $37 billion in 2023 more than 20% higher than the prior year.
Included in that total is more than $9 billion in new capital raised by global credit in the fourth quarter alone.
We have significant momentum going into 2024, we expect FRE to be approximately $1 1 billion more than 25% higher than 2023.
We expect our FRE margin to increase to 40% to 50% and.
And lastly, we expect inflows to be more than $40 billion.
In closing.
We produced record results in 2023, and we finished the year with strong momentum.
Now, let me turn the call over to the operator, so we can take your questions.
Thank you if you'd like to ask a question. Please press star one one.
If your question has been answered and you'd like to remove yourself from the queue. Please press star one again, we ask that you. Please limit yourself to one question, but you may re queue.
Our first question comes from Alexandra <unk> with Goldman Sachs. Your line is open.
Hey, good morning, Harvey Good morning, everybody. Thanks for the question.
So I appreciate all the Hello, So I appreciate all the strategic changes you guys are making today, that's great and.
And obviously the more explicit disclosure is also very helpful.
I was hoping we could start with the discussion on the momentum you highlighted in your prepared remarks.
As you look out into 2024, particularly with respect to fund raising I know you highlighted over $40 billion. So I was hoping you could walk us through that and then sort of related to that as you think about the momentum in the business how does that inform the pacing of the share repurchase announcement, you guys made today as well thanks.
Okay, Alex Thanks so.
You really can feel it build a new CEO coming in in 2023.
And new to the company as you know and we talked about this.
I really felt like my priority was to spend time with my teams in time with Mayo piece in my investing clients and I spent I think I met with over 300 investor clients. During the course of the year.
And obviously spent a lot of time internally and that was really about my team is giving me, which is more important even though <unk> them and you can really feel that I think I, even talked about in the third quarter.
We can feel the momentum building in terms of the focus the execution receptivity of the brand.
And it all came together with.
With these record results record FRE record margin.
The cost saving initiatives and you see in the fundraising now in terms of coming in at 24.
The momentum feels good to have played a backdrop complicated.
And IPO.
Cautiously optimistic.
About the environment in 2024, which should provide a tailwind.
And maybe some upside in these targets specifically around fund raising.
I'll make two comments one.
I know you all focus on a quarter to quarter, we really think about fund raising in terms of how can we provide the best value to our Lps.
But putting it in scatter we put them together way you think.
We built up knowing what we'll be focused on in the course of the year.
And so we feel good about these numbers.
And Alex in terms of the buyback part of your question look we've been spending a lot of time thinking about capital allocation and we're going to take a much more disciplined approach in terms of how we how we execute on on capital allocation.
I think that the.
The $1 4 billion buybacks, an important first step and we don't we don't think the stock reflects the true value of that franchise. So you should consider US you should consider us to be active buyers of our stock I think it's also important to remember we have a very strong balance sheet, which enables us to have the flexibility to in addition.
Two giving capital back to our shareholders via a $1 4 billion stock buyback and our dividend, we have the flexibility and balance sheet strength to continue to invest in our business for growth.
Great. Thanks very much.
Thanks, Alex.
Thank you. Our next question comes from Ken Worthington with Jpmorgan. Your line is open.
Hi, good morning, Thanks for taking the question.
We look at credit fund raising was elevated at $9 billion.
It looks like 50% more than you raised in the first three quarters of the year combined and you gave some color in the deck on Seo rose in Seatac, but it feels like there is more to these numbers. So can you flesh out the jump in fund raising this quarter in credit and sort of how that should continue into into this year.
Yes. Thanks.
Thanks for the question I would say look I think it's really tough to look at fund raising kind of quarter to quarter. There's obviously going to be a lot of volatility we had a great great fundraising fourth quarter, we actually had a great year for fundraising in credit as well and I expect importantly that momentum and credit fund raise and will continue well into 2020.
We've got good visibility on that.
Really really spread across all of our products that were raising money for cielo as as you mentioned.
<unk>, which is our retail credit products always in the market.
CCAR.
We raise money for as well and Carlyle strategic solutions, which is our kind of asset backed.
Funded so it's pretty it's pretty consistent across across the platform I think the important takeaway is not focusing quarter to quarter. We had a good year, but we have really good momentum going into 2024 for credit fund raising and quite frankly fund raising more broadly.
Great. Thank you. Thanks.
Thanks, Ken Thanks, Ken.
Thank you. Our next question comes from Patrick Davitt with Autonomous Research. Your line is open.
Hey, good morning, everyone.
Good morning, Patrick.
On the compensation framework will stay then so what are you assuming for 2024 and Youre in your $1 1 billion guide and in that vein. What are you assuming for transactions and FRP. Our realizations due remains subdued do you have a commitment from employees to these compensation ratios and other.
Words will you have to we have to abandon these targets.
Realizations don't get better thank you.
Okay.
So.
It's one of the reasons when we are going through our remarks and in the prepared pages, we've put out a range.
Look this is super important we're going to execute on this compensation change very deliberately the range really gives us the flexibility to execute on this deliberately.
Look we have no idea what the market backdrop will look like but look I think you should walk away from this thinking.
Our intent is for this to be de neutral.
The vast majority of our employees will not be impacted there will be some variability in compensation for our senior folks.
And year to year, but if you look at it over a couple year period, our intent is for compensation.
Not be up are not be down and that's how we'll manage it.
I think it's also important to point out and I mentioned that in my remarks, the senior people that will have some variability in their compensation. We did grant them performance stock units. So we really have great alignment with our senior people. These performance stock units.
Our really shareholder friendly they only vest upon share price appreciation and quite frankly, I think everyone here and on the call hopes.
They actually do best because they are very shareholder friendly instrument in terms of the 2020 for $1 $1 billion FRE target.
At the 25% step up from our 859 FRE in 2023, we feel very good about it. It really has three components, it's growth, which we're very focused on.
Two it's the compensation change and third we will continue to manage the business prudently in terms of expenses, we have no intention of cutting to the bone, but we will manage the business prudently, but it is a growth prudent expense management and compensation changes.
Thank you. Our next question comes from Chris Kotowski with Oppenheimer <unk> Company. Your line is open.
Yes.
Can you hear me.
Yeah, Hey, Chris Good morning, Hey, good morning.
Alright.
Got it.
I was wondering in the year $40 billion.
And raising target if you could drill down into.
The composition of that a bit more and in particular kind of.
Even if you can't give us the numbers.
But kind of like the.
What should we expect during the course of the year relating to the.
The two big flagship funds in Europe, and Asia that you're raising.
Yes so.
I think you should think about it broadly across the platform.
We have a lot of momentum as you saw coming off the record fundraising and the activity in the fourth quarter, but you should expect to see.
Really good fund raising activity and credit across our private equity platform, our real estate business, our private equity business across infrastructure the whole space. So we built this model up.
Across the entire franchise I think in private equity like the rest of the industry specific and I'm talking about the narrow definition of private equity corporate private equity.
I think it will still be headwinds in the industry for that but across our platform.
We feel good about the $40 billion number I will emphasize with John again.
We report these numbers quarterly we just don't think about fund raising we don't run the business for a quarter.
But we feel good about the momentum in the business.
Really good about it.
The only thing I'd add is in the solutions business, we have a couple of funds in the market.
And we're showing we're seeing great momentum in solutions as well in addition to private equity and credit.
Okay, Great and then.
Just kind of curious the billion for share buyback authorization is is that conceived of as a one year authorization or is that more flexible because when you add the $1 billion floor and you add the dividend. It's actually it ended up speaking tour quite a lot of your likely.
At the end of the year.
Yes, so again the way John frame this and let's just take a step back I think many of you've known me for years in terms of how I think around the discipline of capital.
But just taking a step back.
When we think about capital we think about.
Growth and shareholder alignment and returning capital to shareholders and investing in growth and we think about this really purely through the remains of really where the marginal ROI. So the first thing. That's most important about this is the investing in growth.
And we have capital available for that this allocation to share repurchase reflects the fact that when we look at the enterprise value.
Of our firm.
It's quite compelling to return capital to shareholders.
No we haven't.
Narrowed as to one year for sure, but we wanted to do is give ourselves the full range of flexibility, we're going to be very disciplined very systematic about this in terms of driving growth returning capital to shareholders and finding the balance effectively the efficient frontier of where that exists.
And that's how we're thinking about it but it's not a one year because.
As you as you implied in addition to the dividend, which is $500 million this year.
That's how we think about it but again as John said earlier, you should expect to see us be active.
Buying stock back.
Okay, Great. That's it for me thank you.
Thank you.
Thank you as a reminder, we ask that you please limit yourself to one question.
Our next question comes from Brian Mckenna with citizens JMP. Your line is open.
Thanks, Good morning, everyone.
Brian Your Dms.
Harvey I know Youre deemphasizing performance income a bit just with the comp changes. This morning, but I'm curious how are you thinking about the rebuild of Matt accrued performance revenues over time after a 20% apples to apples year over year decline in 2023 on the heels of solid realizations and statistically kind of that rebuild.
As it relates to the contribution from some of the more recent flagship private equity strategies.
Hey, Brian It's John I wouldn't say we're deemphasizing.
Performance revenue our carry realizations, it's still.
It's still a very core component of our business and we expect it to be a core component of our business going forward.
Youre right less of that is going to shareholders and more is going to employees and shareholders are getting.
More more high margin fee earnings as part of this comp reset.
As I said in my remarks, we still have.
Net accrued carry of roughly $2 4 billion.
Which still represents $6 a share I still think it's a very meaningful percentage.
Percentage of our share price.
Got it thank you.
Thanks, Brian. Thank you. Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.
Great. Good morning, Thanks for taking my question.
Congrats on the comp change.
Sorry, maybe just to talk about the FRE margin.
The range comprehends, the actual margin target range of 40% to 50%.
I guess, what sort of what is.
At both ends of that what would be the key variability accidents.
Little bit wide for this year.
Then.
In line with that as we sort of March through 'twenty, four and getting to 25% 26 longer term.
Is the intent to show or to build on the FRE margin each year and habits.
Longer term more steady.
Growth profile to that and if you can comment on the contribution from capital markets business I know Harvey working on building that up and it looks like you reported very good okay.
Your transaction fee results.
Fourth quarter as well.
So.
Let me take a step back a little bit and just tell you how we're thinking about as a leadership team.
First of all.
Thanks for noting the capital market's momentum.
Pretty muted.
Environment actually for capital markets, but the team really came together.
And embraced the focus and we think that will carry through into.
2024 for sure.
In terms of the compensation model change in the range of one of the reasons why John's only out that ranges.
First and foremost.
For us it's about talent, it's about attracting and retaining the best talent, we have an extraordinary team here.
And we want to make sure that as we introduce this we actually have the flexibility to make sure that we do this methodically patiently and overtime.
So youll see us move within this range.
And Youll see periods of outperformance in periods, where basically this acts as a shock absorber, but this is an output.
To manage the talent and make sure our talent gets paid for their performance first and foremost that's the most critical thing because that will deliver for everyone. In the long run that will deliver for our investing clients and that will deliver for our shareholders.
But that's how we've designed the model.
Great. Thank you.
Operator, we're ready for the next question.
Our next question comes from Ben <unk> with Barclays. Your line is open hi, good morning, and thanks for taking the question.
Harvey in the deck you identified investment solutions, just one of your strategic initiatives and I'm. Just curious that typically we see sort of your two major funds kind of go in and raise flagships around the same time until we see like a very large pickup in AUM, followed by maybe a period of flat or AUM growth you indicated that we should see a sharp upswing in 2024 in terms of <unk>.
Sorry, but just curious given that you identify that as a strategic initiative how might that cadence change in 2025 and 2026 does this mean potentially more more vehicles are more sort of run of the mill fund raising what should we expect to see there. Thank you.
So in 'twenty four.
I showed up a year ago literally almost every day.
And I was the.
Lucky recipient some amazing.
<unk> businesses in some great talent one of those things is our secondary business and over the course of the year.
Their growth and as we indicated in our prepared remarks, we were expecting.
A doubling of FRE.
It's an incredibly talented team with a huge amount of momentum.
There's aspects of that business that we continue to build as a financing component in that business. Obviously I mentioned, the fact that we've just launched recently cap M. I think this is a tremendous opportunity for wealth clients. It's a diversified.
<unk> portfolio with really consistent performance. So I think youll, just youll see us grow this business.
A prudent way.
I think historically, maybe it didn't get highlighted as much but.
But this is a this is a really strong team with a lot of momentum.
Understood. Thank you.
Thank you. Our next question comes from Brennan Hawken with UBS. Your line is open.
Hi, good morning, Thanks for taking my questions.
Hey, Brandon how are you.
I'm good Harvey I hope you're doing well so.
I understand that you guys have touched on this a little bit, but I'm, hoping maybe we could peel a little because you use it.
You've made a couple references to the comp change.
John indicated it was phased in overtime and Harvey I believe you indicated that it was function somewhat as a shock absorber.
<unk>.
I'm sure, there's nuance and layers to it but maybe could you help us just still a little bit what is the phase and going to work over time.
And.
Even once its fully phased is the entire range still in play, allowing for the shock absorbers could you just help us understand the difference between how those two play out over the next coming years.
So.
What I would say again, we're talking about.
Incentive alignment across all of our constituencies.
Pay for performance and.
And really managing this process over very long period of time, it's not for a quarter or a year and so again when I said shock absorber way I think about the compensation ratio is it will be dynamic reflecting the performance.
And we want to make sure that we are investing in our talent rewarding our talent consistently.
But there'll be years, where we'll be lower realizations and you may see the compensation ratio tick up a little bit we're giving ourselves that flex. The most important thing about the financial targets, we put out because I know that's new.
As our competence around.
The margin the $1 $1 billion of FRE target.
The fundraising and of course, obviously the announcement around our share repurchase capacity.
So we feel highly confident around those numbers, but we're giving you some insight into how we think about things the leadership team.
Got it.
John though you referenced a phase in period could you help us understand what that would look like.
Yes I.
I think Harvey covered that I mean look at it we're going to phase it in over a couple of years, we're going to be very deliberate in terms of how we do. This. This is this is compensation, we're a human capital business. It's a very important component of our business. So you should think of it over a couple of years and quite frankly.
I don't know what the markets look like so.
We're going to kind of react to how the markets are again I think the important thing to walk away from is not only do we create better stockholder alignment. Our intent is not to pay people more or less our intent is really to have a performance based success based compensation compensation structure in place in that and that's what we've achieved with this structure.
Great. Thanks for taking my questions.
<unk>.
Thank you. Our next question comes from Bill Katz TD Cowen Your line is open.
Okay. Thank you very much for taking the questions. This morning. So I was wondering if you just unpack good morning, and thank you again for the question.
Just wondering if you could unpack the $40 billion, just a little bit further and I know you went through it very broad level, but could you just sort of underline just in terms of where you think you are in terms of Europe, and Asia and sort of a successor fund opportunity and then perhaps you said this in your prepared comments that I missed it in the supplement how many incremental shares are you issuing to management and what are some of the sort of the key.
Return assumptions to that stock. Thank you.
Yes in terms of let me, let me take the fundraising first.
As Harvey said in terms of investment solutions, we have great momentum in secondaries and co investment.
In terms of private equity we have we have great demand for our Japan buyout fund that will soon be in the market with our real estate product, which is fantastic returns.
In terms of our Asia Asia buyout and European buyout.
I think they will they will continue to face in 2024.
Industry headwinds that we're seeing in our peers are seeing as well, but we do have a couple of private equity products in the market that I think will be very well received with good demand and I covered some of the the multiple credit products in the market, which we're very very optimistic about in terms of the psus again these were.
These were targeted to the senior most level professionals in Carlisle. These professionals are really the individuals that are accountable for growth.
These are the individuals that are driving growth I think these are very shareholder friendly instruments.
I think our shareholders would want these divest thinking of is roughly $300 million of value.
And the share price appreciation targets are 20%, 40% and 60% again. These are these are very shareholder friendly instruments, if our share price doesn't hit those target these shares do not vest.
Thank you.
Thank you. Our next question comes from Daniel Fannon with Jefferies. Your line is open.
Thanks, Good morning.
I wanted to follow up on non comp expense.
John I think last quarter, you mentioned $40 million and run rate savings so far with more to come can you talk about kind of 2024, and what what those numbers might look like and or other initiatives. You have in place to also compliment that FRE margin expansion. In addition to the comp stuff you announced today.
Thanks Daniel.
Look I think if you look at our fourth quarter margin of 43%, which is a record for us.
I think it really shows the progress we've made to be honest I think we've made progress faster than I anticipated.
We're just going to continue to focus on expenses, we're not done.
We're just going to manage the firm prudently in terms of expenses I still think theres some opportunity going into 2024.
But look more importantly, this is this isn't going to be an expense story, we're much more focused on growth we're investing in the businesses.
But I would say there is probably some additional opportunity on expenses that we will get out in 2024, but that's not going to be that's not going to be the story, it's going to be more about growth.
Thank you.
Thanks, Dan.
Thank you. Our next question comes from Steven <unk> with Wolfe Research. Your line is open hi.
Good morning.
Hey, Steve.
So wanted to ask on the on the CLO business the originations in our liquid credit business picked up nicely in <unk> admin.
Admittedly remains fairly subdued but the outlook in this space appears to be improving and how is the deployment landscape evolve just given the improving capital markets backdrop that you sided and how should we think about the pickup in that business as we look out to 'twenty four.
So again.
An incredible franchise business for Carlisle market leader.
In the quarter.
We raised our first captain equity fund.
CLO partners.
I think it's accurate to say.
Against what many people would have thought was a tough market backdrop. It really speaks to the shrink of the franchise the quality of team and a 20 year.
Franchise with a long history of performance.
The fund.
Raise was oversubscribed and they were literally in and out of the market in a few months.
I think it's the fastest.
CLO captive equity fund rates may be in the history of time.
And so really really proud of the work they've done and the momentum they have now again the market backdrop has been improving.
Youre starting to see banks picking up investing in trouble as again. This is all a reflection of credit spreads coming in tighter. So we feel we feel good about the business momentum here and the team is extraordinary.
Great. Thanks for taking my question.
Thank you. Our next question comes from Mike Brown with <unk>. Your line is open.
Okay great.
Hey, Mike Hey, good.
Morning.
The large share buyback authorization certainly makes sense here given the valuation disconnect versus the peer group I just wanted to ask about the potential for strategic M&A and if that could start to enter the equation a little more when you think about capital allocation I know it hasnt been.
Top priority for your RV in your first year, but it seems like that could eventually become an effective lever for Carlisle to consider down the road.
Yes, so I would say certainly open to it let me give you my framing again many of you know me, but I'll give you my feeling sort of a first principles.
<unk>.
We see marginal opportunity, that's very clear to us.
<unk> growing and building on the base of the franchise, where we have all the things.
We have a world leading corporate corporate private equity business.
Our world, leading real estate franchise world, leading secondaries business World, leading credit growing business I just talked about this a little bit so all the footings.
While we need to as a global.
Private markets.
Manager they are all in place and the brand. So we have a lot we can build off of.
You start to see again that momentum and our record results from last year and in the numbers. We've given you for this year.
I think again first principles.
We would never take anything off the table.
I think if the industrial logic makes sense, it's good for our investing clients.
Our teams and our shareholders well.
Be open to it.
And we will certainly consider gangs.
We're not feeling any pressure at this stage.
Not with this kind of momentum.
Okay. Thank you for the color.
Thank you. Our next question comes from Michael Cyprus with Morgan Stanley. Your line is open.
Hi, Good morning, Thanks for taking the question just wanted to ask on credit.
Hey, good morning, if you could just elaborate a bit on the deep pipeline of growth opportunities that you alluded to for credit insurance, maybe you could just update us on some of the steps that you're taking to accelerate growth there and best capture the opportunity set that you see in credit and insurance, what new products can make sense and are any areas that could make sense to fill in with hiring.
Yeah.
So again, you saw really strong performance.
Out of the credit insurance platform.
John referenced.
$9 billion.
Inflows in the fourth quarter I think that.
We really like our positioning here.
So the capital light model gives us a huge amount of flexibility.
And allows us to be able to pivot in a number of different directions, and so I feel very good about the future here I think the pipeline potential.
Potential activity really reflects the partnership we have with fortitude and really what will be happening for the foreseeable future.
In the insurance sector.
And the opportunity to to build on our Florida two platform. It is quite clear. So we have a number of different steps, we can take to keep growing.
So the outlook over the next couple of years feels quite good.
Thanks.
Thank you as a reminder to ask a question. Please press star one one hour.
Our next question comes from Glenn score with Evercore ISI. Your line is open.
Hello there.
Hey, Glenn how are you.
Sorry, one more im.
Curious to put a finer point on the buyback versus investing conversation. So part a is just.
Will this result in a net reduction of shares or is this offsetting stock based comp, but the bigger point I want to make is.
I hear you on all the growth areas.
I see the momentum there are also a bunch of areas that youre, not yet scaled and across private markets and theres. So much growth. So I'm just curious on how you balance.
This return of capital versus.
This plethora of opportunity across private markets that you could be.
Putting money to work and so again Thats why I underscoring Glenn you've known me for a long time, that's why I underscored and I took a step back into this and we want to think about.
Approach to capital management.
This gives us the flexibility to.
Return capital to shareholders, because we think the enterprise value is so compelling here.
At the same time, we're not sacrificing growth.
And so when we look forward over the next couple of years, we wanted this flexibility.
And we will move back and forth, but we are.
100%, making sure we invest in growth.
And we agree with you we think the growth opportunities for Carlyle.
Our pretty extraordinary and we have the momentum and I think you see it in the financial targets. So I would agree with you.
Net buyback shares go down.
I think.
I don't know what John said earlier, what is it about 10% of the market, 10% of our marketed under the <unk>.
It should be pretty easy on that.
So.
I think if we ended up utilizing all of this over the next several quarters.
I think the math is pretty easy.
Yeah.
Thank you there are no further questions I'd like to turn the call back over to Daniel Harris for any closing remarks.
Thank you operator, and thank you everyone for joining our call today for your time and for your questions follow ups. Please give investor relations a call otherwise we look forward to talking with you again next quarter.
Thanks, everyone.
Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.