Q3 2024 Carlyle Group Inc Earnings Call
As we stand here today, you're beginning to see the early impacts of those steps.
These actions, combined with a pickup in activity across the platform, generated one of the best quarterly performances in the firm's history.
We delivered record quarterly fee-related earnings, up 36% versus the third quarter of 2023, and our best-ever FRE margins at 47%, up more than 10 percentage points since last year. Overall, we are on track to hit our FRE target of $1.1 billion for the year.
Our underlying investment portfolio is performing very well. This drove strong corporate private equity fund appreciation that fueled a nearly 30% increase in our net accrued performance revenues compared to the prior quarter.
This accrual represents nearly $8 per share of future earnings for our shareholders.
As we talked about previously, capital markets was a significantly under-leveraged part of our platform that is gaining substantial momentum. This is the direct result of proactive steps we've taken to increase alignment around transaction fee generation.
Including closed Q4 activity, we've already generated our highest level of annual transaction fees. This, despite a still subdued M&A and IPO environment. Obviously, we expect further growth in capital markets fees.
On fundraising, we raised $9 billion of new capital in the quarter and have raised $43 billion over the past 12 months. We anticipate a very strong fourth quarter of capital raising to close out the year, and we continue to target about $40 billion of inflows for the year.
Markets like certainty and you're seeing that broadly across capital markets particularly in the stock market yesterday.
Over the medium to long term, this should be a further catalyst for IPOs, M&A, and key sectors we invest in. This should be an environment in which we are well positioned to capitalize on monetization opportunities and put capital to work.
Prior to the election we had already seen the U.S. Federal Reserve shift in stance on interest rates and that was a clear sign that we entered a new era of monetary policy and that inflation had stabilized.
The election certainty and the change in monetary policy are a powerful combination supporting economic growth and our business.
We're already seeing a significant uptake in IPO activity this year. There's been a 30% increase in listings and a 50% increase in IPO proceeds in the first nine months of this year.
We've seen this trend benefit our portfolios well with two significant IPOs in just the last month, Standard Arrow in the U.S. and Rigaku in Japan.
Standard Arrow marked the second-largest sponsored-back US IPO of the year, and the best first-day performance for a US IPO, raising over a million dollars. This, since 2021.
Aerospace, defense, and government services is a key power alley for Carlisle. Our roots in DC and more than 30 year history in this space is a core differentiator for us.
This was the largest aerospace IPO ever and demonstrates that the market is starved for high-quality businesses and growth outside of the tech sector.
Fugaku is the second biggest Japanese IPO this year and the largest ever sponsored backed IPO in Japan.
Japan remains a very attractive market for us.
This year's improved market sentiment has driven stronger investment activity and a more active pipeline across our platform, reflecting our ability to act on opportunities in a dynamic environment.
A more liquid realization backdrop and strong underlying portfolio performance have supported higher investment returns.
Our two largest U.S. biofunds were up north of 7% each this quarter, and our two largest Asia biofunds were up 9 and 13% respectively.
This quarter represented the third largest quarterly increase in net accrued performance revenues in our firm's history. Over 600 million of net performance revenues were generated.
Switching to global wealth, another area of strategic focus, we're seeing strong momentum across the platform where we benefited from a record 1.8 billion of wealth inflows.
Our wealth inflows this quarter were nearly three times the amount in the previous quarter, and our global wealth AUM is up 70% year-over-year.
Part of the momentum is our newly launched secondaries wealth solution, CAPM, which is seeing very strong early traction with advisors and their clients.
We're also making progress in our private equity wealth product and are still on track to launch in 2025.
Another area where we see accelerating growth is in access-backed finance. We continue to identify differentiated partnerships with specialty finance companies to further bolster our origination capabilities and give us a data edge in the market.
We've also seen record leverage loan and CLO issuance in 2024. Loan spreads have tightened to post-GFC levels and demand for new paper is outpacing supply.
Full year 2024 U.S. leveraged loan issuance is expected to exceed $1 trillion for only the third time.
At Carlyle, the team has been very busy with our leading CLO business having priced 22 transactions globally, on track to be a record year of resets and transactions priced.
The opportunities in our insurance business remain quite significant.
Fortitude has grown its general account assets by almost 70% in the past year. It has increased its excess capital position to more than a billion dollars allowing us to pursue a robust reinsurance pipeline.
We also continue to grow our relationships with insurance clients broadly and further leverage our private investment grid and asset-backed finance capabilities in this important panel.
To wrap things up, we had a strong third quartile with Carlyle extremely well positioned to capitalize on an improving macroeconomic environment.
Our leadership team remains laser-focused on driving performance and accelerating growth to drive long-term value for you, our shareholders. With that, let me now turn the call over to John.
John: Thanks, Harvey. Good morning, everyone. We are very pleased with the progress we've made over the last year. The business is just performing much better than it was 12 months ago, and we are also benefiting from a material step up in market activity.
The actions we've taken over the past year include improving FRE margins, activating the capital markets flywheel, improving investment performance,
realigning our compensation strategy, appointing new leadership,
John: and we continue to see benefits of the revised capital allocation strategy we implemented this year.
These actions have generated significant operating leverage and momentum across our business, including record AUM of $447 billion, up 17% compared to last year.
record fee-earning AUM of 314 billion which has grown at a 15% CAGR over the last five years.
record quarterly FRE of $278 million at a 47% FRE margin.
and strong performance in our corporate private equity funds which drove a material shift higher in net accrued performance revenues to 2.8 billion dollars.
We produced $367 million in DE for the quarter, or $0.95 in DE per share. And year-to-date, DE per share of $2.74 is 15% higher than last year.
Now let's cover three important areas. Fee-related earnings,
John: appreciation in our corporate private equity business, and capital return to shareholders.
Starting with fee-related earnings, FRE increased to $278 million in the quarter, up more than 35% from the third quarter of 2023.
We're on track to hit our 2024 FRE target of $1.1 billion, which would represent nearly 30% year-over-year growth.
Pending fee-earning AUM stands at $21 billion, our highest level since the third quarter of 2021.
John: In the fourth quarter, we expect to activate fees on our latest Japan buyout fund. And in 2025, we'll activate fees on our new U.S. opportunistic real estate fund.
John: Year-to-date capital market fees were more than 80 percent higher than a year ago. We will see a significant increase in Q4 capital market fees as several large transactions have already closed.
We expect to see further growth over time as our focus on expanding our capabilities in this area should support a higher level of capital markets activity.
John: Let's turn to fund appreciation. As Harvey noted, our corporate private equity fund appreciation was up significantly.
John: Driving this performance in the U.S. was strong EBITDA growth, up 15% year over year, and continued margin expansion across the portfolio.
This positive, underlying growth is driving significant value creation at the fund level, and our portfolio is well-positioned to further benefit from a better exit environment.
Net accrued performance revenues increased more than $600 million to $2.8 billion. As we noted, this represents almost $8 of pre-tax earnings per share.
for Shareholders.
Finally, let me touch on capital allocation.
We continue to balance deployment of capital into our business and returning capital to our shareholders.
John: We repurchased $150 million of shares in the third quarter, bringing total repurchases to almost $480 million year-to-date.
John: Total shares outstanding are down for the second consecutive year and we have over 900 million remaining on our share repurchase authorization.
John: It is our intent to continue repurchasing shares, however, our first priority is investing for growth.
Wrapping up, we continue to focus on delivering strong results for our shareholders. We're on track to achieve the financial targets that we laid out for 2024 and we have increasing conviction in the ability of our investment platform to drive higher earnings for shareholders over time.
John: With that, let me turn the call over to the operator for your questions.
Speaker Change: Certainly, and as a reminder, ladies and gentlemen, if you do have a question at
Speaker Change: Today's program, please press star 1 1 on your telephone We asked once again that you please limit yourself to one question each You may get back in the queue as time allows our first question comes from the line of Alex Blostie from Goldman Sachs Your question, please
Hey, good morning everybody. Hello, Harvey. Hello, John.
Alex Blostie: So maybe maybe just to kick us off with a little bit of a macro question Obviously related to the election and I know you made a couple comments in your opening remarks But curious how you think the Trump administration could impact activity in the old space Both on a macro set of activity side, but also any regulatory items You're paying particular attention to and how that could impact our law. Thanks
Thanks, Alex.
Speaker Change: Well, maybe take a step back for a minute, because obviously...
Alex Blostie: The market had an unexpectedly strong reaction to the outcome. I think that has a lot to do with expectations obviously going in. You know, David was on TV yesterday, David Rubenstein, and he made a comment.
Alex Blostie: Now, taking that quite seriously, you know, coming into this election
John: There were concerning headlines about the fact that we might not have a result for days, if not weeks, possibly months.
That creates a lot of uncertainty in CEOs' minds.
John: and how they think about strategy, how they think about committing capital, making decisions, and I think the election certainty.
John: and having the outcome behind was a, obviously, very significant relief factor for the market. Now, from a policy perspective, whether it's
John: translated in CEOs, minds, boards, or portfolio companies in really competence
around the operating environment.
John: And that will lead to more decision-making, it should lead to more M&A activity. You know, if you're not quite certain whether or not you can get your transaction done from a strategic perspective, obviously that gives you a lot of pause.
John: as a board, and so I think this is what the market is reacting to. Now, in terms of our business,
John: You know, we're already seeing lots of tailwinds in the business. You see it in the numbers today. A big part of that is the strategic actions the management team has taken. A big part of that is the market environment. And when we saw the stability of the
John: Fed policy normalizing. I think Fed policy normalizing and being past the election that's a pretty powerful one-two punch for markets and for our business specifically at Carlyle.
Speaker Change: And Alex, the only thing I would add is, it is a little bit echoing of what Harvey said. I spoke to a couple of our portfolio company CEOs.
Speaker Change: yesterday, and I would just echo that the common theme was they feel like the election certainty, the removal of the election uncertainty, will elevate confidence levels and that obviously is
Speaker Change: That's good for capital markets, and that's good for M&A, and all those things being better, stronger, we think it's good for our business.
Thank you. Bye.
Thank you, and our next question comes from the line.
of Ken Worthington from J.P. Morgan. Your question please.
Speaker Change: Hi, good morning. Thanks for taking the question. I wanted to dig into performance. You called out and are having some nice exits, Senator Rogaku, and it seems like there's more to come. At the same time, the NetIRR
Speaker Change: and CP7 sort of remained at 8% despite the jump in accrued carry. And if you look at CEP5, the IRR fell to four.
Speaker Change: How should we think about the performance metrics developing in buyout if and as you get the exits you expect in this improving environment? And I think we, the investment community, see performance in buyout as a headwind.
Speaker Change: Do you see that changing or have a different view, again, given the environment, and if so, is it big enough to change the fundraising trajectory?
Hey Ken, it's John.
So look, we saw a very strong improvement.
Speaker Change: in performance within our corporate private equity business. And as Harvey alluded to, it was particularly in the US and Asia, the net performance fee accrual was was up nearly 600 million 700 million in total, corporate private equity drove the vast majority of that it's one of the best quarters we've ever had.
Speaker Change: You know, look, the appreciation we're seeing in our U.S. and Asia funds is very healthy.
Speaker Change: What I like about it is a big driver of that's just operational improvements. We're seeing good EBITDA growth, good revenue growth, good margin expansion.
Speaker Change: I think it reflects, you know, we're in a strong economy.
Speaker Change: and better exit markets only add to that improved performance. And look, we've been very, very open on this topic in previous calls. We've been very focused as a leadership team on improving our performance in the private equity business.
Speaker Change: and I think when you look at the results this quarter it's real the numbers are starting to reflect the focus we have on this business.
Speaker Change: We like the trajectory of this business and we know this is a business that over time we can grow.
I think the group
The performance improvement in the U.S. is particularly notable.
Speaker Change: In CP7, you're not going to see the net IRR materially change as we're just getting through the catch-up phase, but you did see 100 basis point pickup in one quarter.
Speaker Change: on the gross IRR. I would say on CP8, our most recent vintage, I would focus on the gross IRR as that fund is not fully deployed, so the net IRR is a lot less relevant.
Okay, great. Thank you.
Thank you.
Thanks guys. Thanks.
Speaker Change: Thank you. And our next question comes from the line of Ben Buddish from
Barclays, your question please.
Speaker Change: Hey, good morning, and thanks for taking the question. I wanted to ask about your outlook for 2025 a little bit in terms of what you expect on the credit side. I think on the private equity side, you're kind of done with a lot of the major fundraisers, and it sounds like you're expecting a big pickup in activity. Same with the solutions. As I recall, you should be mostly done kind of fundraising there by the end of this year. So on the credit side, what's sort of your expectation for fundraising activity? What else are you kind of thinking about in terms of how to build, grow, develop that platform? Thank you.
Speaker Change: So across credit and insurance, the momentum is quite significant, and when I say that, I'm really talking about
Speaker Change: across the strategic part, opportunistic credit, but all the way through the capital stack, as I mentioned in my previous remarks around asset-based finance.
Speaker Change: So the private investment grade market just continues to grow and we're very well positioned with that.
Speaker Change: in part because of our partnership with Fortitude and all the insurance intelligence we have from that, plus their excess capital position. So I feel very optimistic about the credit markets. And, you know, we talked about the CLO activity you know, spreads at this rate.
Speaker Change: It spreads at these levels. It's quite attractive. And so we expect activity to remain quite high.
Speaker Change: Got it. Thank you. Thank you. And our next question comes from the line of Patrick Devitt from Autonomous Research. Your question please.
Good morning, everyone.
Speaker Change: I think they got a lot of positives from the Trump win for the altar fairly obvious and you went through a lot of those But curious if you guys have done any scenario testing of how the business and or in ground Portfolio would fare through some of the more aggressive plans We have like tariffs and or mass deportations where the outcome is a little bit muddier for us. Thank you
are well on.
Speaker Change: Tariffs, obviously as a firm we've worked through tariffs before in the firm's history, and so you can be assured at the portfolio company level and at
You know in the c-suite
Speaker Change: We risk-manage around any number of scenarios, not just around things like that, but this is going to have to be a wait-and-see in terms of how policy gets implemented. Where we benefit from is the diversity of the franchise, both across industry groups.
Speaker Change: and also obviously geographically, but obviously this is something that all industries will focus on as we move forward, but there are no unique issues for Carlyle.
Speaker Change: Thank you. Thanks Patrick. Our next question comes from the line of Brian McKenna from Citizens GMP. Your question please.
Speaker Change: Thanks, good morning all. So, it's great to see the significant step up in net accrued performance fees in the quarter, you know, which clearly has positive implications on future earnings over time, but with the vast majority of this, you know, ultimately moving to cash on the balance sheet once realized,
Speaker Change: How should we think about deploying this excess capital over time, specifically as it relates to organic growth, strategic M&A, as well as buybacks?
Speaker Change: Yeah, Brian, hey, it's John. Thanks for the question. I mean, look, we think in capital allocation, just more broadly, of where we can get the best return, and there are a couple levers I think we have as a firm. One of them is a share buyback, which we've been very active on that front.
Speaker Change: The other one is investing in the businesses for organic growth. We're very focused on organic growth. That is our first priority.
We talk about it all the time.
Speaker Change: We think we can get the best returns for our shareholders investing into our business for organic growth.
Speaker Change: and continuing to do a share buyback. That said, if something came along inorganically that strategically made sense...
financially made sense.
Speaker Change: we would be open to, we wouldn't hesitate. But where we sit today, nothing's eminent. We're very focused on organic growth and continuing to buy back shares.
Speaker Change: Remember, we've done nearly $500 million year-to-date. We have $900 million remaining on the share buyback authorization, and we're just really balancing our objectives of returning capital to shareholder and focusing on organic growth.
Thanks, John.
Thank you. And our next question comes
Hello, thank you.
Good morning, Glenn. We're all welcome.
Speaker Change: Good morning. I think we'd all love to see the pickup in M&A and IPOs and better capital markets activity and there's only, you know, the short-term downside maybe is
Speaker Change: less or no net asset growth if outflows are bigger than fundraising, like you saw a little bit this quarter. So when I look at the 2% growth in management fees,
Speaker Change: year-on-year, I don't feel like it reflects what the real underlying growth is and what's going on in the momentum that you've highlighted. So curious how we should think about is there a path to double-digit management fee growth as you start to deploy all that dry powder that you have.
Thanks.
Speaker Change: Yeah, go ahead. Hey, it's John. Look, we had fee revenue growth of 7% in the quarter. A lot of this was driven by our capital markets capabilities.
Speaker Change: You know, look, this is this has been a focus area for the management team. And we're very pleased with the progress we've made in terms of capital markets. And I think you need to take a step back and.
look at our capital markets in the sense
Speaker Change: It's a balance sheet light business, we really aren't taking balance sheet risk.
Speaker Change: And again, we're only focused on Carlisle-related capital markets activity, so I think it's a little different than others in the industry.
This business, you know, has grown 80 percent.
this year will generate a record result this year.
Speaker Change: very good about our capital markets effort, and again, this has been a very deliberate focus area for the firm. In terms of management fees, we're seeing really strong management fee growth in solutions. It's up nearly
Forty-five percent.
We're seeing good management fee growth in credit.
Speaker Change: that grew nearly 11%. And look, as expected, we're still seeing some headwinds.
Speaker Change: in our private equity business in terms of management fee growth, more on the corporate private equity side.
Speaker Change: We're in the market raising a real estate fund, and we're very optimistic on that outcome. And we've said in the past that that fund will be larger than the previous fund. But in terms of corporate private equity, we've been very focused on the performance in this business.
Speaker Change: We really like the trajectory of this business, and we're confident that we can grow this business over time.
Speaker Change: I would just say, Glenn, I agree with your first statement.
Speaker Change: sitting here being in a seat now for a bit over a year and a half, the momentum in the franchise is really just starting to translate into the top line. Whether it's in wealth, credit, asset-based finance, the insurance strategy.
Speaker Change: credit solutions and in private equity, so the momentum feels quite good.
Thank you.
Speaker Change: Thank you. And our next question comes from the line of Mike Brown from Wells Fargo Securities. Your question please.
Good morning. Thank you for taking my question.
So, it seems like...
Harvey: At this point, Harvey, a year and a half plus into the job, the foundation is kind of in place and established at Carlisle.
Speaker Change: what Carlyle can kind of deliver on an annual basis, and then also the FRE growth potential from here. I guess if we think about that multi-year horizon, can Carlyle get to a point of delivering low double-digit FRE growth annually? Thank you.
So
Speaker Change: You know, a year and a half in, I would say,
The first principles really was just
Speaker Change: making sure we had all the right people in the right seats with the right capital strategy, the right expense methodology, and, of course, the right leadership, and I made a number of appointments.
Speaker Change: as you know, over that time period. Now, in terms of the future strategy, when you think about FRE growth, you really have to look at these areas that are emerging quite powerfully. So capital markets, which...
Speaker Change: You know, John just said this, the quality of those revenues is exceptionally high because we're basically running a balance sheet light, riskless business. And we see runway there. The wealth channel
The Carlisle brand resonating around the world.
Really hard to model that.
Speaker Change: over the next several years. But we're at a point where we've really only launched our second solution. We'll launch our private equity solution last year. I'm sorry, next year. But the momentum when I talk to advisors.
Speaker Change: and you see it in the numbers this quarter. So there's momentum across the firm. In terms of fundraising, we put out this target this year of 40 billion. That was really just to give you some comfort with me being new in the seat. We'll think about how we communicate that over time. I think one of the things we did was, we unfortunately left you with a feeling that that's gonna be like a lockstep mathematical divide by four, 10 billion every quarter. But I can tell you that
Speaker Change: Again, it's early days still at 18 months, but the momentum feels pretty extraordinary.
Thank you. Bye.
Speaker Change: Thank you, and our next question comes from the line of Brian Bedell from
Speaker Change: Deutsche Bank. Your question, please. Great. Good morning, folks. Thanks for taking my question.
Speaker Change: Maybe just, Harvey, if I can go back to the tariff topic, just from a global trade perspective.
deployment outside the U.S., how are you viewing
Speaker Change: that potential landscape. Do you see any frictions in deployment regionally? And are you thinking, you know, I guess, how are you thinking about...
Speaker Change: Deployment firm-wide between Europe and Japan and any impact from the tariffs there.
So again, on the tariffs...
I think it's very difficult.
for any firm, any business.
Speaker Change: global or local to try and anticipate government policy. And I actually think it would be, in my opinion, an advised mistake.
Speaker Change: Well, class management teams do that in terms of our franchise. Remember we are
Speaker Change: global, but in many cases, very local. So if you look at our Asia business,
Speaker Change: We're one of the few that have a leading Japan franchise. Our Asia business spans
Southeast Asia, India.
Speaker Change: China. And so we have these, the benefit of being global with a very regional capability. I think that's an advantage. I think that's an advantage in any environment. But again, I think you can have
Speaker Change: tax policy and all the things that will be really powerful elixirs for the market and for exits and for investing opportunities. But there will always be these elements of uncertainty on the periphery, but we'll see how they resolve over time.
Speaker Change: Thank you. And our next question comes from the line of Brennan Honkin from UBS. Your question, please.
Speaker Change: Good morning, Harvey. Good morning, John. Thanks for taking my question. Hey, Brennan. Hey. So, I'm interested to talk about the fundraising point.
Speaker Change: sort of like upper mid-20s year-to-date, so a little behind the pace of 40. Was the about 40 meant as a softener around that number? And, you know, how should we think about the fourth quarter? You know, what are the drivers that will come through? And also,
Speaker Change: Just to confirm, did you close the Real Estate 10 fund in the third quarter?
Speaker Change: It's John. I'll start that and Harvey, feel free to add.
Speaker Change: I'll echo a little bit what Harvey said on fundraising. We feel very good about the momentum we have.
in fundraising across the franchise.
You alluded to the number, we're $26 billion year-to-date.
Speaker Change: That's the second-best year-to-date period we've ever had in our history, so...
Speaker Change: I think we have a lot of momentum. We have pretty good visibility into the fourth quarter. The fourth quarter looks strong. So we'll get in and around 40. It's really hard to manage the business from a fundraising perspective to a specific number stuff. Stuff moves forward, stuff moves back.
Speaker Change: and I focus much more on it over a longer period of time. I think we'll get close to the 40, maybe we exceed it slightly, maybe we underachieve it slightly. But in terms of how we think about managing the business.
Speaker Change: It doesn't really matter because we look at it over a multi-quarter period. And quite frankly, we focus a little bit more on just the momentum we have across the franchise, whether that's in our asset-backed business.
Speaker Change: whether it's in solutions, whether it's in real estate, and Harvey touched on this, we're seeing great momentum in the wealth channel and we continue to think that will.
Speaker Change: will be a big component of fundraising going forward. So, I guess I'd answer it more in terms of, we feel very good about the momentum we have going into the fourth quarter and next year.
Speaker Change: Yeah, I guess we really weren't trying to signal anything with the about. I think that there's things we have 100% control over more control over, like.
Speaker Change: how we're driving FRA into the end of the year, where we can give you more certainty. You know, if we have a handful of important clients who say, hey, we wanted to delay some decision making for the election or whatever reason, we'd like you to extend something. So we look, we'll work with our clients. And so we don't, we don't manage fundraising for the purposes of hitting a number. We manage fundraising for the purpose of the point of running the business and really for our clients' needs.
Speaker Change: But that's why that's why you hear that. But if I gave you the impression at the beginning of the year that 40 was a hard number, but maybe I should have said either side of 40. So anyway, but no, there's no, there's no big signaling here.
Speaker Change: Other than the momentum feels great. Okay, thanks. Thanks for that clarity.
Speaker Change: Thanks. Thank you and our next question comes from the line of Stephen Chulak from Wolf Research. Your question please.
Stephen Chulak: Good morning Harvey and John and thanks for taking my questions.
Stephen Chulak: I was hoping you could help frame the revenue opportunity in capital markets, you know, with deal activity poised to accelerate.
Stephen Chulak: You noted you're seeing momentum across the franchise. Just trying to gauge how you think about an achievable run rate for this business and whether you're adequately resourced at least in relation to the opportunity that you envisage.
Speaker Change: So in terms of resourcing, yeah, we feel completely well-resourced. The changes we made last year...
Speaker Change: If I got here, we're very specific around prioritization, focus, alignment, incentives.
and that's why you're seeing the results you're seeing.
Speaker Change: Again, with Q4 activity, it's already a record for the firm, and this is really against a, I think, a pretty quiet environment, given what we may see. I think the strategic
Speaker Change: Hipping point is at what point does this, if it becomes more of a balance sheet intensive business for us, we got a lot of runway before we get there. And so I think we have a lot of capacity and deal activity will drive.
Speaker Change: more activity. Giving you a runway is a little difficult because it's like saying, hey, can you forecast economic activity next year? But I can tell you all the pieces of the engine are in the proper place now.
Yes, I would just echo what Harvey said.
Speaker Change: We're going to have a record year across the platform in terms of capital markets Revenue, and I would just repeat this was in a relatively quiet market and as markets continue to improve We are very comfortable that we think that number should continue to accelerate
Helpful caller. Thanks for taking my question.
Speaker Change: Thank you and our next question comes from the line of Bill Katz from TD Cowen your question please
Bill Katz: Okay, thank you very much and good morning to everybody. Just maybe a slightly different tact on FRE. You've done a very good job of enhancing the FRE margin, as you mentioned, year-on-year, and then you look at the different segments.
up very strongly.
Speaker Change: What's the algorithm for next year as we look ahead? How much more incremental margin can you shoot for? And then just sort of a secondary question. Just given the interplay between where you're growing assets, where you're realizing assets, how do we think about the interplay between fee-paying AUM growth versus the base management fee rate?
Speaker Change: But before, I'm going to have John jump into some of those details, but before he does that, I want to just...
Speaker Change: I want to take a victory lap for John and the whole management team, because in a period of several months last year, they completely re-
Speaker Change: structured the compensation methodology, introduced it, introduced expense-saving initiatives, and I think they've accomplished an incredible amount in a very short period of time, and really set the foundation
Speaker Change: for how to run the firm. Personally I think there's more upside, but on some of the details I'll turn it over to John, but he won't he won't pat himself on the back or his team, but I'll do that for him.
Speaker Change: Yeah, Bill, we feel very good about FRE. We had a record year, as I said in my remarks. We're clearly on path to hit 1.1 billion.
Speaker Change: for the year. We had good visibility on the fourth quarter.
Speaker Change: We're very pleased with where the margin is. It's at 47%. Again, let's put this in perspective.
Speaker Change: This is a thousand basis points higher than it was last year.
Speaker Change: probably 2,000 basis points higher than it was five years ago. So we've made
Speaker Change: Tremendous progress, but the way the management team thinks about this business is we are much more focused on growth.
Speaker Change: and I would like to see the FRE margin grow via organic growth versus more efficiencies. I think there's, you know, we'll get a little bit from running the business efficiently and we'll continue to run the business efficiently, but I think you could expect to see
That margin improved as we grow over time.
Speaker Change: Thank you. And our next question comes from the line of Michael Cypress from Morgan Stanley. Your question, please.
Speaker Change: Hey, good morning. Thanks for taking the question. Just wanted to ask about asset-based finance, meaningful growth opportunity for Carlyle. So, hoping you could just update us on where that stands today, just in terms of AUM, how that part of the business has been growing, and maybe talk about some of the steps you might take into 25 to accelerate growth.
Speaker Change: of that platform, and to what extent might you look to expand platform capabilities here to best capture the opportunities set? Thank you.
and John look, I think it's it.
Speaker Change: It's an enormous opportunity for the industry and for Carlisle, and I do think it will be a large driver of
Speaker Change: credit growth for us going forward, but I'd say, look, it's very early days in the ABF space. Again, I think this market is enormous. It's multiples.
Speaker Change: of direct lending. We obviously announced the Discover transaction a couple months ago. It was a very high-profile transaction for us. That transaction is largely closed post the third quarter, so we're very pleased with that. This is a business we started from scratch organically a couple of years ago. We already have
Speaker Change: roughly seven billion of AUM. The pipeline continues to be one of the stronger pipelines we see across the platform.
Speaker Change: Look, it's a mix of one-off portfolio purchases and flow arrangements. We have in place a handful of flow arrangements. I would expect that to continue.
Speaker Change: to increase over time, but I think it'll be a mix of kind of portfolio purchases and flow arrangements.
Speaker Change: A couple of the flow arrangements that we have, that you've probably heard us talk about in the past, are monogram, triad, unison,
Speaker Change: covering multiple different assets, and we have others. And you should expect us, going forward, to have more flow arrangements or more flow partnerships as the business continues to evolve. But we really like this business. We're really pleased with where the business is. And we think this business has a lot of potential.
Great. Thanks so much.
Speaker Change: Thank you, and our next question comes from the line of...
Greg Sikand, Dollar Phone Bank of America. Your question please.
Hey, good morning everyone. Hope you're all doing well.
Good to hear from you
Speaker Change: StockBaseComp is now run rating between 120 and 130 after the grants earlier this year.
Speaker Change: and I believe you commented on prior calls that there should be a step down next year in 2025. However, I also believe the mechanics of the issuance.
Speaker Change: is related to the price of the stock, which is higher today. So I just wanted your perspective on how we should be forecasting.
Speaker Change: stock-based comp next year relative to where it came in this past quarter.
Speaker Change: The specific accounting treatment for the performance stock units, as you recall.
Speaker Change: From an accounting perspective, we are expensing them heavily up front versus when they actually vest.
and you've seen our stock-based C.O.B.
Speaker Change: at elevated levels the last few quarters. It's elevated today in the third quarter. It will continue to be at the third quarter level in the fourth quarter, but in 2025, we do expect to see that stock-based top number trend down to more normalized levels.
Speaker Change: And again, this is the accounting phenomenon of the grants that we gave. One of the things that we strategically did, obviously, is in announcing the share buyback in advance of those
Speaker Change: awards, which are much higher stock levels, we've already bought back significant portion of anything associated with that dilution. So that's why you're seeing these dilution numbers look so attractive, certainly relative to the
Speaker Change: all the years prior to John and I doing this, this is the first two years dilution hasn't been a negative. Yeah, I mean, Greg, the last two years the share count's actually down.
Speaker Change: It's down 1% this year, and look, we're very focused on repurchasing chairs.
Thank you.
Speaker Change: Thank you and this does conclude the question and answer session of today's program. I'd like to hand the program back to Daniel Harris for any further remarks.
Daniel Harris: Thank you all very much for your time and attention today. Should you have any follow-up questions, feel free to reach out to Investor Relations after the call. We look forward to talking with you again next quarter.
Speaker Change: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
The
Thanks for watching!
and but on the
Music Music Music Music Music Music Music Music Music Music
Thanks for watching!
Speaker Change: This is a production of the U.S. Department of State. U.S. Money Reserve
[music]
[music]
Music Music Music Music Music Music Music Music Music
[music]
. .
and the