Q1 2024 Carlyle Group Inc Earnings Call
Okay.
Operator: Good day, and thank you for standing by. Welcome to the Carlyle Group's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.
Speaker Change: Good day, and thank you for standing by and welcome to the Carlyle groups first quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you'll then here in auto.
Operator: After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Daniel Harris, Head of Investor Relations. Please go ahead.
Speaker Change: Got it message advising your hands raised.
Speaker Change: Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Daniel Harris head of Investor Relations. Please go ahead Sir.
Daniel F. Harris: Thank you, Norma. Good morning, and welcome to Carlisle's first quarter 2024 earnings call. With me on the call this morning is our chief executive officer, Harvey Schwartz, and our chief financial officer and head of corporate strategy, John Reddette. 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.
Daniel F. Harris: Thank you Norma good morning, and welcome to Carlyle's first quarter 2024 earnings call with me on the call. This morning is our Chief Executive Officer, Harvey Schwartz, and our Chief Financial Officer, and head of corporate strategy genre that earlier.
Daniel F. Harris: 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 a.
Daniel F. Harris: Lawrence with generally accepted accounting principles. We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available.
Daniel F. Harris: We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. However, any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated. Carlisle assumes no obligation to update any forward-looking statements at any time.
Daniel F. Harris: Any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on them.
Daniel F. Harris: 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 Karl.
Daniel F. Harris: Carlyle assumes no obligation to update any forward looking statements at any time.
Daniel F. Harris: 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-up. With that, let me turn the call over to our chief executive officer, Harvey Schwart. Thanks, Dan. Good morning, everyone.
Daniel F. Harris: 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 and with that let me turn the call over to our Chief Executive Officer Harvey Schwartz.
Harvey Mitchell Schwartz: And thank you for joining us. First, our financial performance and an update on our 2024 targets. Second, Carlyle's ability to capitalize on the improving macroeconomic environment, and third, progress on key strategic areas.
Harvey Mitchell Schwartz: Thanks, Dan and good morning, everyone and thank you for joining us I want to touch on three areas today.
Harvey Mitchell Schwartz: Our financial performance and an update on our 2024 targets.
Harvey Mitchell Schwartz: Second carlyle's ability to capitalize on improving macroeconomic environment and third progress on key strategic areas.
Harvey Mitchell Schwartz: First our performance.
Harvey Mitchell Schwartz: Our first quarter results reflect continued momentum across the firm, and importantly, we are on track to achieve our 2024 financial targets, including targeting FRE of $1.1 billion, targeting FRE margins to increase to a range of 40 to 50 percent and targeting inflows of $40 billion in 2024. We once again set several financial records this quarter, including record quarterly FRE of $266 million, a near 40% increase over first quarter last year, and record FRE margin of 47%, more than 33% higher than last year.
Harvey Mitchell Schwartz: Our first quarter results reflect continued momentum across the firm and importantly, we are on track to achieve our 2024 financial targets, including targeting FRE of $1 1 billion targeting.
Harvey Mitchell Schwartz: Targeting FRE margins to increase to a range of 40% to 50% and targeting inflows of $40 billion in 2024.
Harvey Mitchell Schwartz: We once again set several financial records this quarter, including record quarterly FRE of $266 million.
Harvey Mitchell Schwartz: Near 40% increase over first quarter last year and record FRE margin of 47% more than 33% higher than last year.
Harvey Mitchell Schwartz: These results are the outcome of our efforts to prioritize operational excellence and optimize our business model, while at the same time enabling us to invest for growth. We anticipate a pickup in fundraising, deployment, and realization throughout the year, and we remain confident in our ability to achieve our financial targets for 2024. With respect to fundraising, we raised $5.3 billion in new capital in the quarter, in line with our expectations, after a near-record quarter closing out 2023.
Harvey Mitchell Schwartz: These results are the outcome of our efforts to prioritize operational excellence and optimize our business model, while at the same time, enabling us to invest for growth.
Harvey Mitchell Schwartz: We anticipate a pickup in fundraising deployment and realizations throughout the year and we remain confident in our ability to achieve our financial targets for 2024.
Harvey Mitchell Schwartz: With respect to fund raising we raised $5 $3 billion of new capital in the quarter in line with our expectations after a near record quarter closing out 2023.
Harvey Mitchell Schwartz: Looking forward, we expect to see a pickup in fundraising over the next few quarters, again keeping us in line with our target. While the macroeconomic environment remains somewhat fragile, we continue to see signs that the investment environment is steadily improving. Capital from the banking system and private credit is more readily available.
Harvey Mitchell Schwartz: Looking forward, we expect to see a pickup in fundraising over the next few quarters again, keeping us in line with our target.
Harvey Mitchell Schwartz: While the macroeconomic environment remains somewhat fragile we continue to see signs that the investment environment is steadily improving.
Harvey Mitchell Schwartz: Capital from the banking system in private credit is more readily available.
Harvey Mitchell Schwartz: Private credit and syndicated loan spreads are at historically high levels. Equity volatility is under long-term averages, and interest rates and inflation have generally stabilized. These are clear improvements from this time last year, which is driving increased investor confidence, and if sentiment continues to improve, we expect a higher level of deal activity. Our deal teams are already starting to see the knock on effects of improved market sentiment. We had $5.9 billion of realized proceeds this quarter. We have to go back to the fourth quarter of 2022 to see a higher number.
Harvey Mitchell Schwartz: Private credit and syndicated loan spreads are at historically tight levels.
Harvey Mitchell Schwartz: Equity volatility is under long term averages and interest rates and inflation have generally stabilized.
Harvey Mitchell Schwartz: These are clear improvement from this time last year, which is driving increased investor confidence and sentiment continues to improve we expect a higher level of deal activity.
Harvey Mitchell Schwartz: Our deal teams are already starting to see the knock on effects of improved market.
Sentiment we.
Harvey Mitchell Schwartz: We had $5 $9 billion of realized proceeds this quarter.
Harvey Mitchell Schwartz: We have to go back to the fourth quarter of 2022 to see a higher number.
Harvey Mitchell Schwartz: We've already announced additional exits and various strategies that will close in the coming quarter. We have $2.2 billion in net accrued carry across our portfolio, and our global pipeline continues to increase. Carlyle is well positioned to capitalize on these improving marketing conditions over the coming months.
We've already announced additional exits in various strategies that will close in the coming quarters.
Harvey Mitchell Schwartz: We have $2 2 billion and net accrued carry across our portfolio and our global pipeline continues to increase.
Carlyle is well positioned to capitalize on these improving market conditions over the coming months.
Harvey Mitchell Schwartz: We have high-quality assets in our portfolio ready to be monetized, and $76 billion in dry powder ready to be deployed across our global franchise. Switching gears, I want to provide an update on our strategic areas of focus. In global wealth, we have strong momentum. Since inception, we've raised nearly $50 billion in wealth assets. Our global scale and brand give us a competitive advantage in this rapidly growing distribution challenge. I have witnessed the importance of our brand and quality of our funds firsthand in my personal interactions with wealth advisors.
Harvey Mitchell Schwartz: High quality assets in our portfolio ready to be monetized and $76 billion in dry powder ready to be deployed across our global franchise.
Speaker Change: Switching gears I want to provide an update on our strategic areas of focus.
Speaker Change: In global wealth, we have strong momentum since inception, we raised nearly $50 billion of wealth assets.
Speaker Change: Our global scale and brand give us a competitive advantage in this rapidly growing distribution channel.
Speaker Change: I have witnessed the importance of our brand and quality of our funds firsthand my personal interactions with wealth advisors.
Harvey Mitchell Schwartz: We want to ensure we're providing the most efficient access to alternative markets alongside the best funds for our end clients. Our credit fund, SeaTac, had another strong quarter, and our secondaries-focused investment solutions product, CAPM, saw a ramp up in sales.
Speaker Change: To ensure we are providing the most efficient access to alternative markets alongside the best funds for our clients.
Speaker Change: Our credit funds <unk> had another strong quarter in our secondaries focused investment solutions product cap and SAR ramp up in sales.
Harvey Mitchell Schwartz: These funds have historically provided strong performance for our investors. We continue to expand our footprint, adding new wealth distribution partners in the near term, and more broadly in global credit. We're focused on driving growth and capturing share. We see opportunity to continue to scale our asset-based asset-backed finance offering, a trend that may persist for years as market participants increasingly look to partner with firms like Carlyle to address their capital solutions. We have mobilized and scaled our credit strategic solutions team to address this opportunity.
Speaker Change: These funds have historically provided strong performance for our investors.
Speaker Change: We continue to expand our footprint, adding new wealth distribution partners in the near term.
Speaker Change: More broadly global credit, we're focused on driving growth and capturing share we.
Speaker Change: We see opportunity to continue to scale, our asset base asset backed finance offering a trend that may persist for years as market participants are increasingly look to partner with firms like Carlyle to address their capital solutions.
Speaker Change: We have mobilized in scale.
Speaker Change: Credit strategy strategic solutions aimed to address this opportunity.
Harvey Mitchell Schwartz: The strategy has grown to more than $7 billion in assets, with good opportunity for continued growth. And finally, in Global Investment Solutions, we continue to see strong momentum. This is helping us both in the institutional channel as well as in the well channel with our secondary focus CAPM fund. And obviously, this business is somewhat counter-cyclical to the rest of the franchise.
Speaker Change: This strategy has grown to more than 7 billion in assets with good opportunity for continued growth.
Speaker Change: And finally in global investment solutions, we continue to see strong momentum.
Speaker Change: This is helping us both in the institutional channel as well as in the wealth channel with our secondary focus cap and fund.
Speaker Change: And obviously this business is somewhat counter cyclical to the rest of the franchise.
Harvey Mitchell Schwartz: To wrap things up, we entered 2024 with solid momentum to continue to execute against our financial targets and strategic areas of focus. All of this positions us to deliver significant growth and shareholder value. With that, I now turn the call over to John. Thanks, Harvey. Good morning, everyone.
Speaker Change: To wrap things up we entered 2024 with solid momentum, we continue to execute against our financial targets and strategic areas of focus all of this positions us to deliver significant growth and shareholder value.
Speaker Change: With that let me now turn the call over to John.
John: Thanks, Harvey good morning, everyone.
John Christopher Redett: As Harvey said, our first quarter results were in line with our expectations, and we remain on track to achieve the 2024 financial targets we outlined on last quarter's call. For the first quarter, we generated record FRE of $266 million, nearly 40% higher than the first quarter last year. FRE margin of 47% was also a record, and up from 35% in Q1 2023. We produced 431 million in DE, or $1.01 in DE per share, our best quarterly DE result since 2022. We finished the first quarter with $425 billion of assets under management, up 12% year over year.
John: As Harvey said, our first quarter results were in line with our expectations and we remain on track to achieve the 2024 financial targets, we outlined on last quarter's call.
John: For the first quarter, we generated record FRE of $266 million.
John: Nearly 40% higher than the first quarter last year.
John: FRE margin of 47% was also a record and.
John: And up from 35% in Q1 2023.
John: We produced $431 million in D E.
John: Or a $1, one and <unk> per share.
John: Our best quarterly result, since 2022.
John: We finished the first quarter with $425 billion of assets under management up.
John: Up 12% year over year.
John Christopher Redett: In the first quarter, we completed the sales of McDonald's China and Neptune Energy, both of which have produced attractive returns for LPs and strong performance revenues for our shareholders. Over the past year, we have returned $22 billion in capital to our LPs, highlighting the ability of our investment teams to find liquidity opportunities in difficult and challenging capital markets. We raised $5.3 billion of capital in the quarter, and we remain confident in achieving our target of $40 billion of inflows for the year.
John: In the first quarter, we completed the sales of Mcdonald's, China, and Neptune energy, both of which produce attractive returns for our Lps.
John: <unk> strong performance revenues for our shareholders.
John: Over the past year.
John: We have returned $22 billion in capital to our Lps.
John: Highlighting the ability of our investment teams to find liquidity opportunities in difficult and challenging capital markets.
John: We raised $5 3 billion of capital in the quarter.
John: And remain confident in achieving our target of $40 billion of inflows for the year.
John Christopher Redett: In solutions, we raised $2.3 billion in the quarter, and nearly $14 billion over the last 12 months, as we continue to have success attracting investors to our secondaries and co-investment strategies. And we are starting to see momentum building in our global wealth product, CAPM, and Global Credit, where our CLO platform is one of the largest in the industry. We had an active quarter in a very active market. We priced seven CLOs, including three new issue CLOs.
In solutions, we raised $2 3 billion in the quarter.
And nearly $14 billion over the last 12 months as.
John: As we continue to have success, attracting investors to our secondaries and co investment strategies.
John: And we're starting to see momentum building in our global wealth product kept them.
John: In global credit.
John: While our CLO platform as one of the largest in the industry, we had an active quarter and a very active market.
John: We probably seven CLO.
John: Including three new issue CLO.
John Christopher Redett: We also saw strong inflow activity into our global wealth product, CTAP, and continue to see capital raises for asset-backed finance strategies and in global private equity. The fundraising environment remains somewhat challenging, but we do see some pockets of strength, like real estate in Japan. Management fees totaled $516 million in the first quarter, up about 2% compared to the prior year.
John: We also saw strong inflow activity into our global wealth product Seatac and.
And continue to see capital raise for our asset backed finance strategy.
John: And in global private equity.
John: Raising environment remains somewhat challenging, but we do see some pockets of strength.
John: Like real estate in Japan.
John: Management fees totaled $516 million in the first quarter up about 2% compared to the prior year.
John Christopher Redett: We have $15 billion of pending fee-earning AUM that has yet to activate fees. Capital markets activity remains constrained, but it is showing signs of improvement. Transaction and advisory revenues of $27 million increased more than 60% from the first quarter last year. GNA expenses of $80 million were lower compared to the first quarter last year as we benefited from expense discipline and had some one-time items that lowered the quarterly GNA level. We expect G&A expense to shift back towards the recent run rate in the second quarter. Our net accrued carry balance of $2.2 billion declined relative to the last quarter due to fund realizations and a relatively lower level of appreciation in our carry fund.
We have $15 billion of pending fee, earning AUM that has yet to activate fees.
Capital markets activity remains constrained, but it is showing signs of improvement.
John: Transaction and advisory revenues of $27 million increased more than 60% from the first quarter last year.
John: G&A expenses of $80 million were lower compared to the first quarter of last year as we benefited from expense discipline and had some onetime not onetime items that lowered the quarterly G&A level.
John: We expect G&A expense to shift back towards the recent run rate in the second quarter.
John: Our net accrued carry balance of $2 2 billion declined relative to last quarter due to fund realizations and a relatively lower level of appreciation in our carry funds.
John Christopher Redett: And at $6 per share, it remains a substantial source of future earnings. We repurchased $150 million of stock. Decrease in our adjusted shares outstanding by one percent. Our remaining share repurchase authorization is approximately $1.25 billion, and we remain active buyers of our stock. Wrapping up, we're optimistic about market conditions improving, and we're on track to meet our financial targets for 2024. With that, let me turn the call over to the operator for your question. Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again.
John: And at $6 per share it remains a substantial source of future earnings.
John: We repurchased $150 million of stock.
John: A decrease in our adjusted shares outstanding by 1%.
John: Our remaining share repurchase authorization is approximately $1 $2 5 billion.
John: And we remain active buyers of our stock.
Speaker Change: Wrapping up.
Speaker Change: We are optimistic about market conditions, improving and we are on track to meet our financial targets for 2024.
Speaker Change: With that let me turn the call over to the operator for your questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to withdraw.
Speaker Change: Your question. Please press Star one again, please wait for your name to be announced we ask that you. Please limit your questions to one until all of that to chance to ask a question after which you may re enter the queue. Please standby, while we compile the Q&A roster.
Operator: Please wait for your name to be announced. We ask that you please limit your questions to one until all have had a chance to ask their question, after which you may re-enter the queue. Please stand by while we compile the Q&A roster. One moment for our first question, please. Our first question will come from the line of Brian Bedell with Deutsche Bank. The line is now open.
Speaker Change: One moment for your first question. Please.
Our first question will come from the line of Brian Bedell with Deutsche Bank. Your line is now open.
Unknown Executive: Great. Thanks. Good morning. Thanks for taking my question. Hey, good morning.
Brian Bertram Bedell: Great. Thanks, Good morning, Thanks for taking my question.
Brian Bertram Bedell: Maybe just.
Brian Bertram Bedell: Hey, good morning.
Brian Bertram Bedell: Maybe you could just talk about how you're viewing the FRE trajectory.
John Christopher Redett: Maybe just talk about how you're viewing the FRE trajectory for the balance of 2024 and maybe just the components of that, given the lower expenses. Maybe if you can classify the help from the lower G&A expense in one queue and where you see the expenses moving as we move through the year and then contrast that with fee-related revenue. So, really, just sort of the underlying components of how you see the FRE improving.
Brian Bertram Bedell: For the balance of 2024, and maybe just the components on that given the lower expenses at maybe if you can classify.
The help from the lower G&A expense and <unk>.
Brian Bertram Bedell: Where do you see the expenses.
Brian Bertram Bedell: Moving as we move through the year, and then contrasting that with fee related revenue.
It really just sort of the underlying components of how you see the.
Brian Bertram Bedell: FRE improving during the year.
John Christopher Redett: Thanks, Brian. So, look, we're very pleased with the FRE for the quarter, 266. It was a record, and it was up 40% over the same period last year. The margin was very strong as well, that compared to 37% last year. In terms of the margin at 47%, and I alluded to this in my comments on the G&A, we did benefit from a lower G&A. Some of that was expense discipline on our end, and some of it was a little seasonality.
Thanks, Brian So look we're very pleased with the FRE for the quarter $2 66. It was a record it was up 40% over same period last year.
The margin was very strong as well that compared to 37% last year in terms of the margin at 47% and I alluded to this in my comments on the G&A, we did benefit from a lower G&A.
Some of that was expense discipline on our end some of it was a little seasonality historically, if you look at our first quarter G&A is typically at a little lighter in Q1, and we did have a couple of one off items. So I expected G&A number to increase to more normalized run rate levels in the second.
John Christopher Redett: Historically, if you look at our first quarter, G&A is typically a little lighter in Q1, and we did have a couple of one-off items. So, I expect the G&A number to increase to more normalized run rate levels in the second quarter. So, I would expect the FRE margin in the next couple of quarters to be in the mid-40s versus the 47.
John Christopher Redett: And, look, the mid-40s is right in the middle of the range we put out in our 2024 financial targets of 40 to 50%. So, we feel pretty good at 45%. In terms of management fees, I would say the number came in exactly as expected. There were no surprises, positive or negative, on our end.
Brian Bertram Bedell: So.
Brian Bertram Bedell: I would expect the FRE margin.
Brian Bertram Bedell: In the next couple of quarters to be in the mid <unk> versus the 47 and look the mid Forty's is right in the middle of the range, we put out in our 2024 financial targets of 40% to 50%. So we feel pretty good at 45%.
Brian Bertram Bedell: In terms of in terms of management fees.
Brian Bertram Bedell: I would say the number came in exactly as expected there were there were no surprises positive or negative on our end.
Operator: And I do think throughout the year, given that we had a really strong fourth quarter in terms of fundraising, nearly $17 billion, and we have $15 billion of pending fee-paying AUM, I would expect that number to start to accelerate throughout the year, and I think that growth will accelerate as well. Thank you. One moment for our next question, please. Our next question will come from the line of Kenneth Worthington with JPMorgan Securities. Your line is now open.
And I do think through the year given that we had a really strong fourth quarter in terms of fund raising nearly $17 billion and we have $15 billion.
Brian Bertram Bedell: Of fee paying pending <unk> pain.
Brian Bertram Bedell: I would expect that number to start to accelerate throughout the year and I think that growth will accelerate as well.
Speaker Change: Okay, great. Thank you Brian.
Speaker Change: Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: Our next question will come from the line of Kenneth Worthington with Jpmorgan Securities. Your line is now open.
Unknown Executive: Hi, good morning. And thank you for taking the question. Fee-paying AUM fell lower in both private equity and credit this quarter.
Kenneth Brooks Worthington: Hi, good morning, and thank you for taking the question.
Kenneth Worthington: Okay.
Kenneth Brooks Worthington: Fee paying AUM, so lower in both private equity and credit this quarter and we know things don't move in a straight line.
Kenneth Brooks Worthington: Maybe first can you talk about the drivers of the decline in private credit fee paying AUM. This quarter I think you highlighted some elevated outflows and they're released and based on your fund raising fund Activations in realizations, how should we think about fee paying AUM developing for from current.
John Christopher Redett: And we know things don't move in a straight line. Maybe first, can you talk about the drivers of the decline in private credit fee-paying AUM this quarter? I think you highlighted some elevated outflows in the release. And based on your fundraising fund activations and realizations, how should we think about fee-paying AUM developing from current levels in both private equity and credit as we kind of migrate through the year? Yeah, Ken, we have very good momentum in terms of fundraising.
Kenneth Brooks Worthington: <unk> in both private equity and credit as we kind of migrate through the year.
Speaker Change: Yes, Ken.
Ken: We have very good momentum in terms of fundraising we have some products in the market that have real demand.
John Christopher Redett: We have some products in the market that have real demand. You know, our secondaries business, our solutions business, we're seeing real good demand both for secondaries and co-investment. I would expect that to continue. As we said in the past, we've had good momentum in Japan. We'll be wrapping that one up at some point this year.
Our secondaries business, our solutions business, we're seeing real good demand both in secondaries and co investment I would expect that to continue as we said in the past we had we've had good momentum in Japan will.
Speaker Change: We will be wrapping that one up.
John Christopher Redett: Real estate is another area where we think we'll have really strong demand. We'll start that fundraise this year as well, and we do expect that to be a successful fundraise. So I would expect to see an acceleration in growth in the fee-paying AUM as well. In terms of the kind of slight decline in fee-paying AUM in credit, it was just a north course, runoff.
Speaker Change: At some point this year, our real estate is another area, where we think we'll have really strong demand. We will start that fund raise this year as well and we do expect that to be a successful fund raise so I would expect to see an acceleration in growth in the fee paying AUM as well in terms of the kind.
Speaker Change: <unk> had a slight decline in fee paying AUM in credit it was just normal course.
Operator: And again, the runoff is outside of carry funds. So it was just a small amount of normal course, business as usual runoff. Great, thank you. Thank you. One moment for our next question, please. Our next question will come from the line of Ben Budish with Barclays. Your line is now open.
Speaker Change: Run off and again the run off is outside of carry funds. So.
Speaker Change: It was just a small amount of normal course business as usual runoff.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: And next question will come from the line of Ben British with Barclays. Your line is now open.
Unknown Executive: Maybe just following up on the $15 billion of pending fee-paying AUM, and John, your comments and you know, the confidence in achieving the $40 billion plus for the year. Can you sort of just unpack the major pieces? You know, we know there are a lot of PE funds in the market. You know, how much is left on the, you know, the solutions fundraisers that you're doing?
Benjamin Elliot Budish: Good morning, and thanks for taking the question maybe just following up on the $15 billion of pending fee paying AUM and.
Benjamin Elliot Budish: Then John your comments on the confidence in achieving the $40 billion plus for the year can you sort of just unpack. Some major pieces, we know theres a lot of PE funds in the market.
Benjamin Elliot Budish: How much is left on the the solutions fundraisers that youre doing what are the key pieces of the credit side. If you can give us a little color there that'd be great. Thank you.
Unknown Executive: What are the key pieces of the of the credit side? If you give us a little color there, that'd be great. Yeah, maybe I'll jump in. And so, you know, we're not going to walk through fun by fun, which I'm sure you understand.
Benjamin Elliot Budish: Yes.
Speaker Change: Maybe I'll jump in and so we're not going to walk through fund by fund, which I'm sure you understand but as John said.
Harvey Mitchell Schwartz: But as John said, and, I've been traveling the world the past six months, you can really feel the momentum in the pockets of strength that John hit on. So in solutions, in the wealth channel across credit, as I mentioned in my comments, we expect to be joining additional wealth platforms, new partners coming on in terms of CapM and CTAC. And so there's a lot of momentum around wealth, secondaries, credit, and as John mentioned, pockets of the private equity segment in real estate and other areas. I would say generally in private equity across the industry, in this environment, you should maybe expect some head with.
Speaker Change: I've been traveling the world the past six months, you can really feel the momentum in the pockets of strength Jon hit on so in solutions in the wealth channel across credit.
Speaker Change: As I mentioned in my comments.
Speaker Change: We expect to be.
Speaker Change: Uh huh.
Speaker Change: Joining additional wealth platforms, new partners coming on in terms of Capex and Seatac and so there's a lot of momentum around well secondaries credits.
Speaker Change: And as John mentioned pockets private equity segment in real estate and other areas I would say generally in private equity across the industry. In this environment you should maybe expect some headwinds now of course.
Harvey Mitchell Schwartz: Now, of course, I think over the next several years, the institutional channel might be a little over allocated, but the wealth channel is clearly under allocated. And so we look forward to also bringing out our private equity wealth product in the first half of next year. And so it feels like across the franchise, momentum is quite good.
Speaker Change: Over the next several years.
Speaker Change: <unk>.
Speaker Change: The institutional channel might be.
Speaker Change: A little over allocated but what the Welsh analysts totally under allocated and so we look forward to also bringing out our private equity world product in the first half of next year and so it feels like across the franchise momentum is quite good in.
Harvey Mitchell Schwartz: And that's why we reiterate the targets for this year. And also, the other thing I'll say is we understand the focus on the quarter to quarter. We focus on it for running a business. It's just not really how we think about fundraising.
Speaker Change: That's why we reiterated the targets for this year and also the other thing I'll say it.
Speaker Change: I understand the focus on a quarter to quarter, we focus on running our business.
Speaker Change: Not really how we think about the fund raising as John said this was a perfectly on plan for us.
Harvey Mitchell Schwartz: As John said, this was perfectly on plan. Got it. Thank you very much.
Speaker Change: Got it thank you very much.
Operator: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Alexander Blostein with Goldman Sachs. Your line is now open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Alexander <unk> with Goldman Sachs. Your line is now open.
Unknown Executive: Hey, good morning, everybody. Thank you for the question as well. I was hoping we could spend a minute on your outlook for share repurchases for the rest of the year. Harvey, I think on the last call, you talked about $1.4 billion. Now it's $1.2 billion in authorization, being a function of kinds of quarters, not years.
Alexander: Hey, good morning, everybody. Thank you for the question as well I was hoping we could spend a minute on your outlook for share repurchases for the rest of the year Harvey I think on the last call you talked about obviously $1 $4 billion now to one two and authorization being a function of kind of quarters not years can we maybe get a little more specific spin.
John Christopher Redett: Can we maybe get a little more specific here on the outlook for the rest of the year? And related to that, how should we be thinking about equity-based compensation on a quarterly basis from here, I guess, given that it's stepped up quite meaningfully as well? Thanks. Hello, Alex. It's John.
Alexander: <unk> here on the outlook for the rest of the year and related to that how should we be thinking about equity based compensation on a quarterly basis from here I guess given that it stepped up quite meaningfully at all thanks.
John Christopher Redett: We repurchased $150 million of stock, as I said in my remarks. Historically, we've averaged roughly $200 per year per annum. So the first quarter was pretty significant relative to what we've done in the past. We still have $1.25 billion left on the share repurchase authorization. And you should just assume we're active purchasers of the stock going forward. In terms of the equity-based comp, this is really, it got elevated due to the performance stock units we granted to key senior members of our investment teams, our team globally. And these are the people that are driving growth. These are the people that are accountable for growth. And the accounting on these instruments are a bit different.
John: Sure Alex it's John.
John: We repurchased $150 million of stock as I said in my remarks, historically, we've averaged roughly 200 per year per annual per annum. So.
John: The first quarter was pretty significant relative to what we've done in the past.
John: We still have $1 5 billion left on the share repurchase authorization.
John: Should just assume we're active purchasers of the stock going forward in terms of the equity based comp.
John Christopher Redett: So you're seeing a little bit of elevation from those performance stock unit grants. Remember, these only vest if we have meaningful stock price appreciation. So I think these are very, very shareholder-friendly instruments, great, great alignment. I would expect the equity-based comp number to start trending down next year.
John: This is really it got elevated due to the performance stock units, we granted two key senior members of our investment teams our team globally and these are the people that are driving growth. These are the people that are accountable for growth.
John: The accounting on these instruments are.
John: A bit different so youre seeing a little bit of elevation from those performance stock unit grants.
John: Remember these only invest if we have meaningful stock price appreciation. So I think these are very very shareholder only instruments, great great alignment I would expect the equity based comp number to start trending down next year.
Operator: Thanks, Alex. Thank you. One moment for our next question. Our next question comes from the line of Brian McKenna with Citizens JMP. Your line is now open.
Speaker Change: Thanks, Alex.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Brian Mckenna with citizens JMP. Your line is now open.
Unknown Executive: Thanks. Good morning, everyone. I appreciate the commentary on the buyback, but it seems like there's some capacity to increase the dividend given the earnings outlook moving forward. How are you thinking about the dividend moving forward, and do you see an opportunity? So, hey, it's Harvey.
Brian J. McKenna: Thanks, Good morning, everyone I appreciate the commentary on the buyback, but it seems it seems like there is some capacity to increase the dividend given the earnings outlook moving forward specifically for realizations remain healthy sell how are you thinking about the dividend moving forward and do you see an opportunity to increase the payout ratio over time.
Harvey Mitchell Schwartz: So, you know, as John said, let me just take a step back and go through how we're thinking about the capital allocation methodology here. And so we're going to remain very flexible because we see very significant opportunities to invest in the business over the next couple of years. But we also see opportunities to return capital to shareholders, and that was really the strategic decision about going with a buyback because it gives us that flexibility. In the immediate term, we expect no changes to the dividend.
Speaker Change: So as John said, let's take a step back and again go through how we're thinking about the capital allocation methodology here.
Speaker Change: And so.
Speaker Change: We're going to remain very flexible.
Speaker Change: We see very significant opportunities to invest in the business over the next couple of years.
Speaker Change: But we also see opportunities to return capital to shareholders and that was really the strategic decision about going with a buyback because it gives us that flexibility.
Speaker Change: Mediate term, we expect no changes to the dividend of course again.
Harvey Mitchell Schwartz: Of course, again, we're not tying ourselves up in a mask here, you know, depending on how things move forward. But right now, it really is about positioning ourselves for dynamic flexibility around capital allocation. So we can invest in the business when we see the most accretive opportunities, which we're currently doing, and we can also return value to shareholders. And as John said, you know, you should expect to see it active in the stock. Sure.
Speaker Change: We're not tying ourselves can amass here.
Speaker Change: Depending on how things move forward, but right now it really is about positioning ourselves for dynamic flexibility around capital allocation. So we can invest in the business when we see the most accretive opportunities, which we're currently doing and we can also return.
Speaker Change: Value to shareholders and as John said.
Speaker Change: You should expect to see it be active in the stock.
Speaker Change: Helpful. Thanks Harvey.
Harvey Mitchell Schwartz: Sure. Thank you one moment for our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Brennan Hawken with UBS. Thanks for taking my questions. Good morning. Hey, how are you Harvey?
Harvey Mitchell Schwartz: Our next question comes from Brennan Hawken with UBS. Your line is now open.
Brennan Hawken: Thanks for taking my questions good morning.
Brennan Hawken: Hey, Brian.
Unknown Executive: So you guys flagged on the investment performance slide that there's an uptick in US and European CLO Fall Rates. So I'm curious about what your exposure is to Altice in the European or global CLO market. And how should we be thinking about the risk of deterioration and increased faults as far as the potential for, Yeah, Brennan, it's John. So look, we really like our CLO business. We're one of the largest in the world at any given time.
Brennan Hawken: How are you Harvey.
Brennan Hawken: You guys flagged in the investment performance slide.
Brennan Hawken: There is an uptick in U S and European CLO.
Brennan Hawken: Rates. So I'm curious about what your exposure is to all piece in the European or the global CLO business and how should we be thinking about.
Brennan Hawken: At the risk of deterioration and increased defaults as far as the potential for a management fee deferrals in that business. Thank you.
John Christopher Redett: We're one or two. Look, this business has great margins. They have, you know, a long-term, highly attractive track record. And when you look at the kind of credit in the platform, it still looks very, very good. Our default rates in our US business are one half of the industry average. The credit stats in Europe are not quite as good as the US.
John: Yes, Brendan its John.
John: We really like our CLO business, we're one of the largest in the world at any given time, we're we're one or two.
John: This business has great margins they have a.
John Christopher Redett: But they are still better than European industry averages. So from a credit quality perspective, we feel very good about the credit quality in our CLO. This is really a world-class franchise with a world-class team. Thanks for taking my call. Thanks, Brennan. Our next question will come from the line of Daniel Fannon with Jeffries. Your line is now open.
John: A long term highly attractive track record and when you look at kind of credit in the platform. It still looks very very good our default rates in our U S business are one half the industry average.
John: The credit stats in Europe are not quite as good as the U S.
John: They are still better than European industry averages so from a credit quality perspective.
John: We feel very good about the credit quality of our CLO business.
John: It really is a world class franchise with a world class team.
Speaker Change: Great. Thanks for taking my question.
Speaker Change: Thanks Brent.
Speaker Change: Our next question will come from the line of Daniel Fannon with Jefferies. Your line is now open.
Operator: Thanks. Good morning. You talked about wealth and increasing partnerships and distribution through that channel. Can you give us what the number of flows were from the wealth channel this quarter and which products you see are driving those flows, and where you see the kind of outlook for that going forward? I've personally been spending increasing amounts of my time with these people. These are our wealth partners. And I can tell you, I'm pretty close to the cold face on this.
Daniel Thomas Fannon: Thanks, Good morning, you talked about wealth and.
Daniel Thomas Fannon: Increasing partnerships and distribution through that channel can you can you.
Daniel Thomas Fannon: Give us what the number of flows were from the wealth channel this quarter and which products you see are driving those flows and where you see that kind of the outlook for that going forward.
Speaker Change: But personally been spending.
Speaker Change: Leasing amounts of my time with the.
Speaker Change: With our wealth partners.
Speaker Change: And I can tell you I'm pretty close to the coal based on this.
Harvey Mitchell Schwartz: We've been really well received by the brand Carlyle, our history in the business, a long track record, the name recognition, and the iconic aspect of the firm really resonates with the wealth advisors. Now, of course, we've been in the wealth channel for a very long time. As I mentioned, we've raised nearly $50 billion in assets. But this new shift in terms of how the market is really responding in the early days of, you know, whatever you want to call it, democratization, etc. But I've personally been spending a lot of time with wealth advisors, truly trying to get very close to understanding how we can be the best value partner to them.
Speaker Change: We have been.
Speaker Change: Really well receive the brand Carlisle our history in the business long track record the name recognition with the iconic aspect of the firm really resonates with the wealth advisors now of course, we've been in the wealth channel for very long time, as I mentioned with <unk>.
Speaker Change: He has nearly $50 billion of assets, but this new shift in terms of how the market is really receiving.
Speaker Change: In the early days of <unk>.
Speaker Change: Do you want to call it democratization et cetera.
Speaker Change: But I personally spending a lot of time with wealth advisors truly trying to get very close to understanding.
Speaker Change: How we can be the best value partner to them.
Harvey Mitchell Schwartz: And with SeaTac growing steadily, HapM picking up momentum, our secondaries product, we will be making some announcements in the near term about some new partnership launches. I feel really good about the momentum here. And again, obviously, the first half of next year, we're targeting the private equity product. So, I feel really good about how our business is being received. This is going to be a long journey for the industry, but I feel really optimistic about the long-term growth trajectory. Thank you. One moment for our next question, which will come from the line of Chris Kotowski with Oppenheimer. Your line is now open.
Speaker Change: And with sea Tac growing steadily tap and picking up momentum our secondaries product, we will be making some announcements in the near term of some new partnership launches.
Speaker Change: I feel really good about the momentum here and.
Speaker Change: And again, obviously first half of next year, we're targeting.
Speaker Change: Private equity products so.
Speaker Change: <unk>.
Speaker Change: I feel.
Speaker Change: Really good about how our business is being received.
Speaker Change: This is all going to be a long journey for the industry, but.
Speaker Change: I feel really optimistic about the long term growth trajectory.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will come from the line of Chris Kotowski with Oppenheimer. Your line is now open.
Operator: Good morning and thank you for taking the question. I realize you didn't want to go fund by fund, but when I look at the fund tables, it looks like your Asia V fund steps down in June and then Europe V in September. So should we be expecting kind of a new fund launch around those dates or do you effectively not have a flagship vehicle after those dates in Europe and Asia? A little confusing. We have flagship vehicles in those regions.
Christoph M. Kotowski: Yes, good morning, and thank you for taking the question.
Christoph M. Kotowski: I realize you didn't want to go fund by fund, but when I look at the fund tables.
Christoph M. Kotowski: It looks like you are.
Christoph M. Kotowski: Our Asia fund.
Christoph M. Kotowski: <unk> down in June and then Europe five in September so should we be expecting.
Christoph M. Kotowski: A new fund launch around those dates or.
Christoph M. Kotowski: Or do you do you effectively not have a flagship vehicle.
Christoph M. Kotowski: After those dates.
Christoph M. Kotowski: Europe and Asia.
Unknown Executive: I think, again, Chris, the way to think about it is the way John addressed it, which is we expect, I think he's giving pretty good color on this, a pickup in management fees across the platform throughout the rest of the year, and everything remains on plan. Okay, happy to get into more detail with you offline.
Christoph M. Kotowski: Little confusion, we have flagship vehicles in those regions.
Speaker Change: I think again Chris.
Christoph M. Kotowski: The way to think about it is really the way John addressed which is.
Speaker Change: We expect.
Speaker Change: Giving you pretty good color on this pick up in management fees across the platform throughout the rest of the year.
Speaker Change: <unk>.
Speaker Change: Everything remains on plan.
Speaker Change: Okay, so happy to get into more detail with you offline.
Unknown Executive: Okay. And then also, can you give us any color on page 11, I think 11, that there were some reversals of prior performance allocations? Can you just give us some color on what happened there? Was that like related to European-style waterfalls, or what happened?
Speaker Change: Okay.
Speaker Change: And then also can you give us any color on the.
Speaker Change: Okay, I think 11 that there were some reversals of.
Speaker Change: Prior performance allocations.
Speaker Change: Can you just give us some color on what happened there was that like.
Speaker Change: Related to European style waterfalls.
Speaker Change: Or what happened.
Speaker Change: That means like it.
Unknown Executive: The first thing I'd say is, Chris, we don't manage the business quarter to quarter in terms of performance. I came from the private equity side of the business, where I spent 16 years, and ran several funds there. I honestly never really focused on quarter to quarter performance.
Speaker Change: The first thing I'd say is Chris we don't we don't manage the business quarter to quarter in terms of performance I came from the private equity side of the business, where I spent 16 years ran several funds there.
Speaker Change: Honestly never really focused on quarter to quarter performance I always took a.
Speaker Change: Kind of a long term view of what is the long term trajectory. So.
Speaker Change: I know you guys focus quarter to quarter movement, but.
Speaker Change: We don't really manage the business that way.
Unknown Executive: I always took a kind of a long-term view. What is the long-term trajectory? So I know you guys focus on the quarter to quarter movement, but we don't really manage the business that way. So CP7 was barely in carry the previous quarter.
Speaker Change: <unk> <unk> seven was barely up and carry the previous quarter.
Unknown Executive: It fell out of carry this quarter. So, that's the impact you're seeing. But, you know, look, we've been in this business, the private equity business, for 35 years. We've generated very strong returns for our LPs, 26% over that period, 2.4 times our money. So, we're very proud of those returns. The only thing I can tell you is we've always been very, very focused on performance. And not surprisingly, going forward, we will continue to be very focused on performance. All right? Thank you. That's it for me.
Speaker Change: It fell out of carry this quarter, so thats the impact youre seeing but look we've been in this business the private equity business for 35 years.
Speaker Change: We've generated very strong returns for our Lps, 26% over that period, two four times our money.
Speaker Change: So we're very proud of those returns.
Speaker Change: The only thing I'd tell you is we've always been very very focused on performance and not surprisingly going forward. We will continue to be very focused on performance.
Speaker Change: Alrighty. Thank you that's it for me.
Speaker Change: Thank you.
Unknown Executive: Our next question will come from the line of Patrick Davitt with Autonomous Research. Your line is now open. Hey, good morning. Thanks. I want to circle back on the flow commentary.
Speaker Change: Our next question will come from the line of Patrick Davitt with Autonomous Research. Your line is now open.
Michael Patrick Davitt: Hey, good morning. Thanks.
Unknown Executive: I understand there's some seasonality, but obviously, just run rating to about 20 billion of flow this year versus 40 billion target. So maybe when you budget for this, could you maybe help us understand what you see as the biggest incremental contributions to closing that gap between 20 and 40 and what you think the cadence through the rest of the year of building to that 40 will be? Thanks. Yeah, again. Patrick, as Harvey said, it's very tough to look at fundraising on a quarter-by-quarter basis. Stuff slips, stuff moves forward.
Michael Patrick Davitt: I want to circle back on the flow commentary.
Michael Patrick Davitt: I understand there is some seasonality, but obviously just run rating to about $20 billion of flow this year versus 40 billion target.
Michael Patrick Davitt: I mean, when you budget. This could you maybe help us understand what you see as the biggest incremental contributions to closing that gap between 20, and 40 and what you think the cadence through the rest of the year of building to that 40 will be thanks.
Speaker Change: Yes again.
Michael Patrick Davitt: Patrick what Harvey said, we it's very tough to look at fundraising on a quarter to quarter to quarter by quarter basis stuff stuffed slip stuff moves forward.
John Christopher Redett: Again, the fundraising number for the first quarter came in as expected, so that should tell you something in terms of how we think we can get to the $40 billion. We're still confident in the $40 billion. And I think Harvey gave you some color around where that fundraising is coming from.
Michael Patrick Davitt: Again, the fundraising number for the first quarter came in as expected. So that should tell you something in terms of how we think we can get to the $40 billion, we're still confidence and confident in the $40 billion and I think Harvey gave you some color around where that fundraising is coming from we continue to see a lot of interest in our solutions business both secondary.
John Christopher Redett: We continue to see a lot of interest in our solutions business, both secondaries, and co-investment. In private equity, we'll have some strong demand for a real estate product. We have good demand for Japan.
Michael Patrick Davitt: <unk> co investment.
Michael Patrick Davitt: In private equity, we're going to have some we'll have some demand strong demand for our real estate product, we have good demand for Japan.
John Christopher Redett: In credit, our asset-backed platform has gone from almost nothing to a full sized platform in two years. On the wealth side, we're really starting to see more momentum in CTAC, CAPM, our solutions wealth product. That's just kind of starting, but getting good momentum. So it's really, really across the platform. I wouldn't say one specific segment is an outlier.
Michael Patrick Davitt: In credit our asset backed platform has gone from almost nothing to upsize in two years.
Michael Patrick Davitt: On the wealth side, we're really starting to see more momentum in seatac.
Michael Patrick Davitt: <unk>, our solutions wealth product Thats, just kind of starting but getting good momentum. So it's really really across across the platform I wouldn't say one specific segment.
Michael Patrick Davitt: As an outlier.
John Christopher Redett: Yeah, it's pretty diversified, but I wouldn't make – we'd be misguiding you if we in any way suggested you should take the first quarter multiplied by $40. I think that's our point here. You should really hear us when we say we expect significant momentum and that this was exactly on point. Thanks, Patrick. Thank you. Please take a moment for our next question. Our next question comes from the line of Steven Chubak with Wolf Research. Your line is now open.
Michael Patrick Davitt: Diversified, but I wouldn't make.
Michael Patrick Davitt: We did miss guiding you.
Michael Patrick Davitt: We in any way suggest that you should take the first quarter multiplied by four.
Speaker Change: I think thats our point here you should really here is when we say we expect a significant momentum and that this was exactly on plan for us.
Speaker Change: Thanks, Patrick.
Speaker Change: Thank you one moment for our next question.
Michael Patrick Davitt: Our next question comes from the line of Steven <unk> with Wolfe Research. Your line is now open.
Steven: Hi, Good morning, Harvey Hey, good morning, John Good morning, Steve.
Operator: Good morning, Harvey. Good morning, John. Good morning, Steve. So in the past, you spoke about the significance of the IPO market reopening, certainly starting to see some green shoots, but just concerning the PE transaction environment, I was hoping you could speak to whether that recent pickup supports more durable improvement in realization activity, or is it still too early to call an inflection? Hey, it's John.
Steven: So in the past you had spoken about the significance of the IPO market reopening.
Steven: Certainly you're starting to see some green shoots, but just concerning the P transaction environment.
Steven: You could speak to whether that recent pickup supports more durable improvement in realization activity or is it still too early to call an inflection.
John Christopher Redett: I think it's helpful just to kind of level set where we are. You know, we're coming out of a very, very complex environment. And having spent most of my career in private equity, it was one of the more complex environments I've seen.
John: It's John.
John: I think it's helpful. Just to kind of level set where we are we're coming out of.
John: A very very complex environment, and having spent most of my career in private equity. It was one of the more complex environments I've seen yet our team has been able to generate $22 billion of realizations through that period in some pretty choppy markets.
John Christopher Redett: Yet our team has been able to generate 22 billion of realizations through that period in some pretty choppy markets. As I said in my comments, we had, you know, a strong quarter in terms of realizations. I noted McDonald's, China and Neptune Energy.
John: As I said in my comments, we had a strong quarter in terms of realizations I noted Mcdonald's China and Neptune.
John Christopher Redett: You know, I know these portfolios really well. I spent a lot of time in that business. I feel good about these portfolios. I also like the momentum we have. So, I mean, if the markets continue to improve, I would expect that momentum to accelerate. But it's market-dependent, obviously.
John: Energy.
John: I know these portfolio portfolio is really well he spent a lot of time in that business.
John: Feel good about these portfolios I also liked the momentum we have.
John: So I mean, if the markets continue to improve I would expect that momentum to accelerate.
John: But it's market dependent obviously.
John Christopher Redett: In terms of your comments on the IPO markets, you know, I think the IPO markets are kind of open. I know a lot of the bankers and headlines say they're open, but I would say they are. Understood. Thanks for taking my call.
John: In terms of your comments on the IPO markets.
John: I think the IPO markets are kind of open.
John: Aye.
John: I know a lot of bankers and headline say, they're open but I would say there they are opening.
Speaker Change: Understood. Thanks for taking my question.
Speaker Change: Thank you.
Unknown Executive: Thank you. One moment for our next question. Our next question comes from the line of Glenn Schorr with Evacor ISI. Your line is now open. Hello, thanks. A question on the insurance side.
Speaker Change: Enrollment for our next question.
Speaker Change: Next question comes from the line of Glenn Schorr with Evercore ISI. Your line is now open.
Glenn Paul Schorr: Hello. Thanks.
Glenn Paul Schorr: A question on the insurance side.
Operator: Morning. Question on the insurance side, just in terms of what we should expect from your business. We didn't talk about it much yet today. And the reason I'm asking is some of the insurance companies have been talking about lightening up and pulling back on block trades and trying to raise third-party capital themselves. I'm not sure how many of them have the capacity to raise that and manage that themselves, but I've heard it from more than a couple of places.
Glenn Paul Schorr: Morning, a question on insurance side.
Glenn Paul Schorr: Just in terms of what we should expect.
Glenn Paul Schorr: From your business, we didn't talk about it much yet today and there is unmasking of some of the insurance companies have been talking about.
Glenn Paul Schorr: Lightening up in pulling back on block trades and trying to raise third party capital themselves I'm not sure how many of them have the capacity to raise that and manage that themselves, but it's hurting for more than a couple of places. So curious on your thoughts of the deal environment and what we should expect from your insurance business. Thanks.
Unknown Executive: So, curious about your thoughts on the deal environment and what we should expect from your insurance business. You know, the pipeline feels pretty good here, Glenn, in terms of, you know, you saw us close and execute the Lincoln National transaction last year. And we talked about the economics and how that flows through FOE over the medium term. But the pipeline feels pretty good.
Glenn Paul Schorr: The pipeline feels pretty good here.
Speaker Change: Glenn in terms of.
Speaker Change: You saw us.
Speaker Change: Clothing execute from Lincoln National transaction.
Speaker Change: Last year, and we talked about the economics and how that flows through FRE over the medium term.
Speaker Change: But the pipeline feels pretty good.
Unknown Executive: I think there are going to be times when it's going to ebb and flow in the marketplace. But I think if you look over the long term in terms of insurers needing to dynamically manage their capital, I think Fortitude is really, really well positioned to be a great partner and has been a great partner.
Speaker Change: I think theyre going to be times, when it is going to ebb and flow in the marketplace, but I think if you look over the long haul the long term in terms of.
Speaker Change: Insurers need to dynamically manage their capital.
Speaker Change: I think quarter, two is really really well positioned.
Unknown Executive: So I feel pretty good about the pipeline. In terms of insurance more broadly, I would say the space remains increasingly important to us with a lot of momentum. You know, there's a real cross section here and a flywheel effect between capital needed, an ability to generate enhanced performance in private credit, and banks looking at more optimized and better optimized their capital structures. And so, you know, we're in the thick of a lot of flows here, and I think this is pretty persistent.
Speaker Change: To be a great partner and has been a great partner, so I feel pretty good about the pipeline in terms of insurance more broadly I would say the space remains increasingly important to us with a lot of momentum there is a real cross section here in a flywheel effect between.
Speaker Change: Capital needed.
Speaker Change: And our ability to generate enhanced performance in private credit.
Speaker Change: Banks looking at more optimized and better optimize their capital structures and so.
Speaker Change: We're in the thick of a lot of flows here I think this is a pretty persistent.
Unknown Executive: It feels like this is going to go on for a while. You know, I never like to break out my crystal balls, you know, on these calls, but it feels like there's a lot of momentum here. And this is a multi-year project. Thanks. Thank you. One moment for our next question. Our next question comes from the line of Bill Katz with TD Kalman. Your line is now open. Thank you very much for taking the questions. Good morning. Maybe we should step back. You mentioned that there's some good demand for real estate. I was wondering if you could unpack that a little bit.
Speaker Change: It feels like this isn't going.
Speaker Change: Go on for a while.
Speaker Change: I never like to break out my Crystal ball as you know on these calls but.
Speaker Change: It feels like there's a lot of momentum here and this is a multiyear trend.
Speaker Change: Okay. Thanks.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Bill Katz with TD Kalmar. Your line is now open.
William Raymond Katz: Thank you very much for taking the questions good morning.
William Raymond Katz: Step back you mentioned that there's some good demand in real estate I was wondering if you could unpack that a little bit and then maybe the broader question associated just the asset class or segment in total is how you're thinking about the opportunity to infrastructure and how is carlyle position to maybe participate in what seems to be a pretty big opportunity. Thank you.
Operator: And then maybe the broader question associated with just the asset class or the segment in total is how are you thinking about the opportunity infrastructure and how is Carlyle positioned to maybe participate in what seems to be a pretty big opportunity? Thank you. So in real estate, as we've discussed before, you know, really is a world-class franchise. They're in the market now.
William Raymond Katz: So in real estate as we've discussed before really is a world class franchise.
Unknown Executive: The performance has been exceptional. They'll be in their 10th fundraise. And, you know, I think in a space that is not growing a lot of capital, they really are an extraordinary team with a lot of momentum. And we see the opportunity quite optimistically across the rest of the real assets platform, whether it's in renewables, infrastructure, or energy. I think the natural demands of what's really happening around the globe, whether you look at your politics.
William Raymond Katz: We are in the market now the performance has been exceptional.
William Raymond Katz: There'll be in their 10th fund raise.
William Raymond Katz: <unk>.
William Raymond Katz: I think in a space, which is not growing.
William Raymond Katz: A lot of capital.
William Raymond Katz: They really are.
William Raymond Katz: Denary team.
William Raymond Katz: With a lot of momentum and we see the opportunity.
William Raymond Katz: Quite optimistically across the rest of the real asset platform.
William Raymond Katz: Whether it's in renewables infrastructure energy.
William Raymond Katz: I think the natural demands of what's happening really around the globe, whether you look at Q politics energy transition demand for energy energy security and all these things bode well.
Unknown Executive: Energy Transition, Demand for Energy, Energy Security, all these things bode well, and I think there are platforms that will continue to grow, and so you should look to see us continue to invest and continue to build on the platforms we have. But we feel pretty good there, too. Thanks, Bill. Thank you. Thank you all.
William Raymond Katz: Our platforms, which will continue to grow and so you should look to see us continue to invest and continue to build on the platforms, we have but we feel pretty good there too.
Speaker Change: Thanks Bill.
Speaker Change: Thank you thanks Bill.
Operator: One moment for our next question. Our next question comes from Michael Cyprys with Morgan Stanley. Your line is now open.
Speaker Change: One moment for our next question.
Unknown Executive: Great, thank you. Just want to circle back to the realization commentary. I was hoping maybe that'll help quantify the pipeline of exits that you were alluding to.
Speaker Change: Next question comes from Michael Cyprus with Morgan Stanley. Your line is now open.
Unknown Executive: And when we look at the overall portfolio, it seems about nearly 50% is aged 40 years, which could suggest maybe we could see a meaningful pickup and exit activity in the market, depending. But just curious, what portion of the portfolio do you view as in the exit phase and just waiting for that right backdrop? I don't know if I can quantify in terms of percentage of portfolio in that stat you alluded to that's four years or older, but that's really not specific to Carlyle.
Michael J. Cyprys: Great. Thank you I just wanted to circle back to the realization commentary I was hoping maybe that'll help quantify the pipeline of exits that you are alluding to and when we look at the overall portfolio. It seems about nearly 50% as aged 40 years, which could suggest maybe if we could see a meaningful pickup in exit activity market dependent.
Michael J. Cyprys: But just curious what portion of the portfolio do you view as any exit fees and just waiting for that great backdrop.
Speaker Change: I mean, I don't I don't know if I quantified in terms of percentage of portfolio and that stat, you alluded to that's four years or older.
Speaker Change: That's really not specific to Carlyle, that's an industry wide.
Speaker Change: So.
John Christopher Redett: That's an industry-wide stat. Look, we have a lot of great companies that we're ready to monetize. We just need the markets to continue to improve. We need the IPO markets to really open up. That will be helpful.
Speaker Change: Look we have a lot of great companies.
Speaker Change: That already.
Speaker Change: Were ready to monetize we just need markets to continue to improve.
Speaker Change: The IPO market is to really open up that will be helpful, but as I said if.
John Christopher Redett: But as I said, if the markets continue to move on the current trajectory, I do expect realization activity to pick up. It's one of the hardest aspects of this business to project. If you could tell me where the markets are in six months, I could probably give you a very specific answer. I just don't know.
Speaker Change: If the markets continue to move on the current trajectory I do expect realization activity to pick up it's it's one of the hardest aspects of this business to project.
Speaker Change: Could tell me where markets are in six months I could probably give you a very specific answer I, just don't know, but the way it looks today, we're pretty optimistic that realizations will accelerate.
John Christopher Redett: But the way it looks today, we're pretty optimistic that realizations will accelerate. So just to clarify, on page 17, there was a chart next to the 159 billion of AUM and private equity with a note saying 48% age four plus years, that's not for Carlyle, that's for the industry. Yeah, that is our stat. But I think the industry stats are somewhat similar. I don't I don't think we're an outlier at all.
Speaker Change: Sorry, just to clarify on page 17.
Speaker Change: There is a chart next to the $159 billion of AUM in private equity with.
Speaker Change: Note, saying, 48% age four plus years that is not for Karl that's for the industry.
Speaker Change: That is our staff, but I think the industry stats are somewhat similar I don't I don't think we are an outlier at all.
Speaker Change: Okay. Thank you.
John Christopher Redett: Okay, thank you. Thank you. One moment for our next question. Our next question comes from the line of Craig Siegenthaler with Banks of America. Your line is now open. Good morning, hope everyone's doing well.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Our next question question comes from the line of Craig Siegenthaler with Bank of America. Your line is now open.
Craig William Siegenthaler: Good morning, hope everyone's doing well.
Operator: Hey Craig, good morning. So we have a follow-up on the CLO question, just giving you a commentary that defaults are rising in Europe. So, quick math, I think European CLO AUM is around 11 billion, and about half of those are subordinated, and they can be deferred if certain tests are not met.
Craig William Siegenthaler: Good morning.
Craig William Siegenthaler: So we have a follow up on the CLO question, just given your commentary that defaults are rising in Europe. So so quick math I think European CLO AUM is around $11 billion and about half of those are subordinated fees and they can be deferred if certain test or not Matt so about $30 million run rate.
Unknown Executive: So about 30 million run rate, near 100% incremental F3 margins. I'm curious, is that math correct? And then also, are those tests still being met or will they be met given the rise in default commentary? Yeah, Craig. Hey, it's John.
Craig William Siegenthaler: You're 100% incremental operating margins.
Craig William Siegenthaler: Curious is that math correct and then also are those tests still being Matt.
Craig William Siegenthaler: Or will be Matt given the rise in default commentary in the earnings release. Thank you.
John Christopher Redett: You know, look, we're not we're not concerned with the credit quality stats in the European CLO business; they are elevated relative to the US, although I would tell you the US are extremely low, and the credit stats in the European CLO business are still below industry standards. I think it's important to recognize we've been in this business for 25 plus years. We have a great long-term track record, and we have a very deep and talented team leading this investment effort. And over that 25-year period, we have collected 100% of the management fees in the subordinated management fees.
Craig William Siegenthaler: Yes, Craig Hey, its John.
John: Look we're not we're not concerned with the credit quality stats in the European CLO business. They are elevated relative to the U S. Although I would tell you. The U S are extremely low and the credit stats in the European CLO business are still below industry. I think it's I think it's important to recognize.
John: Been in this business for 25 plus years, we have a great long term track record, we have a very deep and talented team leading this investment effort.
John: And over that 25 year period, we have collected 100% of the management fees and the subordinated management fees.
Speaker Change: Thank you John Thanks, Craig Thanks, Craig Thank you.
John Christopher Redett: Thank you, John. Thanks, Craig. Thanks, Craig. Our next question will come from the line of Brennan Hawken with UBS. The line is now open. Good morning. Thanks for taking my follow up. I totally appreciate that stock-based comp is expected to drop in 2025, but when we think about 2024, is this $111 million quarterly run rate the right way to think about this year, or could there be movement off of this? I don't, I don't think it's far off. It might creep up a little bit.
Speaker Change: Our next question will come from the line of Brennan Hawken with UBS. Your line is now open.
Brennan Hawken: Good morning, Thanks for taking my follow up.
Brennan Hawken: Totally appreciate that stock based comp is expected to drop in 2025, but when we think about 2024 is this $111 million quarterly run rate the right way to think about this year or could there be movement off of this level.
Operator: Again, it's, it's, and we can take this offline, the accounting around the performance stock units is, is a bit different relative to traditional equity awards. But I don't think it will move up in a material way. But I'm happy to take it offline with you and give you details around the accounting. The important thing again is the alignment that John talked about. You have to have a very meaningful uptick in the... Chair Price.
Speaker Change: I don't I don't I don't think it's far off it might creep up a little bit again.
Speaker Change: And we can take this offline the accounting around the performance stock units is is a bit different relative to traditional equity awards.
John: But I don't think it will move.
John: Move up in a material way.
Speaker Change: Okay, I'm happy to take it offline with you and give you details around the accounting.
John: Yes.
John: The alignment that John talked about.
John: A very meaningful uptick in the <unk>.
John: Share price.
Unknown Executive: And so, as we've discussed, this really aligns the senior leadership of the firm with the shareholder. Sure, totally appreciate that. Just trying to think about... No, we got it. It's a little bit.
John: And so as we've discussed this really aligns the senior leadership of the firm with the shareholders.
Speaker Change: Sure totally appreciate that just trying to think about.
Unknown Executive: The accounting is... The accounting is the accounting, but we'll take it offline. At this time, this concludes our Q&A portion. I'd like to hand the conference back over to Mr. Daniel Harris for closing remarks.
Speaker Change: Got it.
Speaker Change: Little bit the accounting is the accounting is the accounting, but we'll take it offline for sure. Thank.
Speaker Change: Thank you.
Speaker Change: At this time. This concludes our Q&A portion I'd like to hand, the conference back over to Mr. Daniel Harris for closing remarks.
Daniel F. Harris: Thanks, operator, and thank you everyone for your time and attention today. If you have any questions or comments, please contact investor relations after this call, and we look forward to talking with you again next quarter. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Daniel F. Harris: Thanks, operator, and thank you everyone for your time and attention today do you have any questions or follow ups. Please contact investor relations. After this call and we look forward to talking with you again next quarter.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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Operator: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good day, and thank you for standing by. Welcome to the Carlyle Group's first quarter 2024 earnings conference call.
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Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is. To withdraw your question, please press star 11 again.
Speaker Change: Good day, and thank you for standing by and welcome to the Carlyle groups first quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising.
Speaker Change: This race to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Daniel Harris head of Investor Relations. Please go ahead Sir.
Daniel F. Harris: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Daniel Harris, Head of Investor Relations. Please go ahead.
Daniel F. Harris: Thank you, Norma. Good morning, and welcome to Carlyle's first quarter 2024 earnings call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz, and our Chief Financial Officer and Head of Corporate Strategy, John Redett. Earlier this morning, we issued a press release and a detailed earnings presentation, which is also available on our investor relations website. These calls are 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.
Daniel F. Harris: Thank you Norma good morning, and welcome to Carlyle's first quarter 2024 earnings call with me on the call. This morning is our Chief Executive Officer, Harvey Schwartz, and our Chief Financial Officer, and head of corporate strategy genre that.
Daniel F. Harris: 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 the.
Speaker Change: Accordance with generally accepted accounting principles. We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available.
Daniel F. Harris: We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. However, any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factor section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time.
Speaker Change: Any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated.
Speaker Change: Carlyle assumes no obligation to update any forward looking statements at any time.
Daniel F. Harris: 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-up. 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.
Speaker Change: 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.
Speaker Change: That let me turn the call over to our Chief Executive Officer Harvey Schwartz. Thanks.
Harvey Mitchell Schwartz: First, our financial performance and an update on our 2024 targets. Second, Carlyle's ability to capitalize on the improving macroeconomic environment, and third, progress on key strategic areas.
Harvey Mitchell Schwartz: Thanks, Dan and good morning, everyone and thank you for joining us I want to touch on three areas today first our financial performance and an update on our 2024 targets.
Speaker Change: Carlyle's ability to capitalize on improving macroeconomic environment and third progress on key strategic areas.
Speaker Change: First our performance.
Harvey Mitchell Schwartz: Our first quarter results reflect continued momentum across the firm, and importantly, we are on track to achieve our 2024 financial targets, including targeting FRE of $1.1 billion, targeting FRE margins to increase to a range of 40 to 50 percent, and targeting inflows of $40 billion in 2024. We once again set several financial records this quarter, including a record quarterly FRE of $266 million, a mere 40% increase over the first quarter last year, and a record FRE margin of 47%, more than 33% higher than last year.
Speaker Change: Our first quarter results reflect continued momentum across the firm and importantly, we are on track to achieve our 2024 financial targets, including targeting FRE of $1 $1 billion target.
Speaker Change: Targeting FRE margins to increase to a range of $40 to 50% and targeting inflows of $40 billion in 2024.
Speaker Change: We once again set several financial records this quarter, including record quarterly FRE of $266 million.
Speaker Change: Near 40% increase over first quarter last year and record FRE margin of 47% more than 33% higher than last year.
Harvey Mitchell Schwartz: These results are the outcome of our efforts to prioritize operational excellence and optimize our business model, while at the same time enabling us to invest for growth. We anticipate a pickup in fundraising, deployment, and realization throughout the year, and we remain confident in our ability to achieve our financial targets for 2024. With respect to fundraising, we raised $5.3 billion in new capital in the quarter, in line with our expectations, after a near-record quarter closing out 2023.
Speaker Change: These results are the outcome of our efforts to prioritize operational excellence and optimize our business model, while at the same time, enabling us to invest for growth.
Speaker Change: We anticipate a pickup in fundraising deployment and realization throughout the year and we remain confident in our ability to achieve our financial targets for 2024.
Speaker Change: With respect to fund raising we raised $5 $3 billion of new capital in the quarter in line with our expectations after a near record quarter closing out 2023.
Harvey Mitchell Schwartz: Looking forward, we expect to see a pickup in fundraising over the next few quarters, again keeping us in line with our target. While the macroeconomic environment remains somewhat fragile, we continue to see signs that the investment environment is steadily improving. Capital from the banking system and private credit is more readily available. Private credit and syndicated loan spreads are at historically low levels.
Speaker Change: Looking forward, we expect to see a pickup in fund raising over the next few quarters again, keeping us in line with our target.
Speaker Change: While the macroeconomic environment remains somewhat fragile we continue to see signs that the investment environment is steadily improving.
Speaker Change: Capital from the banking system in private credit is more readily available.
Speaker Change: <unk> credit and syndicated loan spreads are at historically tight levels.
Harvey Mitchell Schwartz: Equity volatility is under long-term averages, and interest rates and inflation have generally stabilized. These are clear improvements from this time last year, which is driving increased investor confidence, and if sentiment continues to improve, we expect a higher level of deal activity. Our deal teams are already starting to see the knock-on effects of improved market sentiment. We had $5.9 billion of realized proceeds this quarter. We have to go back to the fourth quarter of 2022 to see a higher number.
Speaker Change: Equity volatility is under long term averages and interest rates and inflation have generally stabilized.
Speaker Change: These are clear improvement from this time last year, which is driving increased investor confidence and sentiment continues to improve we expect a higher level of deal activity.
Speaker Change: Our deal teams are already starting to see the knock on effects of improved market sentiment.
Speaker Change: Sentiment, we had $5 $9 billion of realized proceeds this quarter.
Speaker Change: Go back to the fourth quarter of 2022 to see a higher number.
Harvey Mitchell Schwartz: We've already announced additional exits and various strategies that will close in the coming quarters. We have $2.2 billion in net accrued carry across our portfolio, and our global pipeline continues to increase. Carlyle is well positioned to capitalize on these improving marketing conditions over the coming months.
Speaker Change: We've already announced additional exits in various strategies that will close in the coming quarters.
Speaker Change: We have $2 2 billion and net accrued carry across our portfolio and our global pipeline continues to increase.
Speaker Change: Carlyle is well positioned to capitalize on these improving market conditions over the coming months.
Harvey Mitchell Schwartz: We have high-quality assets in our portfolio ready to be monetized, and $76 billion in dry powder ready to be deployed across our global franchise. Switching gears, I want to provide an update on our strategic areas of focus. In global wealth, we have strong momentum. Since inception, we've raised nearly $50 billion in wealth assets. Our global scale and brand give us a competitive advantage in this rapidly growing distribution channel. I have witnessed the importance of our brand and the quality of our funds firsthand in my personal interactions with wealth advisors.
Speaker Change: We have high quality assets in our portfolio ready to be monetized and $76 billion in dry powder ready to be deployed across our global franchise.
Speaker Change: Switching gears I want to provide an update on our strategic areas of focus.
Speaker Change: Global wealth, we have strong momentum since inception, we raised nearly $50 billion of wealth assets.
Speaker Change: Our global scale and brand give us a competitive advantage in this rapidly growing distribution channel.
Speaker Change: I have witnessed the importance of our brand and quality of our funds firsthand and my personal interactions with wealth advisors.
Harvey Mitchell Schwartz: We want to ensure we're providing the most efficient access to alternative markets alongside the best funds for our end clients. Our credit fund, SeaTac, had another strong quarter, and our secondaries-focused investment solutions product, CapM, saw a ramp up in sales.
Speaker Change: To ensure we are providing the most efficient access to alternative markets alongside the best funds for our end clients.
Speaker Change: Our credit funds <unk> had another strong quarter in our secondaries focused investment solutions product cap and SAR ramp up in sales.
Harvey Mitchell Schwartz: These funds have historically provided strong performance for our investors. We continue to expand our footprint, adding new wealth distribution partners in the near term. More broadly, in global credit, we're focused on driving growth and capturing share. We see opportunity to continue to scale our asset-backed finance offering, a trend that may persist for years as market participants increasingly look to partner with firms like Carlyle to address their capital solutions.
Speaker Change: These funds have historically provided strong performance for our investors.
Speaker Change: We continue to expand our footprint, adding new wealth distribution partners in the near term.
Speaker Change: More broadly global credit, we're focused on driving growth and capturing share with.
Speaker Change: We see opportunity to continue to scale, our asset base asset backed finance offering a trend that may persist for years as market participants are increasingly look to partner with firms like Carlyle to address their capital solutions.
Speaker Change: We have mobilized in scale.
Speaker Change: Credit stress strategic solutions team to address this opportunity the.
Harvey Mitchell Schwartz: The strategy has grown to more than $7 billion in assets, with good opportunity for continued growth. And finally, in Global Investment Solutions, we continue to see strong momentum. This is helping us both in the institutional channel as well as in the secondary channel with our secondary focus CAP M5. And obviously, this business is somewhat counter-cyclical to the rest of the franchise.
Speaker Change: This strategy has grown to more than 7 billion in assets with good opportunity for continued growth.
Speaker Change: And finally in global investment solutions, we continue to see strong momentum.
Speaker Change: This is helping us both in the institutional channel as well as in the wealth channel with our secondary focus cap and fund it.
Speaker Change: Obviously this business is somewhat counter cyclical to the rest of the franchise.
Harvey Mitchell Schwartz: To wrap things up, we entered 2024 with solid momentum to continue to execute against our financial targets and strategic areas of focus. All of this positions us to deliver significant growth and shareholder value. With that, I now turn the call over to John. Thanks, Harvey. Good morning, everyone.
Speaker Change: To wrap things up we entered 2024 with solid momentum, we continue to execute against our financial targets and strategic areas of focus all of this positions us to deliver significant growth and shareholder value.
Speaker Change: With that let me now turn the call over to John.
John: Thanks, Harvey good morning, everyone.
John Christopher Redett: As Harvey said, our first quarter results were in line with our expectations, and we remain on track to achieve the 2024 financial targets we outlined on last quarter's call. For the first quarter, we generated a record FRE of $266 million, nearly 40% higher than the first quarter last year.
John: As Harvey said, our first quarter results were in line with our expectations and we remain on track to achieve the 2024 financial targets, we outlined on last quarter's call for.
John: For the first quarter, we generated record FRE of $266 million.
John: Nearly 40% higher than the first quarter last year.
John Christopher Redett: FRE margin of 47% was also a record, and up from 35% in Q1 2023. We produced $431 million in DE, or $1.01 in DE per share, our best quarterly DE result since 2022. We finished the first quarter with $425 billion of assets under management, up 12% year over year.
John: FRE margin of 47% was also a record.
John: And up from 35% in Q1 2023.
John: We produced $431 million in day.
John: Or a $1 one <unk> per share.
John: Our best quarterly result, since 2022.
John: We finished the first quarter with $425 billion of assets under management.
John: Up 12% year over year.
John Christopher Redett: In the first quarter, we completed the sales of McDonald's, China and Neptune Energy, both of which produce attractive returns for LPs and strong performance revenues for our shareholders, over the past year. We have returned $22 billion in capital to our LPs, highlighting the ability of our investment teams to find liquidity opportunities in difficult and challenging capital markets. We raised $5.3 billion of capital in the quarter, and remain confident in achieving our target of 40 billion of inflows for the year.
John: In the first quarter, we completed the sales of Mcdonald's, China and Neptune energy.
John: Of which produce attractive returns for Lps and strong performance revenues for our shareholders.
John: Over the past year.
John: We have returned $22 billion in capital to our Lps.
John: Highlighting the ability of our investment teams to find liquidity opportunities.
John: A difficult and challenging capital markets.
John: We raised $5 $3 billion of capital in the quarter.
John: And remain confident in achieving our target of $40 billion of inflows for the year.
John Christopher Redett: In solutions, we raised $2.3 billion in the quarter, in nearly $14 billion over the last 12 months, as we continue to have success attracting investors to our secondaries and co-investment strategies. And we are starting to see momentum building in our global wealth product, CAPM, and Global Credit, where our CLO platform is one of the largest in the industry, we had an active quarter in a very active market. We've priced seven CLOs, including three new issue CLOs.
John: And solutions.
John: We raised $2 3 billion in the quarter.
John: In nearly $14 billion over the last 12 months.
John: As we continue to have success, attracting investors to our secondaries and co investment strategies.
John: And we're starting to see momentum building in our global wealth product kept them.
John: In global credit.
John: Our our CLO platform as one of the largest in the industry.
John: Had an active quarter and a very active market.
John: We probably seven CLO.
John: Including three new issue CLO.
John Christopher Redett: We also saw strong inflow activity into our global wealth product, CTAP, and continue to see capital raises for asset-backed finance strategies and in global private equity. The fundraising environment remains somewhat challenging, but we do see some pockets of strength, like real estate in Japan. Management fees totaled $516 million in the first quarter, up about 2% compared to the prior year.
John: We also saw strong inflow activity into our global wealth product Seatac and.
John: And continue to see capital raise for our asset backed finance strategy.
John: And in global private equity.
John: The fund raising environment remains somewhat challenging, but we do see some pockets of strength.
John: Like real estate in Japan.
John: Management fees totaled $516 million in the first quarter up about 2% compared to the prior year, we have $15 billion of pending fee, earning AUM that has yet to activate fees.
John Christopher Redett: We have $15 billion of pending fee-earning AUM that has yet to activate fees. Capital markets activity remains constrained, but it is showing signs of improvement. Transaction and advisory revenues of $27 million increased more than 60% from the first quarter last year. G&A expenses of $80 million were lower compared to the first quarter last year as we benefited from expense discipline and had some one-time items that lowered the quarterly G&A level. We expect G&A expense to shift back towards the recent run rate in the second quarter. Our net accrued carry balance of $2.2 billion declined relative to last quarter due to fund realizations and a relatively lower level of appreciation in our carry fund.
John: Capital markets activity remains constrained, but it is showing signs of improvement.
John: Transaction and advisory revenues of $27 million increased more than 60% from the first quarter last year.
John: G&A expenses of $80 million were lower compared to the first quarter of last year as we benefited from expense discipline and had some onetime not onetime items that lowered the quarterly G&A level.
John: We expect G&A expense to shift back towards the recent run rate in the second quarter.
John: Our net accrued carry balance of $2 2 billion declined relative to last quarter due to fund realizations and a relatively lower level of appreciation in our carry funds.
John Christopher Redett: And at $6 per share, it remains a substantial source of future earnings. We repurchased $150 million of stock. Decrease in our adjusted shares outstanding by 1%. Our remaining share repurchase authorization is approximately $1.25 billion, and we remain active buyers of our stock. Wrapping up. We're optimistic about market conditions improving, and we're on track to meet our financial targets for 2024. With that, let me turn the call over to the operator for your question. Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again.
John: And at $6 per share it remains a substantial source of future earnings.
John: We repurchased $150 million of stock.
John: Decrease in our adjusted shares outstanding by 1%.
John: Our remaining share repurchase authorization is approximately $1 25 billion.
John: And we remain active buyers of our stock.
Speaker Change: Wrapping up.
John: We are optimistic about market conditions, improving and we are on track to meet our financial targets for 2024.
Speaker Change: With that let me turn the call over to the operator for your questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question Youll need to press star one on your telephone to withdraw.
Speaker Change: Your question. Please press Star one again, please wait for your name to be announced we ask that you. Please limit your questions to one until Oliver to chance to ask you a question after which you may re enter the queue. Please standby, while we compile the Q&A roster one moment for your first question. Please.
Operator: Please wait for your name to be announced. We ask that you please limit your questions to one until all have had a chance to ask your question, after which you may reenter the queue. Please stand by while we compile the Q&A roster. One moment for our first question, please. Our first question will come from the line of Brian Bedell with Deutsche Bank. The line is now open. Oh, great. Thanks. Good morning. Thanks for taking my question. Hey, good morning.
Unknown Executive: Maybe you could just talk about how you're viewing the FRE trajectory for the balance of 2024 and maybe just the components of that. Given the lower expenses, maybe if you can classify the help from the lower G&A expense in one queue and where you see the expenses moving as we move through the year, and then contrast that with fee-related revenue. So, really, just sort of the underlying components of how you see the FRE improving. Thanks, Brian. So, look, we're very pleased with the FRE for the quarter, 266. It was a record.
Speaker Change: Our first question will come from the line of Brian Bedell with Deutsche Bank. Your line is now open.
Brian Bertram Bedell: Great. Thanks, Good morning, Thanks for taking my question.
Brian Bertram Bedell: Just.
Brian Bertram Bedell: Hey, good morning.
Brian Bertram Bedell: Maybe you could just talk about how you're viewing the FRE trajectory.
Brian Bertram Bedell: For the balance of 2024, and maybe just the components on that given the lower expenses. It maybe you can if you can classify.
Brian Bertram Bedell: As a help from the lower G&A expense.
Brian Bertram Bedell: <unk> and where you see the expenses moving as we move through the year and then contrasting that with fee related revenue.
Speaker Change: Really just sort of the underlying components of how you see.
Speaker Change: The FRE improving during the year.
John Christopher Redett: It was up 40% over the same period last year. The margin was very strong as well, that compared to 37% last year. In terms of the margin at 47%, and I alluded to this in my comments on the G&A, we did benefit from a lower G&A. Some of that was expense discipline on our end. Some of it was a little seasonality.
Speaker Change: Thanks, Brian So look we're very pleased with the FRE for the quarter $2 66. It was a record it was up 40% over same period last year.
Brian: Margin was very strong as well that compared to 37% last year in terms of the margin at 47% and I alluded to this in my comments on the G&A, we did benefit from a lower G&A.
Speaker Change: Some of that was.
Speaker Change: Disciplined on our and some of it was a little seasonality historically, if you look at our first quarter G&A is typically at a little lighter in Q1, and we did have a couple of one off items, So I expected G&A.
John Christopher Redett: Historically, if you look at our first quarter, G&A is typically a little lighter in Q1, and we did have a couple of one-off items. So, I expected G&A number to increase to more normalized run rate levels in the second quarter. So, I would expect the FRE margin in the next couple quarters to be in the mid-40s versus the 47.
Speaker Change: Number to increase to more normalized run rate levels in the second quarter. So.
John Christopher Redett: And look, the mid-40s is right in the middle of the range we put out in our 2024 financial targets of 40% to 50%, so we feel pretty good at 45%. In terms of management fees, I would say the number came in exactly as expected. There were no surprises, positive or negative, on our end.
Speaker Change: I would expect the FRE margin.
Speaker Change: Next couple of quarters to be in the mid Forty's versus the <unk> 47, and look the mid Forty's is right in the middle of the range, we put out.
Speaker Change: In our 2024 financial targets of 40% to 50%, so we feel pretty good.
Speaker Change: At 45%.
Speaker Change: In terms of in terms of management fees.
Speaker Change: I would say the number came in exactly as expected there were there were no surprises positive or negative on our end.
John Christopher Redett: And I do think throughout the year, given that we had a really strong fourth quarter in terms of fundraising, nearly $17 billion, and we have $15 billion of pending fee-paying AUM, I would expect that number to start to accelerate throughout the year, and I think that growth will accelerate as well. Thank you. One moment for our next question, please. Our next question will come from the line of Kenneth Worthington with JPMorgan Securities. Your line is now open.
Speaker Change: And I do think through the year given that we had a really strong fourth quarter in terms of fund raising nearly $17 billion and we have $15 billion.
Speaker Change: Of fee paying pending fee pay be pain.
Speaker Change: I would expect that number to start to accelerate throughout the year and I think that growth will accelerate as well.
Speaker Change: Okay, great. Thank you Brian.
Speaker Change: Thank you.
Speaker Change: For next question please.
Speaker Change: Our next question will come from the line of Kenneth Worthington with Jpmorgan Securities. Your line is now open.
Operator: Hi, good morning, and thank you for taking the question. Again, fee-paying AUM fell lower in both private equity and credit this quarter, and we know things don't move in a straight line. Maybe first, can you talk about the drivers of the decline in private credit fee-paying AUM this quarter? I think you highlighted some elevated outflows in the release.
Kenneth Brooks Worthington: Hi, good morning, and thank you for taking the question.
Kenneth Brooks Worthington: Okay.
Kenneth Brooks Worthington: So lower <unk>.
Kenneth Brooks Worthington: Both private equity and credit this quarter, and we know things don't move in a straight line.
Kenneth Brooks Worthington: First can you talk about the drivers of the decline in private credit fee paying AUM. This quarter I think you highlighted some elevated outflows and they're released and based on your fund raising fund Activations in realizations.
Unknown Executive: And based on your fundraising fund activations and realizations, how should we think about fee-paying AUM developing from current levels in both private equity and credit as we kind of move through the year? Yeah, Ken, we have very good momentum in terms of fundraising. We have some products in the market that have real demand. You know, our secondaries business, our solutions business, we're seeing real good demand both in secondaries and co-investment. I would expect that to continue. As we have said in the past, we've had good momentum in Japan. We'll be wrapping that one up at some point this year,
Kenneth Brooks Worthington: Should we think about fee paying AUM developing from current levels in both private equity and credit as we kind of migrate through the year.
Speaker Change: Yes, Ken.
Speaker Change: We have very good momentum in terms of fund raising we have some products in the market that have real demand.
Speaker Change: Our secondaries business, our solutions business, we're seeing real good demand both in secondaries and co investment I would expect that to continue as we said in the past we had we've had good momentum in Japan will.
Speaker Change: We will be wrapping that one up.
Speaker Change: At some point this year, our real estate is another area, where we think we'll have really strong demand, we'll start that fund raise this year as well and we do expect that to be a successful fund raise so I would expect to see an acceleration in growth in the fee paying AUM as well in terms of the <unk>.
John Christopher Redett: Real estate is another area where we think we'll have really strong demand. We'll start that fundraise this year as well, and we do expect that to be a successful fundraise. So, I would expect to see an acceleration in growth in the CPA and AUM as well. In terms of the kind of slight decline in CPA and AUM in credit, it was just a north course runoff.
Speaker Change: And a slight decline in fee paying AUM in credit it was just normal course runoff.
John Christopher Redett: And again, the runoff is outside of carry funds. So, it was just a small amount of normal course, business as usual runoff. Great, thank you.
Speaker Change: Ron off and again the runoff is outside of carry funds. So.
Speaker Change: It was just a small amount of normal course business as usual runoff.
Speaker Change #101: Okay, great. Thank you.
Operator: Thank you. One moment for our next question, please. Our next question will come from the line of Ben Budish with Barclays. Your line is now open.
Speaker Change #100: Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: Our next question will come from the line of Ben British with Barclays. Your line is now open.
Unknown Executive: Hi, good morning, and thanks for taking the question. Maybe just following up on the $15 billion of pending fee paying AUM, and John, your comments and you know, the confidence in achieving the $40 billion plus for the year, can you sort of just unpack the major pieces? You know, we know there's a lot of PE funds in the market. You know, how much is left on the, you know, the solutions fundraisers that you're doing? What are the key pieces of the of the credit side? If you give us a little color there, that'd be great.
Benjamin Elliot Budish: Hi, good morning, and thanks for taking the question maybe just following up on the $15 billion of pending fee paying AUM.
Benjamin Elliot Budish: John your comments on the confidence in achieving the $40 billion plus for the year can you sort of just unpack. Some major pieces, we know theres a lot of PE funds in the market.
Benjamin Elliot Budish: How much is left on the the solutions fundraisers that youre doing what are the key pieces of the credit side could you give us a little color there that'd be great. Thank you.
Harvey Mitchell Schwartz: Yeah, maybe I'll jump in. And so, you know, we're not going to walk through fund by fund, which I'm sure you understand. But as John said, and I've been traveling the world for the past six months, you can really feel the momentum in the pockets of strength that John hit on. So in solutions, in the wealth channel across credit, as I mentioned in my comments, we expect to be joining additional wealth platforms, new partners coming on in terms of CAPM and CTAC.
Benjamin Elliot Budish: Yes.
Speaker Change: Maybe I'll jump in and so we're not going to walk through fund by fund, which I'm sure you understand but as John said.
Speaker Change #102: I've been traveling the world the past six months, you can really feel the momentum in the pockets of strength that Jon hit on so in solutions in the wealth channel across credit.
Speaker Change #102: As I mentioned in my comments.
Speaker Change: We expect to be.
Speaker Change: Uh huh.
Speaker Change: Joining additional wealth platforms, new partners coming on in terms of cap and and <unk> and so there's a lot of momentum around well secondaries.
Harvey Mitchell Schwartz: And so there's a lot of momentum around wealth, secondaries, credit, and, as John mentioned, pockets of the private equity segment in real estate and other areas. I would say, generally, in private equity across the industry, in this environment, you should maybe expect some headwinds.
Speaker Change: It.
Speaker Change: And as John mentioned, the private equity segment in real estate and other areas I would say generally in private equity across the industry. In this environment you should maybe expect some headwinds now of course I think.
Harvey Mitchell Schwartz: Now, of course, I think over the next several years, the institutional channel might be a little over allocated, but the wealth channel is clearly under allocated. And so we look forward to also bringing out our private equity wealth product in the first half of next year. And so it feels like across the franchise, momentum is quite good. And that's why we reiterate the targets for this year.
Speaker Change: Over the next several years.
Speaker Change: The institutional channel might be.
Speaker Change: A little over allocated about the what the Welsh analysts totally under allocated and so we look forward to also bringing out our private equity well product in the first half of next year and so it feels like across the franchise momentum is quite good in that.
Speaker Change: It's why we reiterate the targets for this year and also the other thing I'll say it.
Harvey Mitchell Schwartz: And also, the other thing I'll say is we understand the focus on the quarter to quarter. We focus on it for running a business. It's just not really how we think about fundraising.
Speaker Change: We understand the focus on a quarter to quarter, we focus on running a business that's not really how we think about the fund raising as John said this was a perfectly on plan for us.
John Christopher Redett: As John said, this was perfectly on plan. Credit. Thank you very much.
Speaker Change: Got it thank you very much.
Operator: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Alexander Blostein with Goldman Sachs. The line is now open. Hey, good morning, everybody.
Speaker Change #103: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Alexander <unk> with Goldman Sachs. Your line is now open.
Unknown Executive: Thank you for the question as well. I was hoping we could spend a minute on your outlook for share repurchases for the rest of the year. Harvey, I think on the last call you talked about $1.4 billion. Now it's $1.2 billion in authorization being a function of kind of quarters, not years.
Alexander: Hey, good morning, everybody. Thank you for the question as well.
Alexander: Was hoping we could spend a minute on your outlook for share repurchases for the rest of the year Harvey I think on the last call you talked about obviously $1 $4 billion now to one two and authorization being a function of kind of quarters not years can we maybe get a little more specific here on the outlook for the rest of the year and relate.
John Christopher Redett: Can we maybe get a little more specific here on the outlook for the rest of the year? And related to that, how should we be thinking about equity-based compensation on a quarterly basis from here on in, given that it's a topic quite meaningful as well? Thanks. Alex, it's John.
Alexander: To that how should we be thinking about equity based compensation.
Speaker Change: On a quarterly basis from here I guess given that it stepped up quite meaningfully at all thanks.
John Christopher Redett: We repurchased $150 million of stock, as I said in my remarks. Historically, we've averaged roughly $200 per year per annum. So the first quarter was pretty significant relative to what we've done in the past. We still have $1.25 billion left on the share repurchase authorization. And you should just assume we're active purchasers of the stock going forward. In terms of the equity-based comp, this is really, it got elevated due to the performance stock units we granted to key senior members of our investment teams, our team globally. And these are the people that are driving growth. These are the people that are accountable for growth. And the accounting on these instruments are a bit different.
John: Sure Alex it's John.
John: We repurchased $150 million of stock as I said in my remarks, historically, we've averaged roughly 200 per year per annual per annum. So.
John: The first quarter was pretty significant relative to what we've done in the past.
John: We still have $1 5 billion left on the share repurchase authorization and you should just assume we're active purchasers.
John: The stock going forward in terms of the equity based comp.
John: This is really it got elevated due to the performance stock units, we granted two key senior members of our investment teams our team globally and these are the people that are driving growth. These are the people that are accountable for growth.
John Christopher Redett: So you're seeing a little bit of elevation from those performance stock unit grants. Remember, these only exist if we have meaningful stock price appreciation. So I think these are very, very shareholder-friendly instruments. Great, great alignment. I would expect the equity-based comp number to start trending down next year. Thanks, Alex.
John: And the accounting on these instruments are a bit different so youre seeing a little bit of elevation from those performance stock unit grants remember these only invest if we have meaningful stock price appreciation. So I think these are very very shareholder only instrument great great alignment I would.
John: Expect the equity based comp number to start trending down next year.
Speaker Change: Thanks, Alex.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Brian McKenna with Citizens JMP. Your line is now open. Thanks. Good morning, everyone.
Speaker Change #104: Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Brian Mckenna with citizens JMP. Your line is now open.
Brian J. McKenna: Alright, Thanks, and good morning, everyone I appreciate the commentary on the buyback, but it seems it seems like there is some capacity to increase the dividend given the earnings outlook moving forward specifically for realizations remain healthy sell how are you thinking about the dividend moving forward and do you see an opportunity to increase that payout ratio over time.
Unknown Executive: I appreciate the commentary on the buyback, but it seems like there's some capacity to increase the dividend given the earnings outlook moving forward. How are you thinking about the dividend moving forward? So, hey, it's Harvey.
Speaker Change #106: So as John said, let me just take a step back and again go through how we're thinking about capital allocation methodology here.
Harvey Mitchell Schwartz: So, you know, as John said, let me just take a step back and go through how we're thinking about the capital allocation methodology here. And so we're going to remain very flexible because we see very significant opportunities to invest in the business over the next couple of years. But we also see opportunities to return capital to shareholders, and that was really the strategic decision about going with a buyback because it gives us that flexibility. In the immediate term, we expect no changes to the dividend.
Speaker Change #109: And so.
Brian J. McKenna: We're going to remain very flexible because we see very significant opportunities to invest in the business over the next couple of years.
Brian J. McKenna: But we also see opportunities to return capital to shareholders and that was really the strategic decision about going with the buyback because it gives us that flexibility.
Harvey Mitchell Schwartz: Of course, again, we're not tying ourselves up in a mask here, you know, depending on how things move forward. But right now, it really is about positioning ourselves for dynamic flexibility around capital allocation. So we can invest in the business when we see the most accretive opportunities, which we're currently doing, and we can also return value to shareholders. And as John said, you know, you should expect to see it active in the stock. Sure.
Brian J. McKenna: Medium term, we expect no change to the dividend of course again.
Brian J. McKenna: We're not tying ourselves can amass here.
Brian J. McKenna: Depending on how things move forward, but right now it really is about positioning ourselves for dynamic flexibility around capital allocation. So we can invest in the business when we see the most accretive opportunities, which we're currently doing and we can also return.
Brian J. McKenna: Value to shareholders and as John said.
Brian J. McKenna: You should expect to see it be active in our stock.
Speaker Change #107: Helpful. Thanks Harvey.
Harvey Mitchell Schwartz: Sure. Thank you one moment for our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Brennan Hawken with UBS. Your line is now open.
Brian J. McKenna: Our next question comes from Brennan Hawken with UBS. Your line is now open.
Unknown Executive: Thanks for taking my questions. Good morning. Hey, how are you Harvey?
Brennan Hawken: Thanks for taking my questions good morning.
Brennan Hawken: Hey, Brian.
Brennan Hawken: Hey, how are you Harvey.
Brennan Hawken: You guys flagged.
Brennan Hawken: The investment performance slide.
Brennan Hawken: There's an uptick in U S and European CLO.
Brennan Hawken: Default rates, so I'm curious about what your exposure is to all piece in the European or the global CLO business.
Brennan Hawken: And how should we be thinking about.
Brennan Hawken: At the risk of deterioration and increased defaults as far as the potential for management fee deferrals in that business. Thank you.
Unknown Executive: You guys flagged on the investment performance slide that there's an uptick in US and European COO default rates. So I'm curious about what your exposure is to Altice in the European or global CLO. And how should we be thinking about the risk of deterioration and increased faults as far as the potential for, Yeah, Brennan, it's John. So look, we really like our CLO business. We're one of the largest in the world at any given time.
Brennan Hawken: Yes, Brendan its John So look we really like our CLO business. We're one of the largest in the world at any given time, we're we're one or two.
John: Look this business has great margins they have a.
John Christopher Redett: We're one or two. Look, this business has great margins. They have, you know, a long-term, highly attractive track record. And when you look at the kind of credit in the platform, it still looks very, very good. Our default rates in our US business are one half of the industry average. The credit stats in Europe are not quite as good as the US.
John: A long term highly attractive track record and when you look at kind of credit in the platform. It still looks very very good our default rates in our U S business are one half the industry average.
John: The credit stats in Europe are not quite as good as the U S.
John: But they are still better than European industry averages. So from a credit quality perspective, we feel very good about the credit quality in our CLO business.
John Christopher Redett: But they are still better than European industry averages. So from a credit quality perspective, we feel very good about the credit quality of our CLO business. It really is a world-class franchise with a world-class team.
John: It really is a world class franchise with a world class team.
Unknown Executive: Thanks for taking my call. Our next question will come from the line of Daniel Fannon with Jeffries. Your line is now open.
Speaker Change #110: Great. Thanks for taking my question.
Brennan Hawken: Thanks, Brian Our next question will come from the line of Daniel Fannon with Jefferies. Your line is now open.
Operator: Thanks. Good morning. You talked about wealth and increasing partnerships and distribution through that channel. Can you can you give us what the number of flows were from the wealth channel this quarter and which products you see are driving those flows and where you see that kind of the outlook for that going forward? I've personally been spending increasing amounts of my time with the, These are our wealth partners. And I can tell you, I'm pretty close to the coalface on this.
Daniel Thomas Fannon: Hi, Thanks, good morning.
Daniel Thomas Fannon: You talked about wealth.
Daniel Thomas Fannon: Increasing partnerships and distribution through that channel can you can you.
Daniel Thomas Fannon: Give us what the number of flows were from the wealth channel this quarter and which products you see are driving those flows and where you see that kind of the outlook for that going forward.
Daniel Thomas Fannon: But personally been spending.
Daniel Thomas Fannon: Leasing amounts of my time with the.
Daniel Thomas Fannon: If our wealth partners.
Speaker Change #113: And I can tell you I'm pretty close to the coal based on this.
Harvey Mitchell Schwartz: We've been really well received by the brand Carlyle, our history in the business, the long track record, the name recognition, and the iconic aspect of the firm really resonates with the wealth advisors. Now, of course, we've been in the wealth channel for a very long time. As I mentioned, we've raised nearly $50 billion in assets. But this new shift in terms of how the market is really responding in the early days of, you know, whatever you want to call it, democratization, etc. But I've personally been spending a lot of time with wealth advisors, truly trying to get very close to understanding how we can be the best value partner to them.
Brennan Hawken: We have been.
Brennan Hawken: Really well received the Rand Carlisle our history in the business long track record the name recognition with the iconic aspect of the firm really resonates with the wealth advisors now of course, we've been in the well count for a very long time as I mentioned with <unk>.
Brennan Hawken: He has nearly $50 billion of assets, but this new shift in terms of how the market is really receiving.
Brennan Hawken: In the early days of.
Brennan Hawken: Whatever you want to call it democratization et cetera, but I personally spending a lot of time with wealth advisors.
Brennan Hawken: Really trying to get very close to understanding how.
Brennan Hawken: How we can be the best value partner to them.
Harvey Mitchell Schwartz: And with SeaTac growing steadily, HapM picking up momentum, our secondaries product, we will be making some announcements in the near term about some new partnership launches. I feel really good about the momentum here. And again, obviously, in the first half of next year, we're targeting the private equity product.
Brennan Hawken: And with sea Tac growing steadily tap and picking up momentum our secondaries product, we will be making some announcements in the near term of some new partnership launches.
Brennan Hawken: I feel really good about the momentum here and.
Brennan Hawken: And again, obviously first half of next year, we're targeting.
Brennan Hawken: Private equity products so.
Brennan Hawken: <unk>.
Brennan Hawken: I feel.
Harvey Mitchell Schwartz: I feel really good about how our business is being received. This is going to be a long journey for the industry, but I feel really optimistic about the long-term growth trajectory. Thank you. One moment for our next question. Our next question will come from the line of Chris Kotowski with Oppenheimer. Your line is now open.
Brennan Hawken: Really good about how our business is being received.
Brennan Hawken: This is all going to be a long journey for the industry, but.
Brennan Hawken: I feel really optimistic about the long term growth trajectory. Thank you.
Speaker Change #114: One moment for our next question.
Brennan Hawken: Our next question will come from the line of Chris Kotowski with Oppenheimer. Your line is now open.
Operator: Yeah, good morning, and thank you for taking the question. And I realize you didn't want to go fund by fund, but, you know, when I look at the fund tables, it looks like your Asia 5 fund steps down in June and then Europe 5 in September. So should we be expecting kind of a new fund launch around those dates, or do you effectively not have a flagship vehicle after those dates in Europe and Asia?
Christoph M. Kotowski: Yes, good morning, and thank you for taking the question.
Christoph M. Kotowski: Great.
Christoph M. Kotowski: As you didn't want to go fund by fund, but we're not.
Speaker Change #116: I look at the fund tables.
Brennan Hawken: It looks like you're.
Brennan Hawken: Our Asia fund steps down in June and then Europe five in September so should we be expecting kind of a.
Brennan Hawken: A new fund launch around those dates or.
Brennan Hawken: Or do you do you effectively not have a flagship vehicle.
Brennan Hawken: After those dates.
Brennan Hawken: In Europe and Asia.
Unknown Executive: A little confusing. We have flagship vehicles in those regions. I think, again, Chris, the way to think about it is the way John addressed it, which is that we expect, and he's giving pretty good color on this, a pickup in management fees across the platform throughout the rest of the year. And everything remains on plan. Okay, I'll be getting into more detail with you offline.
Speaker Change #111: Little confusion, we have flagship vehicles in those regions.
Speaker Change #111: I think again.
Speaker Change #111: Chris the way to think about it is really the way John addressed which is.
Speaker Change #111: We expect.
Speaker Change #111: He is giving you pretty good color on this pick up in management fees across the platform throughout the rest of the year.
Speaker Change #111: And.
Speaker Change #111: Everything remains on plan.
Speaker Change #111: Okay.
Speaker Change #111: More detail with you offline.
Unknown Executive: Okay. And then also, can you give us any color on page 11, I think 11, that there were some reversals of prior performance allocations? Can you just give us some color on what happened there? Was that like related to European-style waterfalls, or what happened?
Speaker Change #111: Okay.
Brennan Hawken: And then also can you give us any color on the head.
Speaker Change #119: I think 11 that there were some reversals of.
Brennan Hawken: Prior performance allocations.
Brennan Hawken: Can you just give us some color on what happened there was that like.
Brennan Hawken: Related to European style waterfalls.
Brennan Hawken: Or what happened.
Unknown Executive: I mean, look, he... The first thing I say is, Chris, we don't we don't manage the business quarter to quarter in terms of performance. I came from the private equity side of the business where I spent 16 years, ran several funds there. I honestly never really focused on quarter to quarter performance.
Brennan Hawken: Okay.
Unknown Executive: I always took a kind of a long-term view. What is the long-term trajectory? So I know you guys focus on the quarter to quarter movement, but we don't really manage the business that way. So CP7 was barely in carry the previous quarter.
Speaker Change #105: The first thing I'd say is correct.
Speaker Change #117: We don't manage the business quarter to quarter in terms of performance I came from the private equity side of the business, where I spent 16 years ran several funds there.
Speaker Change #117: I honestly never really focused on quarter to quarter performance I always took a.
Speaker Change #105: Kind of a long term view what is the long term trajectory so.
Speaker Change #105: I know you guys focus quarter to quarter movement, but.
Speaker Change #105: We don't really manage the business that way.
Speaker Change #105: <unk> seven was barely up and carry the previous quarter.
Unknown Executive: It fell out of carry this quarter, so that's the impact you're seeing. But, you know, look, we've been in this business, the private equity business, for 35 years. We've generated very strong returns for our LPs, 26% over that period, 2.4 times our money. So we're very proud of those returns. The only thing I can tell you is we've always been very, very focused on performance. And not surprisingly, going forward, we will continue to be very focused on performance. Alright, thank you. That's it for me.
Speaker Change #105: It fell out of carry this quarter, so thats the impact youre seeing but look we've been in this business the private equity business for 35 years.
Speaker Change #105: We've generated very strong returns for our Lps, 26% over that period, two four times our money.
Speaker Change #112: So we're very proud of those returns.
Speaker Change #112: The only thing I'd tell you is we've always been very very focused on performance and not surprisingly going forward. We will continue to be very focused on performance.
Speaker Change #108: Alrighty. Thank you that's it for me.
Speaker Change #118: Thank you.
Unknown Executive: Thank you. Our next question will come from the line of Patrick Davitt with Autonomous Research, your line is now open. Hey, good morning. Thanks. I want to circle back on the flow commentary.
Speaker Change #118: Our next question will come from the line of Patrick Davitt with Autonomous Research. Your line is now open.
Michael Patrick Davitt: Hey, good morning. Thanks.
Operator: I understand there's some seasonality, but obviously, just run rating to about 20 billion of flow this year versus 40 billion target. So maybe when you budget for this, could you maybe help us understand what you see as the biggest incremental contributions to closing that gap between 20 and 40 and what you think the cadence through the rest of the year of building to that 40 will be? Thanks. Yeah, again. Patrick, as Harvey said, it's very tough to look at fundraising on a quarter-by-quarter basis. Stuff slips, stuff moves forward.
Michael Patrick Davitt: I Wonder if I go back on the flow commentary.
Michael Patrick Davitt: I understand there is some seasonality, but obviously just run rating to about 20 billion of.
Michael Patrick Davitt: This year versus 40 billion target I.
Michael Patrick Davitt: I mean, when you budget. This could you maybe help us understand what you see as the biggest incremental contributions to closing that gap between 20, and 40 and what you think the cadence through the rest of the year of building to that 40 will be thanks.
Speaker Change #120: Yes again.
Speaker Change #115: Patrick what Harvey said, we it's very tough to look at fundraising on a quarter to quarter to quarter by quarter basis stuff stuff slip stuff move forward.
John Christopher Redett: Again, the fundraising number for the first quarter came in as expected, so that should tell you something in terms of how we think we can get to the $40 billion. We're still confident in the $40 billion. And I think Harvey gave you some color around where that fundraising is coming from.
Speaker Change #115: Again, the fundraising number for the first quarter came in as expected. So that should tell you something in terms of how we think we can get to the $40 billion, we're still confidence and confident in the $40 billion and I think Harvey gave you some color around where that fundraising is coming from we continue to see a lot of interest in our solutions business both second.
John Christopher Redett: We continue to see a lot of interest in our solutions business, both secondaries, and co-investment. In private equity, we'll have some strong demand for a real estate product. We have good demand for Japan.
Speaker Change #115: <unk> co investment.
Speaker Change #115: In private equity, we're going to have some we'll have some demand strong demand for our real estate product, we have good demand for Japan.
Speaker Change #115: In credit our ASP.
Speaker Change #115: Is it back platform has gone from almost nothing to upsize in two years.
John Christopher Redett: In credit, our asset-backed platform has gone from almost nothing to a full sized platform in two years. On the wealth side, we're really starting to see more momentum in CTAC, CAPM, our solutions wealth product. That's just kind of starting, but getting good momentum. So it's really, really across the platform. I wouldn't say one specific segment is an outlier.
Speaker Change #115: On the wealth side, we're really starting to see more momentum in seatac.
Speaker Change #115: <unk>, our solutions wealth product Thats, just kind of starting but getting good momentum. So it's really really across across the platform I wouldn't say one specific segment.
Speaker Change #115: As an outlier.
John Christopher Redett: Yeah, it's pretty diversified, but I wouldn't make – we'd be misguiding you if we in any way suggested you should take the first quarter multiplied by $40 billion. I think that's our point here. You should really hear us when we say we expect a significant momentum and that this was exactly on point. Thanks, Patrick. Thank you. One moment for our next question. Our next question comes from the line of Steven Chubak with Wolf Research.
Speaker Change #115: Diversified, but I wouldn't make.
Speaker Change #115: We deem Ms guiding you.
Speaker Change #115: We in any way suggest that you should take the first quarter multiplied by four.
Speaker Change #108: That's our point here you shape really here is when we say, we expect a significant momentum and that this was exactly on plan for us.
Speaker Change #121: Thanks, Patrick.
Speaker Change #108: Eric.
Speaker Change #122: Thank you one moment for our next question.
Speaker Change #122: Our next question comes from the line of Steven <unk> with Wolfe Research. Your line is now open.
John Christopher Redett: The line is now open. Good morning, Harvey. Good morning, John. Good morning to you. So in the past, you spoke about the significance of the IPO market reopening, certainly starting to see some green shoots, but just concerning the PE transaction environment, I was hoping you could speak to whether that recent pickup supports more durable improvement in realization activity, or is it still too early to call an inflection? Hey, it's John.
Steven: Hi, Good morning, Jorge Good morning, John.
Steven: Morning, Steve.
Steven: So in the past you had spoken about the significance of the IPO market reopening.
Steven: When you're starting to see some green shoots, but just concerning the p/e transaction environment I was hoping you could speak to whether that recent pickup supports more durable improvement in realization activity or is it still too early to call an inflection.
Operator: I think it's helpful just to kind of level set where we are. You know, we're coming out of a very, very complex environment. And having spent most of my career in private equity, it was one of the more complex environments I've seen.
John: It's John.
John: I think it's helpful. Just to kind of level set where we are we're coming out of.
John: A very very complex environment, and having spent most of my career in private equity. It was one of the more complex environments I've seen.
John Christopher Redett: Yet our team has been able to generate 22 billion realizations through that period in some pretty choppy markets. And I said in my comments that we had, you know, a strong quarter in terms of realizations. I noted McDonald's, China, and Neptune Energy.
John: Our team has been able to generate $22 billion of realizations through that period in some pretty choppy markets.
John: As I said in my comments, we had a strong quarter in terms of realizations I noted Mcdonald's China and Neptune.
John Christopher Redett: I, you know, I know these portfolios really well. I spent a lot of time in that business. I feel good about these portfolios. I also like the momentum we have.
John: Energy.
John: I know these portfolio portfolio is really well he spent a lot of time in that business I feel good about these portfolios I also liked the momentum we have so I mean, if the markets continue to improve.
John: I would expect that momentum to accelerate.
John Christopher Redett: So I mean, if the markets continue to improve, I would expect that momentum to accelerate. But it's market dependent, obviously. In terms of your comments on the IPO markets, I think the IPO markets are kind of open. I know a lot of the bankers and headlines say they're open, but I would say they are. Understood. Thanks for taking my call.
John: But it's market dependent obviously.
John: In terms of your comments on the IPO markets.
John: I think the IPO markets are kind of open.
John: Aye.
John: I know a lot of bankers and headline say they are open but I would say they are opening.
Speaker Change #124: Understood. Thanks for taking my question.
John: Keith.
John: One moment for our next question. Our next question comes from the line of Glenn Schorr with Evercore ISI. Your line is now open.
Unknown Executive: Thank you. One moment for our next question. Our next question comes from the line of Glenn Schorr with Evacor ISI, your line is now open. Hello, thanks. Question on the insurance side.
Glenn Paul Schorr: Hello. Thanks.
Glenn Paul Schorr: A question on the insurance side.
Operator: Morning. Question on the insurance side, just in terms of what we should expect from your business. We didn't talk about it much yet today. And the reason I'm asking is some of the insurance companies have been talking about lightening up and pulling back on block trades and trying to raise third-party capital themselves. I'm not sure how many of them have the capacity to raise that and manage that themselves, but I've heard it from more than a couple of places.
Glenn Paul Schorr: Good morning, a question on insurance side.
Glenn Paul Schorr: Just in terms of what we should expect.
Glenn Paul Schorr: From your business, we didn't talk about it much yet today and the reason I'm asking is some of the insurance companies have been talking about.
Glenn Paul Schorr: Lightening up in pulling back on block trades and trying to raise third party capital themselves I'm not sure how many of them have the capacity to raise that and manage that themselves, but it's.
Glenn Paul Schorr: More than a couple of places so curious on your thoughts of the deal environment and what we should expect from your insurance business. Thanks.
Unknown Executive: So, curious about your thoughts on the deal environment and what we should expect from your insurance business. You know, the pipeline feels pretty good here, Glenn, in terms of, you know, you saw us close and execute the Lincoln National Transaction last year. And we talked about the economics and how that flows through FOE over the medium term. But the pipeline feels pretty good.
Glenn Paul Schorr: The pipeline feels pretty good here.
Speaker Change #126: Glenn in terms of you saw us.
Glenn Paul Schorr: Clothing execute for Lincoln National transaction last year, and we talked about the economics.
Glenn Paul Schorr: How that flows through FRE over the medium term.
Glenn Paul Schorr: But the pipeline feels pretty good.
Unknown Executive: I think there are going to be times when it's going to ebb and flow in the marketplace. But I think if you look over the long term in terms of insurers need to dynamically manage their capital, I think Fortitude is really, really well positioned. To be a great partner and has been a great partner.
Glenn Paul Schorr: I think theyre going to be times, when it is going to ebb and flow in the marketplace, but I think if you look over a long long long term in terms of.
Glenn Paul Schorr: Insurers need to dynamically manage their capital.
Glenn Paul Schorr: I think quarter, two is really really well positioned.
Unknown Executive: So I feel pretty good about the pipeline. In terms of insurance more broadly, I would say the space remains increasingly important to us with a lot of momentum. You know, there's a real cross section here and a flywheel effect between capital needed, an ability to generate enhanced performance in private credit, and banks looking at more optimized and better optimized their capital structures. And so, you know, we're in the thick of a lot of flows here, and I think this is pretty persistent. It feels like this is going to go on for a while.
Glenn Paul Schorr: To be a great partner and has been a great partner, so I feel pretty good about the pipeline in terms of.
Glenn Paul Schorr: Insurance more broadly I would say at this stage remains increasingly important to us with a lot of momentum there.
Glenn Paul Schorr: There is a real cross section here in a flywheel effect between.
Glenn Paul Schorr: Capital needed.
Glenn Paul Schorr: <unk> ability to generate.
Glenn Paul Schorr: Enhanced performance in private credit.
Glenn Paul Schorr: Banks looking at more optimized and better optimize their capital structures and so we're in the thick of a lot of flows here I think it was pretty persistent.
Glenn Paul Schorr: It feels like this isn't going to go on for a while.
Unknown Executive: You know, I never like to break out my crystal balls, you know, on these calls, but it feels like there's a lot of momentum here. And this is a multi-year. Thanks. Thanks. One moment for our next question. Our next question comes from the line of Bill Katz with TD Kalman, your line is now open. Thank you very much for taking the questions. Good morning.
Speaker Change #127: I never like to break out my Crystal ball as you know on these calls but.
Glenn Paul Schorr: It feels like there's a lot of momentum here and this is a multiyear trend.
Speaker Change #124: Okay. Thanks.
Speaker Change #128: One moment for our next question.
Speaker Change #128: Our next question comes from the line of Bill Katz with TD Cowen. Your line is now open.
William Raymond Katz: Thank you very much for taking the questions good morning.
Operator: Maybe we should step back. You mentioned that there's some good demand for real estate. I was wondering if you could unpack that a little bit.
William Raymond Katz: Maybe just step back you mentioned that there's some good demand in real estate was wondering if you could unpack that a little bit and then maybe the broader question associated just the asset class or segment in total is how you're thinking about the opportunity to infrastructure and how is carlyle position to maybe participate in what seems to be a pretty big opportunity. Thank you.
Unknown Executive: And then maybe the broader question associated with just the asset class or the segment in total is how you think about the opportunity infrastructure and how is Carlyle positioned to maybe participate in what seems to be a pretty big opportunity? Thank you. So in real estate, as we've discussed before, it really is a world-class franchise. They're in the market now.
William Raymond Katz: So in real estate as we've discussed before really is a world class franchise.
William Raymond Katz: They are in the market now the performance has been exceptional.
Unknown Executive: The performance has been exceptional. They'll be in their 10th fundraise. And, you know, I think in a space which is not drawing a lot of capital, they really are an extraordinary team with a lot of momentum. And we see the opportunity quite optimistically across the rest of the real assets platform, whether it's in renewables, infrastructure, energy. I think the natural demands of what's happening really around the globe, whether you look at politics.
William Raymond Katz: There'll be in their 10th fund raise.
William Raymond Katz: I think in this space, which is.
William Raymond Katz: Not growing.
William Raymond Katz: A lot of capital.
Glenn Paul Schorr: They really are extraordinary team.
Glenn Paul Schorr: With a lot of momentum and we see the opportunity.
Glenn Paul Schorr: Quite optimistically across the rest of the real asset platform.
Glenn Paul Schorr: Whether it's in renewables infrastructure energy.
Glenn Paul Schorr: <unk>.
Glenn Paul Schorr: The natural demands of what's happening really around the globe, whether you look at Q politics energy transition demand for energy energy security and all these things bode well.
Unknown Executive: Energy Transition, Demand for Energy, Energy Security, all these things bode well, and I think there are platforms that will continue to grow. And so you should look to see us continue to invest and continue to build on the platforms we have. But we feel pretty good there, too. Thanks, Bill. Thank you.
Glenn Paul Schorr: Our platforms, which will continue to grow and so you should look to see us continue to invest and continue to build on the platforms, we have but we feel pretty good there too.
Speaker Change #129: Thanks Bill.
William Raymond Katz: Thank you.
Operator: One moment for our next question. Our next question comes from Michael Cyprys with Morgan Stanley. Your line is now open. Great, thank you. I just want to circle back to the realization commentary.
Speaker Change #130: One moment for our next question.
William Raymond Katz: Next question comes from Michael Cyprus with Morgan Stanley. Your line is now open.
Unknown Executive: I was hoping maybe that'll help quantify the pipeline of exits that you were alluding to. And when we look at the overall portfolio, it seems about nearly 50% is aged 40 years, which could suggest maybe we could see a meaningful pickup and exit activity, market dependent. But just curious, what portion of the portfolio do you view as in the exit phase and just waiting for that right backdrop? I don't know if I can quantify it in terms of percentage of portfolio. In that stat you alluded to that's four years or older, that's really not specific to Carlyle.
Michael J. Cyprys: Great. Thank you I just wanted to circle back to the realization commentary I was hoping maybe that'll help quantify the pipeline of exits that you are alluding to and when we look at the overall portfolio. It seems about nearly 50% as aged 40 years, which could suggest maybe if we could see a meaningful pickup in exit activity market dependent.
William Raymond Katz: Just curious what portion of the portfolio do you view as any exit fees and just waiting for that great backdrop.
Speaker Change #125: I mean, I don't I don't know if I can quantify it in terms of percentage of portfolio and that stat, you alluded to that's four years or older.
John Christopher Redett: That's an industry-wide stat. So, look, we have a lot of great companies that are ready. We're ready to monetize.
Speaker Change #125: That's really not specific to Carlyle, that's an industry wide.
Speaker Change #125: Stat so.
Speaker Change #125: Look we have a lot of great companies.
Speaker Change #125: That already.
Speaker Change #125: Were ready to monetize we just need markets to continue to improve.
John Christopher Redett: We just need markets to continue to improve. We need the IPO markets to really open up. That will be helpful.
Speaker Change #125: We need the IPO markets to really open up that will be helpful, but as I said.
John Christopher Redett: But as I said, if the markets continue to move on the current trajectory, I do expect realization activity to pick up. It's one of the hardest aspects of this business to project. If you could tell me where the markets are in six months, I could probably give you a very specific answer. I just don't know.
Speaker Change #125: If the markets continue to move on the current trajectory I do expect realization activity to pick up.
Speaker Change #125: It's one of the hardest aspects of this business to project.
Speaker Change #125: You could tell me where markets are in six months I could probably give you a very specific answer I, just don't know, but the way it looks today, we're pretty optimistic that realizations will accelerate.
John Christopher Redett: But the way it looks today, we're pretty optimistic that realizations will accelerate. So just to clarify, on page 17, there was a chart next to the 159 billion of AUM and private equity with a note saying 48% age four plus years, that's not for Carlyle, that's for the industry. Yeah, that is our staff. But I think the industry staff are somewhat similar. I don't I don't think we're an outlier at all.
Speaker Change #133: Sorry, just to clarify on page 17, there was a chart next to the $159 billion of AUM in private equity with.
Speaker Change #125: A note, saying, 48% age four plus years that is not for Carl Thats for the industry.
Speaker Change #125: Yes.
Speaker Change #131: That is our staff, but I think the industry stats are somewhat similar I don't I don't think were an outlier at all.
Speaker Change #134: Okay. Thank you.
Operator: Okay, thank you. Thank you. One moment for our next question. Our next question comes from the line of Craig Siegenthaler with Banks of America. Your line is now open. Good morning, hope everyone's doing well.
Speaker Change #135: Thank you.
Speaker Change #137: One moment for our next question.
Speaker Change #135: Our next question comes from the line of Craig Siegenthaler with Bank of America. Your line is now open.
Craig William Siegenthaler: Good morning, hope everyone's doing well.
Unknown Executive: Hey Craig, good morning. So we have a follow-up on the CLO question, just giving you a commentary that defaults are rising in Europe. So, quick math, I think European CLO AUM is around 11 billion, and about half of those are subordinated, and they can be deferred if certain tests are not met.
Craig William Siegenthaler: Good morning.
Craig William Siegenthaler: We had a follow up on the CLO question, just given your commentary that defaults are rising in Europe. So so quick math I think European CLO AUM is around $11 billion and about half of those are subordinated fees and they can be deferred if certain test or not Matt so about $30 million run rate.
John Christopher Redett: So about 30 million run rate, near 100% incremental F3 margins. I'm curious, is that math correct? And then also, are those tests still being met or will be met given the rise in default commentary in?
Speaker Change #125: Near 100% incremental operating margins I'm curious is that math correct. And then also are those tests still being that.
Speaker Change #125: Or will it be Matt given the rising default commentary in the earnings release. Thank you.
John Christopher Redett: Yeah, Craig, hey, it's John. You know, look, we're not we're not concerned with with the credit quality stats in the European CLO business, they are elevated relative to the US, although I would tell you the US are extremely low. And the credit stats in the in the European CLO business are still below industry.
Speaker Change #125: Yes, Craig Hey, it's John.
John: Look we're not we're not concerned with the credit quality stats in the European CLO business. They are elevated relative to the U S. Although I would tell you. The U S are extremely low and the credit stats in the European CLO business are still below industry. I think it's I think it's important to recognize we've been in this.
John: Business for 25, plus years, we have a great long term track record, we have a very deep and talented team leading this investment effort and over that 25 year period.
John Christopher Redett: I think it's important to recognize we've been in this business for 25 plus years. We have a great long-term track record, we have a very deep and talented team leading this investment effort. And over that 25-year period, we have collected 100% of the management fees in the subordinated management fees.
John: We have collected 100% of the management fees and the subordinated management fees.
John Christopher Redett: Thank you, John. Thanks, Craig. Thanks, Craig. Our next question will come from the line of Brennan Hawken with UBS. The line is now open. Good morning.
Speaker Change #132: Thank you John Thanks, Greg Thanks, Craig Thank you.
John: Our next question will come from the line of Brennan Hawken with UBS. Your line is now open.
Operator: Thanks for taking my follow up. Totally appreciate that stock-based comp is expected to drop in 2025, but when we think about 2024, is this $111 million quarterly run rate the right way to think about this year or could there be movement off of this? I don't, I don't think it's far off, it might creep up a little bit. Again, it's, it's, and we can take this offline, the accounting around the performance stock units is, is a bit different relative to traditional equity awards. But I don't think it will move up in a material way.
Brennan Hawken: Good morning, Thanks for taking my follow up.
Brennan Hawken: Totally appreciate that stock based comp is expected to drop in 2025, but when we think about 2024 is this $111 million quarterly run rate the right way to think about this year or could there be movement off of this level.
Speaker Change #136: I don't I don't think it far off it might creep up a little bit again.
Speaker Change #136: And we can take this offline the accounting around the performance stock units is is a bit different relative to traditional equity awards.
Brennan Hawken: I don't think it will.
Brennan Hawken: The move up in a material way.
John Christopher Redett: But I'm happy to take it offline with you and give you details around the accounting. The important thing again is the alignment that John talked about; you have to have very meaningful uplift in the chair price. And so, as we've discussed, this really aligns the senior leadership of the firm with the shareholder. Sure, totally appreciate that. Just trying to think about... No, we got it. It's a little bit.
Speaker Change #139: Okay, I'm happy to take it offline with you and give you details around the accounting.
Speaker Change #139: And again the alignment John talked about.
Brennan Hawken: Very meaningful uptake in.
Brennan Hawken: Share price.
Brennan Hawken: And so as we've discussed is really align the senior leadership of the firm with the shareholders.
Speaker Change #141: Sure totally appreciate that just trying to think about.
Unknown Executive: The accounting is the accounting, but we'll take it offline. At this time, this concludes our Q&A portion. I'd like to hand the conference back over to Mr. Daniel Harris for closing remarks. Thanks, operator. And thank you, everyone, for your time and attention today. If you have any questions or follow-ups, please contact Investor Relations after this call. And we look forward to talking with you again next quarter. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change #138: Got it.
Speaker Change #138: The accounting is the accounting is the accounting, but we'll take it offline for sure.
Speaker Change #138: At this time. This concludes our Q&A portion I'd like to hand, the conference back over to Mr. Daniel Harris for closing remarks.
Daniel F. Harris: Thanks, operator, and thank you everyone for your time and attention today do you have any questions or follow ups. Please contact investor relations. After this call and we look forward to talking with you again next quarter.
Speaker Change #140: This concludes today's conference call. Thank you for your participation you may all disconnect everyone have a wonderful day.