Q4 2024 Carlyle Group Inc Earnings Call
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Speaker Change: Hello, everyone, and welcome to the Carlyle Group fourth quarter 2024 earnings.
At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question-and-answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised.
Speaker Change: To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call over to the Head of Investor Relations, Daniel Harris. Please proceed.
Daniel Harris: Thank you, Carmen. Good morning and welcome to Carlisle's fourth quarter and full year 2024 earnings call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz.
Speaker Change: 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 available on our Investor Relations website.
Speaker Change: 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.
Speaker Change: We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available.
Speaker Change: Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them.
Speaker Change: 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.
Harlow: Harlow assumes no obligation to update any forward-looking statements at any time.
Harlow: In order to ensure participation by all those on the line today, please limit yourself to one question and return to the queue for any additional follow-ups. With that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz.
Harvey Schwartz: Thanks, Dan. Good morning, everyone, and thank you for joining us. We have a very strong 2024, and I'm pleased to say, delivered on each of our financial targets.
Harvey Schwartz: Our record performance demonstrates our ability to mobilize across the firm and deliver long-term value.
Harvey Schwartz: We generated over $1.1 billion of fee-related earnings and a 30% increase over 2023.
Harvey Schwartz: We expanded our FRA margin to 46%, a 900 basis point year-over-year increase.
Harvey Schwartz: Inflows exceeded $40 billion. That brings us to more than a hundred billion dollars in inflows over the last two years, and we returned more than a billion dollars in capital to shareholders.
Harvey Schwartz: As I approach my two-year anniversary at Carlyle this week, I'd like to reflect on some of our key achievements.
Harvey Schwartz: When I joined Carlyle, it was clear the firm had a proven investment track record, a leading global brand, and an iconic name in financial history. However, there was certainly some work to do.
Harvey Schwartz: Let me share some of the progress we made across our firm.
Harvey Schwartz: We bolstered our leadership team through a combination of motions from within and hiring of external industry leaders. This group has quickly come together to mobilize our efforts around improving operations across the firm and delivering performance excellence.
Harvey Schwartz: We overhauled our compensation strategy, which improved alignment across all of our stakeholders.
Harvey Schwartz: You, our shareholders, get more of what you value most, fees, and our investment teams' compensation is even more driven by performance.
Harvey Schwartz: We implemented a new capital allocation strategy with a $1.4 billion share repurchase authorization reflecting our strong belief that this share price is significantly undervalued.
Harvey Schwartz: And most importantly, we have both strong momentum in areas we strategically identified for growth over the last two years, like global credit and insurance, global investment solutions, global wealth, and capital markets.
Harvey Schwartz: Together, these businesses delivered two-year revenue growth of approximately 40 percent. Let me underscore that again. Together, these businesses delivered two-year revenue growth of 40 percent.
Now let me focus on our 2024 highlights.
Harvey Schwartz: First, global credit has remained our fastest-growing area over the past five years, with revenues increasing 22% in 2024.
Harvey Schwartz: This business has finished the year at $190 billion of assets under management.
Harvey Schwartz: which was our third opportunistic credit fund, which was 30% larger than the prior vintage.
Harvey Schwartz: We also completed a landmark DISCOVER transaction, one of the largest asset-backed finance transactions of the year.
Harvey Schwartz: At $25 trillion globally, asset-based and asset-backed finance is a massive addressable market and we see significant opportunity to continue scaling this business.
Harvey Schwartz: Moving on to capital markets, this business was clearly subscale when I arrived two years ago.
Harvey Schwartz: We made a number of changes to drive value in this business.
Harvey Schwartz: We appointed a new global head of capital markets and revised our incentive program.
Harvey Schwartz: As a result, we had a record year in transaction fees.
Harvey Schwartz: It's worth noting this record result was achieved in a market environment well below peak activity levels.
Harvey Schwartz: New areas like asset-backed finance, infrastructure, and renewable energy are now all meaningful capital markets feed contributors.
Harvey Schwartz: These areas accounted for nearly 40% of our capital markets revenue in 2024, up from single digits a few years ago.
2025, we expect continued growth in this area.
Harvey Schwartz: and other priorities in broadening the scope of our global investment solutions business.
Harvey Schwartz: This year, Solutions produced a 44% increase in fee revenue compared to the prior year.
This platform has broadened its product set.
Harvey Schwartz: New areas like CAPM, Alpenvest's Global Wealth Evergreen Fund, and our Portfolio Finance Strategy are adding to the platform's scale.
Harvey Schwartz: As an example of this growth, we closed a $1 billion dollar collateralized fund obligation in the fourth quarter.
Harvey Schwartz: There are two things to note here. One is that the design of this structure improved access to key Alpenvest
Funds for insurance clients.
Harvey Schwartz: Two, this is the largest instrument of its kind ever raised.
Harvey Schwartz: and of course the core of this business continues to accelerate.
Harvey Schwartz: We're finalizing fundraising for our eighth Vintage Secondaries Fund, which is already substantially larger than its predecessor.
Harvey Schwartz: 2024 was also a notable year for our global wealth business.
Harvey Schwartz: You saw record inflows of $4.5 billion, and we expect to build on that success in 2025.
Harvey Schwartz: However, Greenwealth Products saw a 65% step up in AUM in 2024 to over $9 billion.
There is strong demand across the globe for Carlyle solutions.
Harvey Schwartz: We've added new distribution partners, and we expect our new private equity product to launch in the latter half of 2025.
Harvey Schwartz: Now moving on to global private equity, I want to highlight the performance of our two latest U.S. buyout funds.
Harvey Schwartz: The performance in these two funds appreciated 15% and 21% respectively in 2024.
Harvey Schwartz: That is more than $5 billion of value creation. It's a fantastic year for these two funds.
Harvey Schwartz: Activity levels have accelerated across our U.S. biofranchise over the past year.
Harvey Schwartz: We took Standard Aero Public and one of the most successful IPOs of the year. We also invested capital into leading businesses like Vantiv, $4 billion carve-out of a leading global kidney care business, and Whirlpact, $2 billion carve-out of a leading automotive equipment provider.
Harvey Schwartz: We want to congratulate the team for driving value for all of our investors in these funds, our firm, and our shareholders. It's really great to see.
Harvey Schwartz: Switching to real estate, our leading U.S. real estate franchise is finalizing its latest opportunistic fund. We expect this fund to close larger than its predecessor. AUM in this business has increased more than 80% over the past four years and the team has done an extraordinary job navigating the real estate market.
really impressive.
Harvey Schwartz: Before I turn over to John, let me give you some thoughts on the broader macro environment.
Harvey Schwartz: We have unique insights into the global economy through data from our investment portfolio and the indicators remain positive around economic growth and employment. This reinforces our perspective that interest rates will stay higher for longer.
Harvey Schwartz: This should spur new investment activity, regardless of the amount of future monetary easing by the Fed and other major central banks.
Harvey Schwartz: Now, with respect to new administration, our roots in D.C. are particularly helpful here.
Harvey Schwartz: We have a long history of working through various cycles, administration, and legislative priorities. We have mobilized the team as we evaluate changes in policy and regulatory action.
Harvey Schwartz: The new administration promotes a pro-growth and pro-business agenda which broadly supports our portfolio and global economic activity.
on Parris.
Harvey Schwartz: and the area getting a lot of attention. Situation remains fluid, but the majority of our portfolio is either domestically focused or more services-oriented versus goods, insulating it well from the impact of tariffs.
Harvey Schwartz: Nearly 80% of our global private equity portfolio is U.S. based.
Harvey Schwartz: And though in his early days he dissipated very manageable impact across the portfolio, but continue to monitor closely, obviously.
Harvey Schwartz: On regulation, we feel that the regulation will be an overall positive for all market participants. And again, pro-growth, pro-business.
Harvey Schwartz: In conclusion, we wrap up a solid 2024 and we anticipate a strong year of investment activity, realizations, and fundraising in 2025. John will provide specific color on our 2025 outlook, but all the work we've done in helping position Carlisle for continued long-term growth.
Harvey Schwartz: with all that we're confident that we can further build on our progress in the years ahead. With that, let me now turn the call over to John.
John Redett: Thanks Harvey, good morning everyone. Let's start with our results. We generated 1.5 billion in DE for the year or $3.66 in DE per share.
John Redett: Fee-related earnings of $287 million in the fourth quarter and $1.1 billion for the full year were both records.
FRE increased nearly 30% in 2024.
John Redett: and our full-year FRE margin of 46% increased nearly 900 basis points year-over-year.
Clearly, we delivered on all of our 2024 financial targets.
John Redett: Notably, we delivered record FRE while also investing for growth in key areas across our platform.
John Redett: We increased the size of our global wealth distribution team by more than a third this year, and the business itself grew assets under management by 65%.
John Redett: In our asset-backed finance business, our team grew by nearly 30 percent.
John Redett: We will continue to scale platforms where we see significant opportunity for growth.
John Redett: We had strong performance revenue in transaction fees, which more than doubled to $164 million.
Harvey Schwartz: As Harvey mentioned, our capital markets business remains an important growth driver for Carlyle.
Harvey Schwartz: which we accomplished even as broader market activity levels remained well below that of prior years.
While transaction fees may vary quarter-to-quarter,
Harvey Schwartz: Over time, we expect this earnings stream to continue to expand.
Harvey Schwartz: We saw a nearly 40% increase in global investment solutions management fees.
Harvey Schwartz: and a 9% increase in global credit management fees while global private equity declined 7%.
Harvey Schwartz: We expect continued growth in global credit and global investment solutions in 2025 and a more modest decline in global private equity.
Harvey Schwartz: We expect growth in private equity to resume as we progress through our next U.S. buyout fundraise.
Harvey Schwartz: We also end the year with $23 billion in pending fee-earning AUM across our platform, up nearly 50% year-over-year.
Harvey Schwartz: The management fee contribution from activating this pending AUM is close to $200 million annually.
Our FRE cash compensation ratio improved to 36% in 2024.
down from 45% in the prior year.
Harvey Schwartz: This improvement was a direct outcome of our strategic compensation realignment that we implemented last year, as well as continued scaling of our platform.
Harvey Schwartz: We are well on our way to achieving a compensation ratio of 35% or less.
Activity levels increased across the platform.
Harvey Schwartz: with strong inflows of more than $14 billion in the fourth quarter and nearly $41 billion for the year.
This was our third-best fundraising year ever.
Deployment increased nearly 50% versus 2023 with global credit.
corporate private equity, and secondary is showing the most acceleration.
Harvey Schwartz: With $84 billion in dry powder, we are well positioned for increased investment activity.
Harvey Schwartz: In terms of exits, corporate private equity realized proceeds nearly doubled from the prior year. We completed four portfolio company sales in the fourth quarter and sold nearly 2 billion in public securities.
Harvey Schwartz: including proceeds from the IPOs of Standard Aero in the U.S. and Rigaku in Japan.
Additionally, there are several exits in process.
Harvey Schwartz: and in U.S. buyout, our largest and most profitable fund strategy, we created meaningful value for our LPs in 2024.
Harvey Schwartz: We also distributed $5.3 billion in proceeds back to U.S. buyout investors throughout the year and generated nearly $600 million of net accrued performance revenues in our two most recent U.S. buyout funds.
Moving on, let me turn to our 2025 outlook.
Harvey Schwartz: We expect 2025 to be a year of growth and increased investment across our core businesses, including global wealth,
Harvey Schwartz: Global Credit, and Solutions. We expect FRE to increase 6% compared to 2024.
Harvey Schwartz: However, we do see the potential for upside, driven both by opportunities and market environment.
Harvey Schwartz: We expect 2025 FRE margin to be at a similar level to that of 2024. We will update you as we progress throughout the year.
Harvey Schwartz: We expect inflows in 2025 to be similar to 2024 levels.
Harvey Schwartz: Credit is once again poised to raise the most capital across our platform and we have a diversified fundraising pipeline across all segments.
Harvey Schwartz: In closing, we entered 2025 with conviction in the direction of our overall platform. We will continue to invest into areas where we see the most opportunity to drive continued long-term shareholder value, and we remain focused on delivering great investment outcomes for our investors.
Harvey Schwartz: Now, let me turn the call over to the operator so we can take your questions.
Harvey Schwartz: Thank you so much. And as a reminder, that is star 11 if you do have a question. One moment for our first question.
Anise von Alexander Blostein with Goldman Sachs. Please proceed.
Thank you.
Hey, good morning, everybody. Thank you for taking the time.
Speaker Change: Morning Harvey, so appreciate the guidance, good good color how you guys are thinking about 2025. I was hoping we can unpack that a little bit so I heard your comments and growth and credit and solutions.
Speaker Change: upset by a more modest decline in global private equity. What are some of the bigger drivers and credit that you guys see for 2025 and solutions that will drive some of that growth? And as you think about the global private equity business, can you help us unpack perhaps the timing of when you expect to come back to market with the next selection?
Speaker Change: Yeah, Alex Hayes, John. Look, in terms of the 6% FRE growth, I would describe this as a base case for us.
Speaker Change: This is a number we have a high degree of confidence around.
Speaker Change: But I think importantly it reflects us aggressively in businesses where we see where we see growth wealth credit
solutions, and we're much more focused on
Speaker Change: delivering long-term growth and investing in the business will enable us to deliver long-term growth.
Speaker Change: We are far more focused on the growth aspect of our business than delivering kind of short-term FRE. So, you should understand that 6% in the context of us, we are investing aggressively in businesses where we see growth. And what does that mean? You know, you look at the headcount.
Speaker Change: increase we had in wealth last year is pretty significant. It'll actually be north of that in 2025. We think headcount will grow.
Speaker Change: more than 50%. We're investing a lot of money in our asset-backed business, which we also did last year.
Speaker Change: and our solutions business. We do see some upside to our 6% FRE, and I think there are a lot of drivers of that, but I'll just highlight a couple. You know, wealth growth accelerates faster than we anticipate.
Speaker Change: I do think capital markets fees could be a positive surprise.
Speaker Change: and I think insurance flows, there are a lot of conversations going on in insurance, more conversations today than I've seen since I've been CFO, so I do expect to see some insurance flows. That is a net positive.
Speaker Change: and I do think credit growth could surprise us on the positive. So I think there are some upsides in terms of credit specifically.
Harvey Schwartz: We're continuing to see good, very strong growth in our asset-backed business, as Harvey alluded to in his.
prepared remarks. This is a massive, massive market.
Harvey Schwartz: You see stats all over the place, but let's let's just say it's 20 plus trillion. So I do think you'll see you'll see some growth in asset back.
Harvey Schwartz: we raised a significantly larger third credit opportunistic fund. It's up materially from the predecessor and I do think our CLO business
Harvey Schwartz: We'll continue to see some headwinds in the front part of 2025, but I do think 2025 could be a positive.
positive surprise. That team had an amazing 2024
Harvey Schwartz: incredibly active after a couple years of relatively limited activity, and the other the other big driver within Credit Alex is is SeaTac, which is our retail wealth product in credit. So feel very good about the trajectory of our credit business.
Thank you. One moment for our next question.
Speaker Change: Ms. from the line of Stephen Schubach with Wolf of Research, please proceed.
Thank you.
Speaker Change: Good morning. This is Brennan O'Brien filling in for Stephen. I guess I just want to talk on the buybacks.
Speaker Change: You guys were obviously really aggressive in repurchasing shares this year, but when you announced the authorization, Harvey, you indicated that you would expect repurchases to accelerate alongside.
Speaker Change: realization activity. And so given your more optimistic outlook for realizations, it'd be helpful to get an update as to how you're thinking about capital return and whether you would still expect to accelerate the buyback.
Speaker Change: and how you're thinking about the balance versus investing in some of the growth opportunities John just discussed and returning capital to shareholders.
Speaker Change: Yes, so last year we announced a $1.4 billion share repurchase program in 2024.
Speaker Change: We repurchased roughly 12 million shares, so 500 costs 550 million. So we have 850 million left on the authorization. We still view a stock buyback as a very attractive form of returning capital to our shareholders, you should assume.
We will be active in in 2025
I think it's also important to note
Speaker Change: You know, for the first time in Carlisle's public history, which is roughly 12 years,
Speaker Change: The last two years we've actually shrank our share count year over year, which I think is a
Speaker Change: is a real positive. But we will continue to evaluate capital allocation on the spectrum. And how do I think about capital allocation? I can buy back stock. I can invest in our businesses for growth. And we can do M&A. I like returning capital to shareholders via the buyback. We will continue to do that. But we are also balancing that with aggressively investing in the business to deliver long-term growth. But you should assume
Speaker Change: We still view our stock prices attractive and we will be repurchasing stock.
Great, thank you for taking my question.
Thanks.
Speaker Change: Thank you. Our next question is from Patrick Davitt with Autonomous Research. Please proceed.
Patrick Davitt: Hey, good morning, everyone. The negative mark in fee-paying assets under management was kind of outsized relative to the reported positive 3% mark. So is that a reflection of a negative fortitude mark? And if so, is there a potential for you to move off of a mark-to-market fee base there like some others have? Thank you.
Patrick Davitt: Yeah, so I'll look at spearheading AUM, and let's talk more about the fourth quarter versus the year. In the fourth quarter, you clearly had some realizations, which
Patrick Davitt: decrease that number, but realizations are good in our business in the sense we're giving capital back to our LPs, our LPs like to see capital return. So you did see some realization activity, certainly much more elevated relative to last year. But the fourth quarter, it had some.
Patrick Davitt: It had some noise, and when I say noise, I mean really kind of non-economic impact.
Patrick Davitt: and what would that be? We had a $6 billion mark-to-market in credit market activity, which is really the result of the movement in the 10-year at Fortitude. That really has no economic impact to the firm, so I would view that as noise.
Patrick Davitt: And we also had $3 billion of FX movement in the quarter. So that's roughly $9 billion.
Patrick Davitt: of really no financial impact to the firm. That's a lot of noise in the quarter. That would have had you up a bit. Realization activities brought you down. But I think you should also focus in on, we have 23 billion of pending fee-earning AUM. That's up 50%.
Patrick Davitt: compared to the prior year. That will turn on throughout the year, and that's roughly 200 million of annual run rate revenue. But again, a lot of noise in the fourth quarter of the year in AUM.
Thank you very much. Thank you.
Thank you. One moment for our next question.
Speaker Change: And it's from the line of Brian Bedell with Deutsche Bank. Please proceed.
Speaker Change: Thanks for taking my question. Good morning. Good morning. Maybe just to talk about maybe G&A expense a little bit, and maybe if you'd just comment a little bit on the...
Speaker Change: increase in the fourth quarter and and then thinking about the investment
Speaker Change: for 2025 and some of the businesses. Maybe if you can talk about.
Speaker Change: may be the two or three biggest areas. I think you cited retail and the asset-backed businesses as well, but if you can comment on how you're thinking initially about G&A expenses.
Speaker Change: during the year? And are you still investing in the capital markets platform or do you see the incremental margins there? The investment is mostly being complete and the incremental margins therefore being much higher in the cap markets.
For more information visit www.FEMA.gov
Hey, it's John and thanks for the question.
Speaker Change: I'll start with the the G&A question. Look, I'd say overall we're focused on running the firm efficiently and I think it shows. G&A expense...
Speaker Change: in 2023 was up 2%. G&A expense in 2024 was up 4%. So I think those are pretty good numbers in terms of running the firm.
Speaker Change: efficiently. We expected fourth quarter G&A expense to be to be elevated. There's some seasonality in that elevation of G&A expense in the fourth quarter. If you go back and
Speaker Change: look at our GNA numbers the last three or four years. The fourth quarter is always a little bit elevated relative to the previous three quarters. But we also had...
Speaker Change: We had some one-off items in the fourth quarter this year. We had some fundraising expenses in the fourth quarter that were related to some direct lending money we raised and our Japan buyout fundraise, which was super successful. And I would not describe those as.
Speaker Change: as recurring, and we had some unfavorable FX impact which, you know, that kind of moves up and down over time.
Speaker Change: So, I don't look at the fourth quarter and I don't draw any kind of operating trend conclusions from the elevated fourth quarter level. I think we've done a good job of kind of controlling G&A expense into the 2 to 4 percent. In terms of kind of looking forward,
Speaker Change: In terms of the FRE guidance we provided, I do see, I do see Q1.
Speaker Change: being more similar to Q4 this year. And then I think throughout the year, you'll see an acceleration in that FRE growth. The other part of your question, Dan, is where are we investing the money? And I alluded to a little bit of it in my prepared remarks.
Speaker Change: We are clearly investing in wealth, and that's largely headcount, that headcount will be up 50% at least in 2025. We're investing in credit, we see very strong growth in credit, we expect that trajectory to continue.
Speaker Change: You look at our solutions business, it grew organically 40-plus percent this year. That's going to require some investment, which is really great to see. And in Japan, you know, our Japan buyout had tremendous success raising money, and we need to invest some more money there.
Speaker Change: I would say, I would describe the way we're thinking about aggressively investing is we're investing in businesses where we see growth and businesses, quite frankly, where growth is less evident in the near term, we're not making investments.
Thank you. One moment for our next question.
Brian McKenna: and it comes from the line of Brian McKenna with Citizens JMP. Please proceed.
Brian McKenna: Thanks, good morning everyone. So I had a question on the BDC merger. Can you remind us what the incremental fees are to CG post-merger and when those will turn on and then that vehicle will have north of two million dollars of assets. So how should we think about growth of the combined BDC as well as the broader direct lending platform moving forward?
Brian McKenna: Yes, so we haven't disclosed the impact. It will be a positive impact to management fees and FRE. I wouldn't describe it as a material impact to our credit business, but it's a positive. It's good to see that BDC merger will close late in Q1, early Q2. Everything's on track in terms of the...
Brian McKenna: BDC. Look, in terms of direct lending, we actually had pretty good growth in 2024. That's an area where I actually didn't touch on in terms of where we're investing.
Brian McKenna: But we are investing in our direct lending business. Performance has been really strong and we are investing in that business as well.
Brian McKenna: But, you know, look, you look at our direct lending business
relative to some of our peers.
Brian McKenna: We don't have quite the scale our peers do. So I really view that as as upside. There's no reason why with a brand like Carlisle, our direct lending business is not significantly larger than it is today. And we're making investments in that in that area of credit to make it a more scaled business.
Got it. Thanks, John.
Speaker Change: Thank you. Our next question comes from the line of Glen Shore with Evercore ISI. Please proceed.
Glen Shore: Hi, two quickies, follow-ups to your earlier. Hello there. In asset-backed land, I'm just curious if you have dedicated strategies being formed yet or is this efforts within your insurance SMAs and credit overall credit business?
Glen Shore: And then on investment solutions, I think your performance has been great. I'm just curious how you see the evolution and growth in perpetual products in that area and how that might impact growth and returns in the solutions business going forward. Thanks.
Thank you.
Speaker Change: Nagel and on acid bag you know obviously the acid bag market which we highlighted as a
Speaker Change: large addressable market, and it's a market that's in evolution, which is the convergence of
The demand for capital from.
Speaker Change: and users and obviously a lot of what's happening across the globe in terms of
Speaker Change: insurance capital coming in so it kind of really hits a sweet spot for us.
Speaker Change: In terms of growth, there's a dedicated fund being raised, but, of course,
Speaker Change: We built this off of our affiliate partnership with Fortitude, so we've been doing this for a number of years. And so, as John mentioned, we also invested heavily in the team last year and will continue to grow.
in terms of the solutions business
One of our fastest areas of growth.
both institutionally and across.
Speaker Change: Well, and you'll see us during the course of the year continue to expand.
Speaker Change: partnerships and some of those are significant partnerships but we can't speak to them specifically today but that's our expectation. So again a lot happening in that space and the performance in the trend and the breadth is pretty impressive.
One moment for our next question.
Speaker Change: and it's from the line of Ben Buddish with Barclays. Please proceed.
Hi, good morning.
Speaker Change: John, I was wondering if you could talk a little bit more about the
Speaker Change: Good morning. John, I was wondering if you could talk a little bit more about your comp ratio expectations for the year. You said on the way to 35% or less. Just curious, what are the other key factors that determine the timing? I imagine some of this is related to realizations, but what's sort of embedded in your expectations for the 6% FRE guide?
John Redett: Yeah, so there is obviously a large component of that, Ben, is realizations and net realized performance revenues. And look, we had a...
We had a really strong 2024 in terms of realizations.
John Redett: And I do think as some of these funds where we're seeing
John Redett: realizations hit carry you're going to see you're going to see an acceleration for us in terms of net realized performance revenue so that that will be a
a positive.
John Redett: Look, we gave it 30 to 35% range in February of 2023.
John Redett: I knew it would take us a couple years to get to that range. We got to a number last year better than I anticipated.
John Redett: 36%. I think 35% is eminently doable, but we'll get there. We'll get there naturally. I do need net realized performance revenues, and we will rely on that versus...
John Redett: versus thinking about like cutting expenses, we're much more focused on growth. But we'll grow into that number and we'll benefit from net realized performance revenues.
Got it. Thank you.
Speaker Change: Thank you. One moment. Our next question is from Dan Fannin with Jeffries. Please proceed.
Dan Fannin: Thanks, good morning. So a couple of questions on global credit. Curious as to why the management fees declined sequentially in the fourth quarter, then obviously a very large transaction fee. You talked about investing in that business and scaling, so can you talk about the sustainability and outlook for transaction fees in that segment within global credit?
Dan Fannin: Yes, so yeah, we actually just put the capital markets transaction fees in the credit business. It's really spread
The fees are generated across the platform, so...
Dan Fannin: You know, three years ago, that was a largely private equity-related earning stream. Today, it's far more diversified. It's across credit.
and it's across...
Dan Fannin: infrastructure and corporate private equity, but we report that segment largely in credit. So think of it more as something that we generate across the platform. But in terms of trajectory of credit,
Dan Fannin: We feel very good. We have a lot of the businesses, every business in credit is growing, with the exception of the CLO business.
and the CLO business.
We had a little bit of market headwinds.
Dan Fannin: as a result of 2022 and 2023, where you just had no activity. And we made up for that this year. We had a tremendous level.
One moment for our next question please.
Speaker Change: And it comes from the line of Bill Katz with CD Cowan. Please proceed.
Bill Katz: Ok, thank you very much. John, sorry to go back on this, but I'm just trying to unpack your comments about the fee-paying AUM dynamics in the quarter.
Speaker Change: You mentioned they should have no economic impact, but I'm just
Bill Katz: I'm just trying to understand that since it's a fee-paying AUM discussion. Just sort of walk me through again why the $6 billion decline in fee-paying AUM will not have an economic impact looking ahead. Thank you.
Bill Katz: Yes, so that it will have a a very minor economic impact in the sense The way the agreement with fortitude works is we get paid on on the level of level of assets
Bill Katz: and this resulted in an immaterial decline in those assets, but the impact to 2025 is literally a couple million dollars, so it's largely, in my book, it's immaterial.
Bill Katz: Okay, so it's more the fee rate associated with those assets at play.
The fee rate is not impacted by the market activity.
For more information visit www.FEMA.gov
Right, okay, thank you.
Speaker Change: Thank you. Our next question is from Ken Worthington with J.P. Morgan. Please proceed.
Thank you.
Speaker Change: Hi, good morning. You have 500 million of net accrued carry in CP7. The fund is still hovering around 8% IRR.
Speaker Change: Given the investments in the ground and some of the recent, I'll call it successful, partial realizations, how confident are you that 7 can remain above the hurdle rate and collect that accrued carry? And then along the same lines, Cap 5 and...
Speaker Change: Step 5 IRRs fell a bit during the quarter. Can you talk about sort of marks and exits and how those weighed on this quarter's results for those funds?
John Redett: Hey Ken, it's John. Look, I feel very good about the progress we're making in our U.S. private equity business. Harvey referenced the appreciation in our two most recent buyout funds in 2015.
John Redett: 20% 20% I think I think it was a great year. The value creation in that business was was $5 billion. So we're moving in the right direction specifically on CP seven. I would say we're very pleased with the performance in CP seven, it's improved.
John Redett: dramatically over the last last 12 months and in looking forward we feel very good that that trajectory
John Redett: will continue. Cary's just not as simple as just overall performance level within the fund. It's also a function of how much money we've returned to LPs, but we are confident that that fund will hit Cary.
Thank you.
And then cap in step five.
Speaker Change: Yeah, I mean look, CAP is a fantastic business. We had really good appreciation.
in that franchise.
Speaker Change: Most of the movement down in terms of performance was largely attributable to our public equities we hold. And there's some volatility in public equities, period, all over the globe, but there's been more pronounced volatility in public equities in China, and that really drove a lot of the movement down.
Okay, great. Thanks very much.
Speaker Change: Our next question comes from the line of Michael Cypress with Morgan Stanley. Please proceed.
Michael Cypress: Hey, good morning. Thanks for taking the question. I just wanted to ask about global private equity. I was hoping you'd talk a little bit about how you expect the pace and magnitude of deployment and realization activity to evolve here in 2025 in the context of at times volatile markets, higher ten-year treasury yields over the last six months, some uncertainty around tariffs, how you expect these and other factors to play into getting deals done, and how you see that cadence of activity playing out in terms of the first half or
versus second half of the year. Thank you.
Michael Cypress: Yeah, I would say, you know, we still are positive leaning in terms of in terms of activity. I think when you look at M&A volumes
Michael Cypress: Last year they were up kind of 20%. IPO volumes were up 50-60%.
Michael Cypress: You saw us capitalize on the IPO markets opening with Standard Aero, which was a very successful IPO, Regaku in Japan. So I think that's a positive that those markets are opening up.
Michael Cypress: You know, look, base rates are up there. They're up relative to three years ago, no doubt, but but spreads.
Michael Cypress: spreads remain tight. Your all-in financing cost, quite frankly, is still very attractive. Debt markets are pretty much wide open. So I think that's another positive. And I think the other real positive is strategic buyers have become active again.
and that is a that is another
another positive catalyst. So,
Michael Cypress: When you look at what you need to have a conducive market to buy and sell assets, it's largely in place with what we're seeing. So, we're very optimistic that 2025 will be a busy, busy year on the realization front.
Great, thank you.
Speaker Change: Our next question is from the line of Kyle Boyd with KBW. Please proceed.
Speaker Change: Hi, good morning. Maybe just another follow-up on GPE. You mentioned some continued decline in management fees there until you raise your next U.S. BIOP fund.
Speaker Change: I'm just wondering if you could help us understand when you expect to begin fundraising.
Speaker Change: When we could expect a potential activation given the pace of deployment you're seeing in CP8, I'm assuming it's 2026, but if you could maybe narrow that down at all, then how should we think about the size of CP9 relative to CP8 at $14.8 billion, particularly given the private equity fundraising backdrop?
Speaker Change: Yeah, so as I said in my remarks, GPE, Global Private Equity, was down roughly
7% in 2024, and I also said
Speaker Change: We expect the rate of that decline to be meaningfully lower in 2025 than it was in 2024, so I think that's a positive. We anticipate launching the most recent U.S. buyout fund
towards the back end of 2020.
Speaker Change: 2025 this year, and I can't really comment on the size, but we should be in the market in
Speaker Change: 2025, late 2025, and you will see a fee activation at some point in 2026, which will be the catalyst to see our corporate private equity business return to a more positive trajectory.
Thank you. Bye-bye.
One moment for our next question.
Speaker Change: It comes from the line of Mike Brown with Wells Fargo. Please proceed.
Okay, great. Good morning.
Mike Brown: I wanted to just unpack the targets a little bit more. So the fundraising target, John, you shared some upbeat comments on credit and also fortitude. So I just wanted to clarify, does the $40 billion, or I guess roughly kind of flat year over year, does that assume any contribution from
Mike Brown: from block potential blocks that could come from fortitude or that be kind of in the upside bucket that you referred to and then just on the management fees for within your FRE guidance
Mike Brown: You talked about deposit tailwinds for transaction fees and included in there for FRPR. So just in total, how should we think about that management fee growth potential relative to the 6% FRE growth?
Mike Brown: Yes, so in terms of the fortitude part of your question
Mike Brown: That is not in our F.R.E. 6% guidance. I would view any type of inflows into Fortitude to be additive to that growth rate we provided. So again, it's not in our base case. Look, in terms of management fee...
Mike Brown: growth. Again, I would unpack it via looking at the three businesses. We have very strong management fee growth looking forward in solutions. It's not going to remain at the 45% level.
Mike Brown: in perpetuity. That was obviously a blowout year, but we do expect strong growth going forward. We had very good growth in credit. We expect that to continue. Again, the only area where we're really seeing any headwinds is within our corporate private equity business.
And again, that was down 7% in...
Mike Brown: in 2024, we think that decline will be significantly less in 2025.
Mike Brown: and we do see a path to that resuming a positive trajectory based on some fundraising in our most recent, in our U.S. Buyout Fund, which will launch this year.
Thank you for taking my question.
Speaker Change: And our final question comes from the line of Patrick Davitt with Autonomous Research. Please proceed.
Thanks for the follow-up.
Hello? Yep. Can you hear me? Yep. Yeah.
Speaker Change: Just one more quick follow-up on that through the lens of your kind of broader realization commentary. I assume the 6% FRE growth
Speaker Change: is partially informed by a view that there will be a meaningful pickup in realizations in 2025. Do you give any more color around how you're thinking about that side of the FRE growth equation? Thank you.
Speaker Change: Yeah, I would not describe our forecast in our 6% FRE growth, our base case, as assuming there's a substantial increase in realization activity. We do think
Speaker Change: realization activity levels will increase relative to 2024, but I would not describe our assumption in terms of how we thought about the 6% FRA growth to be a substantial pickup in realizations.
Dan Harris: Thank you. Thank you. And with that, I will turn the call back to Dan Harris for final comments.
Dan Harris: Yes, thank you for your time and interesting call today. Should you have any follow-up questions, please reach out to Investor Relations and we look forward to speaking with you again next quarter.
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