THE CARLYLE GROUP INC. OnJanuary 1, 2020 , we completed our conversion from aDelaware limited partnership namedThe Carlyle Group L.P. into aDelaware corporation namedThe Carlyle Group Inc. Pursuant to the Conversion, at the specified effective time onJanuary 1, 2020 , each common unit ofThe Carlyle Group L.P. outstanding immediately prior to the effective time converted into one share of common stock ofThe Carlyle Group Inc. and each special voting unit and general partner unit was canceled for no consideration. In addition, holders of the partnership units inCarlyle Holdings I L.P. ,Carlyle Holdings II L.P. , andCarlyle Holdings III L.P. exchanged such units for an equivalent number of shares of common stock and certain other restructuring steps occurred (the conversion, together with such restructuring steps and related transactions, the "Conversion"). Unless the context suggests otherwise, references in this report to "Carlyle," the "Company," "we," "us" and "our" refer (i) prior to the consummation of the Conversion toThe Carlyle Group L.P. and its consolidated subsidiaries and (ii) from and after the consummation of the Conversion toThe Carlyle Group Inc. and its consolidated subsidiaries. References to our common stock in periods prior to the Conversion refer to the common units ofThe Carlyle Group L.P. The following discussion should be read in conjunction with the consolidated financial statements and the related notes included in this Annual Report on Form 10-K. Overview We conduct our operations through four reportable segments: Corporate Private Equity, Real Assets, Global Credit, and Investment Solutions. • Corporate Private Equity - Our Corporate Private Equity segment advises our 25 buyout and 10 middle market and growth capital funds, which seek a wide variety of investments of different sizes and growth potentials. As ofDecember 31, 2019 , our Corporate Private Equity segment had more than$86 billion in AUM and
approximately
$62 billion in Fee-earning AUM. • Real Assets - Our Real Assets segment advises our 10 U.S. and internationally focused real estate funds, our five
infrastructure
funds, our two international energy funds, as well as our three
Legacy Energy funds. The segment also includes three NGP Predecessor
Funds and four NGP Carry Funds advised by NGP. As of December 31,
2019 , our Real Assets segment had more than $43 billion in AUM and
more than $33 billion in Fee-earning AUM.
• Global Credit - Our Global Credit segment advises a group of 64
funds that pursue investment strategies including loans and
structured credit, direct lending, opportunistic credit, distressed
credit, and aircraft financing and servicing. As of December 31,
2019 , our Global Credit segment had more than $49 billion in AUM and
approximately $38 billion in Fee-earning AUM.
• Investment Solutions - Our Investment Solutions segment advises
global private equity and real estate fund of funds programs and
related co-investment and secondary activities across 248 fund
vehicles. As of December 31, 2019 , our Investment Solutions segment
had more than $45 billion in AUM and more than $28 billion in
Fee-earning AUM.
We earn management fees pursuant to contractual arrangements with the investment
funds that we manage and fees for transaction advisory and oversight services
provided to portfolio companies of these funds. We also typically receive a
performance fee from an investment fund, which may be either an incentive fee or
a special residual allocation of income, which we refer to as a carried
interest, in the event that specified investment returns are achieved by the
fund. Under U.S. generally accepted accounting principles ("U.S. GAAP"), we are
required to consolidate some of the investment funds that we advise. However,
for segment reporting purposes, we present revenues and expenses on a basis that
deconsolidates these investment funds. Accordingly, our segment revenues
primarily consist of fund management and related advisory fees and other income,
realized performance revenues (consisting of incentive fees and carried interest
allocations), realized principal investment income, including realized gains on
our investments in our funds and other trading securities, as well as interest
income. Our segment expenses primarily consist of cash compensation and benefits
expenses, including salaries, bonuses, and realized performance payment
arrangements, and general and administrative expenses. While our segment
expenses include depreciation and interest expense, our segment expenses exclude
acquisition-related charges and amortization of intangibles and impairment.
Refer to Note 17 to the consolidated financial statements included in this
Annual Report on Form 10-K for
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more information on the differences between our financial results reported
pursuant to U.S. GAAP and our financial results for segment reporting purposes.
Trends Affecting our Business
Market expectations for global economic growth continued to moderate into the
fourth quarter of 2019. In the U.S. , growth decelerated relative to 2018 due to
weakness in the industrial sector, business spending, and exports. Although at a
more moderate pace than 2018, during 2019 and into early 2020 the economy
continued to grow due to a housing sector rebound driven by lower mortgage rates
tied to three Federal Reserve rate cuts during 2019, and strong consumption
growth due to low unemployment, robust real wage growth and generally solid
household balance sheets during the year. The softness in business spending
during 2019 and continuing into early 2020 appears to be attributable to a
combination of weak corporate earnings, heightened "late-cycle" fears among
business managers and ongoing geopolitical tensions. Rising compensation and
input costs have led to a decline in operating margins, while a strong dollar
continues to weigh on the domestic value of foreign sales and earnings.
In China , official data indicate real GDP grew by 6% over the course of 2019,
unchanged from the third quarter. The deceleration in growth relative to prior
periods was driven by ongoing softness in exports, housing and manufacturing.
Data over the course of 2019 highlights the degree to which the costs of the
trade dispute have negatively affected the overall global economy. In its
January 2020 update to the World Economic Outlook, the International Monetary
Fund estimates that global growth amounted to just 2.9% in 2019 and that the
bulk of the slowdown from 4% growth at the start of 2018 can be attributed to
weak global trade. Trends in manufacturing surveys, sentiment indices, and
long-term yields all closely tracked the fall in global trade volumes throughout
the year. Since the global trade system is based on integrated, cross-border
value chains, negative effects in one part of the network quickly spread to the
rest.
Geopolitical uncertainty, trade frictions, and other downside risks continue to
exert a significant impact on the overall economy into early 2020. Although
investors' optimism rose in the immediate aftermath of the finalization of the
"Phase-One" trade agreement between the U.S. and China (the S&P 500, MSCI
ACWI-All Cap, EuroStoxx 600 and Shanghai Composite each rose 8.5%, 8.6%, 5.8%,
and 5.0%, respectively, in the fourth quarter, bringing 2019 returns into the
double digits across indices), sentiment has shifted once more in light of new
concerns. The global market exuberance of the fourth quarter was likely due to
investor hopes for a rebound in growth after the easing of trade tensions,
particularly in China . The rapid proliferation of the Novel Coronavirus,
however, threatens such a rebound, and highlights the fragility of the macro
economy. From December 31 through January 31, 2020 , the Hang Seng Index fell
nearly 7%. Brent crude spot prices fell nearly 16% in January 2020 on fears that
virus containment efforts will choke off demand. In the U.S. , valuations remain
high, as prices belie underlying fundamentals. Earnings for companies in the S&P
500 declined year-over-year in each of the first three quarters of 2019, and are
estimated to have risen just 0.7% in the fourth quarter. If the growth that
investors anticipate fails to materialize, or if the expected stabilization in
trade does not come to fruition, equity markets may react in kind.
The global monetary policy easing cycle that characterized the first three
quarters of 2019 appears to have significantly slowed, with most (but not all)
central banks on hold for now. The reserve management purchases and repurchase
operations that the Federal Reserve initiated in the third quarter of 2019
continued into the fourth quarter and into early 2020, successfully preventing a
repeat of the money market volatility experienced in September 2019 . Based on
guidance from the Federal Reserve , it is anticipated that reserve management
purchases will continue into at least the second quarter of 2020. Persistent
downside misses to inflation targets over the past decade, and low future
inflation expectations, have prompted monetary policymakers in the U.S. and
Europe to shift their focus towards a review of longer-term monetary policy
strategy. United States corporate bond yields across the credit spectrum fell
roughly 135 basis points in 2019, led by high yield bonds, which fell 256 basis
points during the year. Even yields on the lowest-rated high yield debt, which
had risen throughout the second and third quarters of 2019 and into the fourth
quarter reversed course and ended the year down 177 basis points.
A lower-for-longer interest rate environment and high levels of
negative-yielding debt are raising concerns about traditional fixed-income
investment funds' abilities to weather future shocks and the International
Monetary Fund estimates that one-sixth of all fixed-income fund assets would
experience a liquidity shortfall in the case of a significant redemption event.
Although the broader investment environment is challenging given high
valuations, low yields, and downside risks to growth, the alternative asset
industry enjoys significant tailwinds as private capital continues to displace
public listings. Over the past 20 years, the number of U.S. initial public
offerings has dropped by 75%-from more than 500 per year in the mid-1990s to
just 110 in 2019, as the entrepreneurs, founders, and management teams of
small-to-medium sized businesses generally prefer to raise private capital
rather than public capital. At the end of last year, there were more than 8,200
private-equity backed companies in the U.S. relative to fewer than 3,500
publicly-listed businesses, a dramatic turnaround from 20 years earlier when
listed companies were four-times as numerous. We observe similar trends across
much of the rest of the world, particularly Europe . The decline in public
listings, the pullback in bank lending and intermediation, and the persistently
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low yield environment have contributed to a doubling of private credit AUM over
the past six years. We believe there is still significant room for more growth
ahead, as total private credit AUM today, despite this doubling, is equal to
just one-third ($750 billion ) of private companies' likely borrowing volumes
over the next three to five years (roughly $2.7 trillion ; based on current
levels of private equity dry powder and average leverage ratios).
Our overall carry fund portfolio generally lagged the performance of large cap
U.S. stocks, while exceeding returns on the small- and mid-cap indices in 2019.
Our Corporate Private Equity funds appreciated by 3% in the fourth quarter and
8% over the last twelve months. Our Real Asset funds were flat during the fourth
quarter and appreciated 3% over the last twelve months, as strong appreciation
in our real estate funds of 16% over 2019 was dampened by weakness in certain
energy funds, in particular those with significant investments in upstream
companies and/or publicly traded companies. Investment Solutions appreciation
was 1% in the fourth quarter and 15% for the year, driven by strong investment
performance in our AlpInvest funds. While slowing global growth and volatile
market conditions could impact valuations in the short-term, we believe our
existing portfolio of assets is high-quality and well-diversified by fund,
industry sector, asset class, and region.
We raised $3.3 billion of new capital in the fourth quarter, and $19.3 billion
over the last year, exceeding our four-year $100 billion fundraising target by
almost $10 billion . We expect that our fundraising pace in 2020 will be similar
to 2019, with fundraising for the next vintage of our large buyout and real
estate funds anticipated to begin in late 2021 or early 2022. During the interim
periods, we expect fundraising to drive modest Fee-earning AUM growth. Growth in
our Global Credit and Investment Solutions segments is expected to be partially
offset by downward pressure in our Corporate Private Equity and Real Assets
segments where exit activity may temporarily outpace new fundraising.
During the fourth quarter, our carry funds invested $7.1 billion in new or
follow-on transactions that we have been working on for several months, and have
invested approximately $21.3 billion over the last year, a pace generally
consistent with recent years but higher than our long-term average as our larger
platform supports greater capital deployment. In our Global Credit segment,
there were $3.0 billion gross originations in our Direct Lending business.
Overall, the investment environment remains challenging and competitive. While
levels of dry powder generally remain high across the private equity industry,
we have seen an increase in potential investment opportunities. Our available
capital level is consistent with the lifecycle stage of our most recent vintage
of funds and our rate of capital investment continues to be steady. We generated
$5.1 billion in realized proceeds from our carry funds in the fourth quarter,
and $19.9 billion over the last twelve months, which is below our exit pace in
recent years. At this time, we expect that exit activity and net realized
performance revenues will begin to rebound in 2020.
Over the course of 2019 and continuing into 2020 there has been an increasing
level of public discourse, debate and media coverage regarding the appropriate
extent of regulation and oversight of the financial industry, including
investment firms, as well as the tax treatment of certain investments and income
generated from such investments. We anticipate that such active debate and media
coverage will continue to increase in connection with the 2020 U.S. election
cycle as financial proposals are put forth by potential U.S. presidential and
Congressional candidates.
Recent Transactions
On January 1, 2020 , we completed the conversion of The Carlyle Group L.P. from a
Delaware limited partnership to a Delaware corporation named The Carlyle Group
Inc. See "-Conversion to a Corporation" below.
Dividends
In February 2020 , the Board of Directors declared a quarterly distribution of
$0.25 per common share to common stockholders of record at the close of business
on February 18, 2020 , payable on February 25, 2020 .
Conversion to a Corporation
On January 1, 2020 , we completed our conversion from a Delaware limited
partnership named The Carlyle Group L.P. (the "Partnership") into a Delaware
corporation named The Carlyle Group Inc. (the "Corporation"). Pursuant to the
Conversion, at the specified effective time on January 1, 2020 , (i) each common
unit of the Partnership outstanding immediately prior to the effective time
converted into one issued and outstanding, fully paid and nonassessable share of
common stock, (ii) each special voting unit of the Partnership outstanding
immediately prior to the effective time was canceled for no consideration and
the former holder(s) thereof ceased to have any rights with respect thereto and
(iii) each general partner unit of the Partnership outstanding immediately prior
to the effective time was canceled for no consideration and the former holder(s)
thereof ceased to have any rights with respect thereto, in each case without any
action required on the part of the Partnership, the Corporation, any holder of
any Partnership interest or any other person. In addition, holders of
partnership
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units in Carlyle Holdings I L.P. , Carlyle Holdings II L.P. and Carlyle Holdings
III L.P. exchanged such units for an equivalent number of shares of common stock
of the Corporation and certain other restructuring steps occurred (the
conversion, together with such restructuring steps and related transactions, the
"Conversion").
The Conversion is expected to qualify for the non-recognition of gain or loss to
our former common unitholders for U.S. federal income tax purposes. The
application of the non-recognition rules to non-U.S. common unitholders in the
context of the Conversion is dependent on local tax requirements. All former
common unitholders should consult their own advisers as to the consequences of
the Conversion to them. Final Schedule K-1s will be issued in respect of our
final taxable period as a limited partnership. Following the Conversion,
dividends will be reported to stockholders on Form 1099-DIV. We believe this
change will simplify our stockholders' tax reporting obligations. For U.S.
federal income tax purposes, any dividends we pay following the Conversion
generally will be treated as qualified dividend income (generally taxable to
U.S. individual stockholders at capital gain rates) paid by a domestic
corporation to the extent paid out of our current or accumulated earnings and
profits, as determined for U.S. federal income tax purposes, with any excess
dividends treated as return of capital to the extent of the stockholder's basis.
Prior to the Conversion, we recorded significant non-controlling interests in
Carlyle Holdings related to the ownership interests of the limited partners of
the Carlyle Holdings partnerships. The Company, through wholly-owned
subsidiaries, was the sole general partner of Carlyle Holdings . Accordingly, the
Company consolidated the financial position and results of operations of Carlyle
Holdings into its consolidated financial statements. In the Conversion, the
limited partners of the Carlyle Holdings partnerships exchanged their Carlyle
Holdings partnership units for an equivalent number of shares of common stock of
The Carlyle Group Inc. As a result, in periods following Conversion, the
consolidated balance sheet of The Carlyle Group Inc. will not reflect any
non-controlling interests in Carlyle Holdings . In addition, we expect that our
provision for income taxes in periods following the Conversion will be greater
than in periods prior to the Conversion because following the Conversion, all of
our income before the provision for income taxes will be subject to U.S. federal
(and state and local) corporate income taxes. See "Part 1. Item 1A. Risk
Factors-Following the Conversion, we expect to pay more corporate income taxes
than we would have as a limited partnership." For these reasons, our results in
periods following the Conversion may not be comparable to our results in periods
prior to the Conversion.
For additional information about the Conversion, see "Part 1. Item 1.
Business-Organizational Structure," "Part II. Item 8. Note 10-Related Party
Transactions," "Part II. Item 8. Note 11-Income Taxes," "Part III. Certain
Relationships and Related Transactions, and Director Independence" and the
unaudited pro forma condensed financial information filed as Exhibit 99.1
hereto.
Key Financial Measures
Our key financial measures are discussed in the following pages. Additional
information regarding these key financial measures and our other significant
accounting policies can be found in Note 2 to the consolidated financial
statements included in this Annual Report on Form 10-K.
Revenues
On January 1, 2018 , we adopted ASU 2014-9, Revenue from Contracts with Customers
(Topic 606) ("ASU 2014-9"). Upon adoption, certain performance revenues that
represent a performance-based capital allocation from fund limited partners to
us are now accounted for as earnings from financial assets and included as a
component of investment income (loss). We also are entitled to receive
performance-based incentive fees pursuant to management contracts from certain
of our Global Credit funds when the return on assets under management exceeds
certain benchmark returns or other performance targets. These fees are recorded
as incentive fees in our consolidated statements of operations. See Note 2 to
the financial statements for more information on our adoption of ASU 2014-9.
Revenues primarily consist of fund management fees, incentive fees, investment
income (including performance allocations, realized and unrealized gains of our
investments in our funds and other principal investments), as well as interest
and other income.
Fund Management Fees. Fund management fees include management fees and
transaction and portfolio advisory fees. We earn management fees for advisory
services we provide to funds in which we hold a general partner interest or with
which we have an investment advisory or investment management agreement.
Additionally, management fees include catch-up management fees, which are
episodic in nature and represent management fees charged to fund investors in
subsequent closings of a fund which apply to the time period between the fee
initiation date and the subsequent closing date.
Management fees attributable to Carlyle Partners VII, L.P. ("CP VII"), our
seventh U.S. buyout fund with approximately $17.5 billion of Fee-earning AUM as
of December 31, 2019 , was 17% and 13% of total management fees
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recognized during the years ended December 31, 2019 and 2018, respectively.
Management fees attributable to Carlyle Partners VI, L.P. ("CP VI"), our sixth
U.S. buyout fund with approximately $9.1 billion of Fee-earning AUM as of
December 31, 2019 , were approximately 5%, 8%, and 16% of total management fees
recognized during the years ended December 31, 2019 , 2018 and 2017,
respectively. No other fund generated over 10% of total management fees in the
periods presented.
Fund management fees exclude the reimbursement of any partnership expenses paid
by the Company on behalf of the Carlyle funds pursuant to the limited
partnership agreements, including amounts related to the pursuit of actual,
proposed, or unconsummated investments, professional fees, expenses associated
with the acquisition, holding and disposition of investments, and other fund
administrative expenses.
Transaction and Portfolio Advisory Fees. Transaction and portfolio advisory fees
are fees we receive for the transaction and portfolio advisory services we
provide to our portfolio companies, as well as underwriting fees from our loan
syndication and capital markets business, Carlyle Capital Solutions. When
covered by separate contractual agreements, we recognize transaction and
portfolio advisory fees for these services when the service has been provided
and collection is reasonably assured. We are required to offset our fund
management fees earned by a percentage of the transaction and advisory fees
earned, which we refer to as the "rebate offsets." Historically, such rebate
offset percentages generally approximated 80% of the fund's portion of the
transaction and advisory fees earned. However, the percentage of transaction and
portfolio advisory fees we share with our investors on our recent vintage funds
has generally increased from 80% to 100% of the fund's portion of the
transaction and portfolio advisory fees earned, such that a larger share of the
transaction fee revenue we retain is driven by co-investment activity. The
recognition of transaction fees and portfolio advisory fees can be volatile as
they are primarily generated by investment activity within our funds, and
therefore are impacted by our investment pace. Underwriting fees include gains,
losses and fees arising from securities offerings in which we participate in the
underwriter syndicate.
Incentive Fees. Incentive fees consist of performance-based incentive
arrangements pursuant to management contracts, primarily from certain of our
Global Credit funds, when the return on assets under management exceeds certain
benchmark returns or other performance targets. In such arrangements, incentive
fees are recognized when the performance benchmark has been achieved.
Investment Income. Investment income consists of our performance allocations as
well as the realized and unrealized gains and losses resulting from our equity
method investments and other principal investments.
Performance allocations consist principally of the performance-based capital
allocation from fund limited partners to us, commonly referred to as carried
interest, from certain of our investment funds, which we refer to as the "carry
funds." Carried interest revenue is recognized by Carlyle upon appreciation of
the valuation of our funds' investments above certain return hurdles as set
forth in each respective partnership agreement and is based on the amount that
would be due to us pursuant to the fund partnership agreement at each period end
as if the funds were liquidated at such date. Accordingly, the amount of carried
interest recognized as performance allocations reflects our share of the fair
value gains and losses of the associated funds' underlying investments measured
at their then-current fair values relative to the fair values as of the end of
the prior period. As a result, the performance allocations earned in an
applicable reporting period are not indicative of any future period, as fair
values are based on conditions prevalent as of the reporting date. Refer to " -
Trends Affecting our Business" for further discussion.
In addition to the performance allocations from our Corporate Private Equity and
Real Assets funds and most of our closed-end carry funds in the Global Credit
segment, we are also entitled to receive performance allocations from our
Investment Solutions, Carlyle Aviation and NGP Carry Funds. The timing of
performance allocations realizations for these funds is typically later than in
our other carry funds based on the terms of such arrangements.
Our performance allocations are generated by a diverse set of funds with
different vintages, geographic concentration, investment strategies and industry
specialties. For an explanation of the fund acronyms used throughout this
Management's Discussion and Analysis of Financial Condition and Results of
Operations section, see "Item 1. Business - Our Family of Funds."
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Performance allocations in excess of 10% of the total for the years ended
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
CP VI $ 154.2 CP VI $ 162.5 CP VI $ 649.1
CRP V 154.9 CRP VII 131.8 CAP IV 312.7
Alpinvest
Co - &
Secondary
Investments
2006-2008 83.5 CEP IV 77.9 CP V 311.4
CEP IV (119.0 ) CIEP I 74.5
CP V 68.4
CAP IV (245.7 )
CRP V (67.7 )
No other fund generated over 10% of performance allocations in the periods
presented above.
Under our arrangements with the historical owners and management team of
AlpInvest, we generally do not retain any carried interest in respect of the
historical investments and commitments to our fund vehicles that existed as of
July 1, 2011 (including any options to increase any such commitments exercised
after such date). We are entitled to 15% of the carried interest in respect of
commitments from the historical owners of AlpInvest for the period between 2011
and 2020 and 40% of the carried interest in respect of all other commitments
(including all future commitments from third parties). In certain instances,
carried interest associated with the AlpInvest fund vehicles is subject to
entity level income taxes in the Netherlands .
Realized carried interest may be clawed back or given back to the fund if the
fund's investment values decline below certain return hurdles, which vary from
fund to fund. When the fair value of a fund's investments remains constant or
falls below certain return hurdles, previously recognized performance
allocations are reversed. In all cases, each investment fund is considered
separately in evaluating carried interest and potential giveback obligations.
For any given period, performance allocations revenue on our statement of
operations may include reversals of previously recognized performance
allocations due to a decrease in the value of a particular fund that results in
a decrease of cumulative performance allocations earned to date. Since fund
return hurdles are cumulative, previously recognized performance allocations
also may be reversed in a period of appreciation that is lower than the
particular fund's hurdle rate. For the years ended December 31, 2019 , 2018, and
2017, the reversals of performance allocations were $215.8 million , $364.4
million and $74.2 million , respectively. Additionally, unrealized performance
allocations reverse when performance allocations are realized, and unrealized
performance allocations can be negative if the amount of realized performance
allocations exceed total performance allocations generated in the period.
As of December 31, 2019 , accrued performance allocations and accrued giveback
obligations were approximately $3.9 billion and $22.2 million , respectively.
Each balance assumes a hypothetical liquidation of the funds' investments at
December 31, 2019 at their then current fair values. These assets and
liabilities will continue to fluctuate in accordance with the fair values of the
fund investments until they are realized. As of December 31, 2019 , approximately
$14.1 million of the accrued giveback obligation is the responsibility of
various current and former senior Carlyle professionals and other limited
partners of the Carlyle Holdings partnerships, and the net accrued giveback
obligation attributable to Carlyle Holdings is $8.1 million . The Company uses
"net accrued performance revenues" to refer to the aggregation of the accrued
performance allocations and incentive fees net of (i) accrued giveback
obligations, (ii) accrued performance allocations and incentive fee-related
compensation, (iii) performance allocations and incentive fee-related tax
obligations, and (iv) accrued performance allocations and incentive fees
attributable to non-controlling interests and excludes any net accrued
performance allocations and incentive fees that have been realized but will be
collected in subsequent periods. The net accrued performance revenues as of
December 31, 2019 are $1.7 billion .
In addition, realized performance allocations may be reversed in future periods
to the extent that such amounts become subject to a giveback obligation. If at
December 31, 2019 , all investments held by our carry funds were deemed
worthless, a possibility that management views as remote, the amount of realized
and previously distributed performance allocations subject to potential giveback
would be approximately $0.4 billion , on an after-tax basis where applicable. See
the related discussion of "Contingent Obligations (Giveback)" within "-
Liquidity and Capital Resources."
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The following table summarizes the total amount of aggregate giveback
obligations that we have realized since Carlyle's inception. Given various
current and former senior Carlyle professionals and other limited partners of
the Carlyle Holdings partnerships are responsible for paying the majority of the
realized giveback obligation, the table below also summarizes the amount that
was attributable to Carlyle Holdings :
Inception through December 31, 2019
Giveback Attributable to
Total Giveback Carlyle Holdings
(Dollars in millions)
Various Legacy Energy Funds $ 155.2 $ 55.0
All other Carlyle Funds 56.9 0.6
Aggregate giveback since inception $ 212.1 $ 55.6
The amounts above include$40.6 million attributable to Legacy Energy Fund IV that was realized during the year endedDecember 31, 2019 , of which$19.9 million was attributable toCarlyle Holdings . The funding for employee obligations and givebacks related to carry realized pre-IPO is primarily through a collection of employee receivables related to giveback obligations and from non-controlling interests for their portion of the obligation. The realization of giveback obligations for the Company's portion of such obligations reduces Distributable Earnings in the period realized. Further, each individual recipient of realized carried interest typically signs a guarantee agreement or partnership agreement that personally obligates such person to return his/her pro rata share of any amounts of realized carried interest previously distributed that are later clawed back. Accordingly, carried interest as performance allocation compensation is subject to return to the Company in the event a giveback obligation is funded. Generally, the actual giveback liability, if any, does not become due until the end of a fund's life. Each investment fund is considered separately in evaluating carried interest and potential giveback obligations. As a result, performance allocations within funds will continue to fluctuate primarily due to certain investments within each fund constituting a material portion of the carry in that fund. Additionally, the fair value of investments in our funds may have substantial fluctuations from period to period. In addition, in our discussion of our non-GAAP results, we use the term "realized net performance revenues" to refer to realized performance allocations and incentive fees from our funds, net of the portion allocated to our investment professionals, if any, and certain tax expenses associated with carried interest attributable to certain partners and employees, which are reflected as realized performance allocations and incentive fees related compensation expense. See "- Non-GAAP Financial Measures" for the amount of realized performance revenues recognized each period. See "- Segment Analysis" for the realized performance revenues by segment and related discussion for each period. Investment income also represents the unrealized and realized gains and losses on our principal investments, including our investments in Carlyle funds that are not consolidated, as well as any interest and other income. Investment income (loss) also includes the related amortization of the basis difference between the carrying value of our investment and our share of the underlying net assets of the investee, as well as the compensation expense associated with compensatory arrangements provided by us to employees of our equity method investee, as it relates to our investments in NGP. Principal investment income also includes our share of earnings from our strategic investment in Fortitude Re. Realized principal investment income (loss) is recorded when we redeem all or a portion of our investment or when we receive or are due cash income, such as dividends or distributions. A realized principal investment loss is also recorded when an investment is deemed to be worthless. Unrealized principal investment income (loss) results from changes in the fair value of the underlying investment, as well as the reversal of previously recognized unrealized gains (losses) at the time an investment is realized. Fair Value Measurement.U.S. GAAP establishes a hierarchal disclosure framework which ranks the observability of market price inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, will generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. 90 --------------------------------------------------------------------------------
The table below summarizes the valuation of investments and other financial
instruments included within our AUM, by segment and fair value hierarchy levels,
as of
As of December 31, 2019
Corporate
Private Investment
Equity Real Assets Global
(Dollars in millions)
Consolidated Results
Level I $ 1,761 $ 2,476 $ 176 $ 1,912 $ 6,325
Level II 356 (6 ) 1,792 108 2,250
Level III 51,821 25,594 39,485 29,667 146,567
Fair Value of Investments 53,938 28,064 41,453 31,687 155,142
Available Capital 32,491 15,291 7,959 13,559 69,300
Total AUM $ 86,429 $ 43,355 $ 49,412 $ 45,246 $ 224,442
Interest and Other Income of Consolidated Funds. Interest and other income of
Consolidated Funds primarily represents the interest earned on CLO assets. The
Consolidated Funds are not the same entities in all periods presented. The
Consolidated Funds in future periods may change due to changes in fund terms,
formation of new funds, and terminations of funds.
Revenue of a Real Estate VIE. Revenue of a real estate VIE consists of revenue
generated by Urbplan, which primarily is revenue earned for land development
services using the completed contract method and investment income earned on
Urbplan's investments. Under the completed contract method of revenue
recognition, revenue is not recognized until the period in which the land
development services contract is completed, which can cause volatility from
period to period based on which contracts are completed. Urbplan was
deconsolidated from the Company's financial results during 2017 as a result of
the Company disposing of its interests in Urbplan in a transaction in which a
third party acquired operational control and all of the economic interests in
Urbplan (see Note 16 to the consolidated financial statements).
Net Investment Gains of Consolidated Funds. Net investment gains of Consolidated
Funds measures the change in the difference in fair value between the assets and
the liabilities of the Consolidated Funds. A gain (loss) indicates that the fair
value of the assets of the Consolidated Funds appreciated more (less), or
depreciated less (more), than the fair value of the liabilities of the
Consolidated Funds. A gain or loss is not necessarily indicative of the
investment performance of the Consolidated Funds and does not impact the
management or incentive fees received by Carlyle for its management of the
Consolidated Funds. The portion of the net investment gains (losses) of
Consolidated Funds attributable to the limited partner investors is allocated to
non-controlling interests. Therefore a gain or loss is not expected to have a
material impact on the revenues or profitability of the Company. Moreover,
although the assets of the Consolidated Funds are consolidated onto our balance
sheet pursuant to U.S. GAAP, ultimately we do not have recourse to such assets
and such liabilities are generally non-recourse to us. Therefore, a gain or loss
from the Consolidated Funds generally does not impact the assets available to
our equity holders.
Expenses
Compensation and Benefits. Compensation includes salaries, bonuses, equity-based
compensation, and performance payment arrangements. Bonuses are accrued over the
service period to which they relate.
We recognize as compensation expense the portion of performance allocations and
incentive fees that are due to our employees, senior Carlyle professionals,
advisors, and operating executives in a manner consistent with how we recognize
the performance allocations and incentive fee revenue. These amounts are
accounted for as compensation expense in conjunction with the related
performance allocations and incentive fee revenue and, until paid, are
recognized as a component of the accrued compensation and benefits liability.
Compensation in respect of performance allocations and incentive fees is paid
when the related performance allocations and incentive fees are realized, and
not when such performance allocations and incentive fees are accrued. The funds
do not have a uniform allocation of performance allocations and incentive fees
to our employees, senior Carlyle professionals and operating executives.
Therefore, for any given period, the ratio of performance allocations and
incentive fee compensation to performance allocations and incentive fee revenue
may vary based on the funds generating the performance allocations and incentive
fee revenue for that period and their particular allocation percentages.
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In addition, we have implemented various equity-based compensation arrangements
that require senior Carlyle professionals and other employees to vest ownership
of a portion of their equity interests over a service period of generally six
months to three and a half years, which under U.S. GAAP will result in
compensation charges over current and future periods. Further, in order to
recruit and retain existing and future senior Carlyle professionals and other
employees, we have implemented additional equity-based compensation programs
that have resulted in increases to our equity-based compensation expenses in
2017 and 2018. However, we intend to grant fewer equity awards to employees than
we have previously. For example, in 2018 and 2019, we granted approximately
13.3 million and 6.7 million stock awards (restricted stock units and other
awards), respectively, and expect to grant fewer than 5.0 million stock awards
in 2020. Compensation charges associated with all equity-based compensation
grants are excluded from Fee Related Earnings and Distributable Earnings.
We may hire additional individuals and overall compensation levels may
correspondingly increase, which could result in an increase in compensation and
benefits expense. As a result of acquisitions, we have charges associated with
contingent consideration taking the form of earn-outs and profit participation,
some of which are reflected as compensation expense.
General, Administrative and Other Expenses. General, administrative, and other
expenses include occupancy and equipment expenses and other expenses, which
consist principally of professional fees, including those related to our global
regulatory compliance program, external costs of fundraising, travel and related
expenses, communications and information services, depreciation and amortization
(including intangible asset amortization and impairment) and foreign currency
transactions. We expect that general, administrative and other expenses will
vary due to infrequently occurring or unusual items, such as impairment of
intangible assets and expenses or insurance recoveries associated with
litigation and contingencies. Also, in periods of significant fundraising, to
the extent that we use third parties to assist in our fundraising efforts, our
general, administrative and other expenses may increase accordingly.
Additionally, we anticipate that general, administrative and other expenses will
fluctuate from period to period due to the impact of foreign exchange.
We also could incur additional expenses in the future related to our
acquisitions including amortization of acquired intangibles and earn-outs to
equity holders. As discussed in Note 6 to the consolidated financial statements,
we evaluate our intangible assets (including goodwill) for impairment and could
record additional impairment losses in future periods.
Interest and Other Expenses of Consolidated Funds. The interest and other
expenses of Consolidated Funds consist primarily of interest expenses related
primarily to our CLO loans, professional fees and other third-party expenses.
Interest and Other Expenses of a Real Estate VIE and Loss on Deconsolidation.
Interest and other expenses of a real estate VIE and loss on deconsolidation
reflects the loss recognized in 2017 as a result of the Company disposing of its
interests in Urbplan in a transaction in which a third party acquired
operational control and all of the economic interests in Urbplan, which resulted
in the deconsolidation of Urbplan from the Company's financial results (see Note
16 to the consolidated financial statements). This line item also includes
expenses incurred by Urbplan prior to deconsolidation, consisting primarily of
interest expense, general and administrative expenses, impairment charges,
compensation and benefits, and costs associated with land development services.
Also included in this caption is the change in our estimate of the fair value of
Urbplan's loans payable.
Income Taxes. Prior to the Conversion, the Carlyle Holdings partnerships and
their subsidiaries primarily operated as pass-through entities for U.S. income
tax purposes and recorded a provision for state and local income taxes for
certain entities based on applicable laws and a provision for foreign income
taxes for certain foreign entities. In addition, Carlyle Holdings I GP Inc. was
subject to U.S. income taxes on only a portion of our income or loss. Depending
on the sources of our taxable income or loss, our income tax provision or
benefit can vary significantly from period to period. Following the Conversion,
we expect to pay more corporate income taxes than we would have as a limited
partnership.
Income taxes for foreign entities are accounted for using the asset and
liability method of accounting. Under this method, deferred tax assets and
liabilities are recognized for the expected future tax consequences of
differences between the carrying amounts of assets and liabilities and their
respective tax basis, using currently enacted tax rates. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period in which the change is enacted. Deferred tax assets are reduced by a
valuation allowance when it is more likely than not that some or all of the
deferred tax assets will not be realized.
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In the normal course of business, we are subject to examination by federal and
certain state, local and foreign tax regulators. As of December 31, 2019 , our
U.S. federal income tax returns for the years 2016 through 2018 are open under
the normal three-year statute of limitations and therefore subject to
examination. State and local tax returns are generally subject to audit from
2014 to 2018. Foreign tax returns are generally subject to audit from 2011 to
2018. Certain of our affiliates are currently under audit by federal, state and
foreign tax authorities.
Non-controlling Interests in Consolidated Entities. Non-controlling interests in
consolidated entities represent the component of equity in consolidated entities
not held by us. These interests are adjusted for general partner allocations.
Prior to the Conversion, we recorded significant non-controlling interests in
Carlyle Holdings relating to the ownership interests of the limited partners of
the Carlyle Holdings partnerships. The Company, through wholly owned
subsidiaries, was the sole general partner of Carlyle Holdings . Accordingly, the
Company consolidated the financial position and results of operations of Carlyle
Holdings into its financial statements, and the other ownership interests in
Carlyle Holdings are reflected as a non-controlling interest in the Company's
financial statements. As described above under "-Conversion to a
Corporation-Conversion Steps," the limited partners of the Carlyle Holdings
partnerships exchanged their Carlyle Holdings partnership units for an
equivalent number of shares of common stock of The Carlyle Group Inc. as part of
the Conversion. As a result, following the Conversion the consolidated balance
sheet of The Carlyle Group Inc. will not reflect any non-controlling interests
in Carlyle Holdings .
Earnings Per Common Unit. We compute earnings per common unit in accordance with
ASC 260, Earnings Per Share. Basic earnings per common unit is calculated by
dividing net income (loss) attributable to the common units of the Company by
the weighted average number of common units outstanding for the period. Diluted
earnings per common unit reflects the assumed conversion of all dilutive
securities. We apply the "if-converted" method to the Carlyle Holdings
partnership units to determine the dilutive weighted-average common units
outstanding. Subsequent to the Conversion, we will only have a single class of
stock and therefore, the "if-converted" method will no longer be applied in our
computation of diluted earnings per share.
Non-GAAP Financial Measures
Distributable Earnings. Distributable Earnings, or "DE", is a key performance
benchmark used in our industry and is evaluated regularly by management in
making resource deployment and compensation decisions, and in assessing the
performance of our four segments. We also use DE in our budgeting, forecasting,
and the overall management of our segments. We believe that reporting DE is
helpful to understanding our business and that investors should review the same
supplemental financial measure that management uses to analyze our segment
performance. DE is intended to show the amount of net realized earnings without
the effects of consolidation of the Consolidated Funds. DE is derived from our
segment reported results and is an additional measure to assess performance.
Distributable Earnings differs from income (loss) before provision for income
taxes computed in accordance with U.S. GAAP in that it includes certain tax
expenses associated with performance revenues (comprised of performance
allocations and incentive fees), and does not include unrealized performance
allocations and related compensation expense, unrealized principal investment
income, equity-based compensation expense, net income (loss) attributable to
non-Carlyle interest in consolidated entities, or charges (credits) related to
Carlyle corporate actions and non-recurring items. Charges (credits) related to
Carlyle corporate actions and non-recurring items include: charges associated
with acquisitions or strategic investments, changes in the tax receivable
agreement liability, corporate conversion costs, amortization and any impairment
charges associated with acquired intangible assets, transaction costs associated
with acquisitions, charges associated with earnouts and contingent consideration
including gains and losses associated with the estimated fair value of
contingent consideration issued in conjunction with acquisitions or strategic
investments, impairment charges associated with lease right-of-use assets, gains
and losses from the retirement of debt, charges associated with contract
terminations and employee severance. We believe the inclusion or exclusion of
these items provides investors with a meaningful indication of our core
operating performance. This measure supplements and should be considered in
addition to and not in lieu of the results of operations discussed further under
"-Consolidated Results of Operations" prepared in accordance with U.S. GAAP.
Fee Related Earnings. Fee Related Earnings, or "FRE", is a component of DE and
is used to assess the ability of the business to cover direct base compensation
and operating expenses from total fee revenues. FRE differs from income (loss)
before provision for income taxes computed in accordance with U.S. GAAP in that
it adjusts for the items included in the calculation of DE and also adjusts DE
to exclude net realized performance revenues, realized principal investment
income from investments in Carlyle funds, net interest (interest income less
interest expense), and certain general, administrative and other expenses when
the timing of any future payment is uncertain.
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Operating Metrics
We monitor certain operating metrics that are common to the asset management
industry.
Fee-earning Assets under Management
Fee-earning assets under management or Fee-earning AUM refers to the assets we
manage or advise from which we derive recurring fund management fees. Our
Fee-earning AUM is generally based on one of the following, once fees have been
activated:
(a) the amount of limited partner capital commitments, generally for carry
funds where the original investment period has not expired, for
AlpInvest carry funds during the commitment fee period and for
Metropolitan carry funds during the weighted-average investment period
of the underlying funds (see "Fee-earning AUM based on capital
commitments" in the table below for the amount of this component at
each period);
(b) the remaining amount of limited partner invested capital at cost,generally for carry funds and certain co-investment vehicles where the
original investment period has expired, Metropolitan carry funds after
the expiration of the weighted-average investment period of the
underlying funds, and one of our business development companies (see
"Fee-earning AUM based on invested capital" in the table below for the
amount of this component at each period);
(c) the amount of aggregate fee-earning collateral balance at par of our
CLOs and other securitization vehicles, as defined in the fundindentures (typically exclusive of equities and defaulted positions) as
of the quarterly cut-off date;
(d) the external investor portion of the net asset value of our hedge fundand fund of hedge funds vehicles (pre redemptions and subscriptions),
as well as certain carry funds (see "Fee-earning AUM based on net asset
value" in the table below for the amount of this component at each
period);
(e) the gross assets (including assets acquired with leverage), excluding
cash and cash equivalents, of one of our business development companies
and certain carry funds (see "Fee-earning AUM based on lower of cost or
fair value and other" in the table below for the amount of this
component at each period); and
(f) the lower of cost or fair value of invested capital, generally for
AlpInvest carry funds where the commitment fee period has expired and
certain carry funds where the investment period has expired, (see
"Fee-earning AUM based on lower of cost or fair value and other" in the
table below for the amount of this component at each period).
The table below details Fee-earning AUM by its respective components at each
period.
As of December 31,
2019 2018 2017
Consolidated Results (Dollars in millions)
Components of Fee-earning AUM
Fee-earning AUM based on capital commitments (1) $ 72,059 $ 70,032 $ 58,618
Fee-earning AUM based on invested capital (2) 41,639 43,369 24,263
Fee-earning AUM based on collateral balances, at par (3) 24,887 22,921
18,625
Fee-earning AUM based on net asset value (4) 4,531 3,288
1,776
Fee-earning AUM based on lower of cost or fair value and other (5) 17,941 19,942
21,313
Balance, End of Period (6) (7)$ 161,057 $ 159,552
(1) Reflects limited partner capital commitments where the original investment
period, weighted-average investment period, or commitment fee period has
not expired.
(2) Reflects limited partner invested capital at cost and includes amounts
committed to or reserved for investments for certain Real Assets and
Investment Solutions funds.
(3) Represents the amount of aggregate Fee-earning collateral balances and
principal balances, at par, for our CLOs/structured products.
(4) Reflects the net asset value (pre-redemptions and subscriptions) of our
hedge funds, mutual fund and fund of hedge funds vehicles, as well as
certain other carry funds.
(5) Includes funds with fees based on gross asset value.
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(6) Energy III, Energy IV, and Renew II (collectively, the "Legacy Energy
Funds") are managed with Riverstone Holdings LLC and its affiliates.
Affiliates of both Carlyle and Riverstone act as investment advisers toeach of the Legacy Energy Funds. Carlyle has a minority representation on
the management committees of Energy IV and Renew II. Carlyle and Riverstone
each hold half of the seats on the management committees of Energy III, but
the investment period for this fund has expired and the remaining
investments in such fund are being disposed of in the ordinary course of
business. As of
aggregate, approximately
Fee-earning AUM. We are no longer raising capital for the Legacy Energy
Funds and expect these balances to continue to decrease over time as the
funds wind down.
(7) Ending balance excludes
fees have not yet been activated.
The table below provides the period to period rollforward of Fee-earning AUM.
Year Ended December 31,
2019 2018 2017
Consolidated Results (Dollars in millions)
Fee-earning AUM Rollforward
Balance, Beginning of Period $ 159,552 $ 124,595 $ 114,994
Inflows (1) 16,460 50,164 22,679
Outflows (including realizations) (2) (15,293 ) (13,486 ) (17,949 )
Market Activity & Other (3) 1,115 62 243
Foreign Exchange (4) (777 ) (1,783 ) 4,628
Balance, End of Period $ 161,057 $ 159,552 $ 124,595
(1) Inflows represents limited partner capital raised by our carry funds or
separately managed accounts for which management fees based on commitments
were activated during the period, the fee-earning commitments invested in
vehicles for which management fees are based on invested capital, the
fee-earning collateral balance of new CLO issuances, as well as gross
subscriptions in our vehicles for which management fees are based on net
asset value. Inflows exclude fundraising amounts during the period forwhich fees have not yet been activated, which are referenced as Pending
Fee-earning AUM. Inflows also includes
Aviation Partners (formerlyApollo Aviation Group ) assets which were acquired in a transaction that closed inDecember 2018 . (2) Outflows represents the impact of realizations from vehicles with
management fees based on remaining invested capital at cost or fair value,
changes in basis for funds where the investment period, weighted-average
investment period or commitment fee period has expired during the period,
reductions for funds that are no longer calling for fees, gross redemptions
in our open-ended funds, and runoff of CLO collateral balances.
Distributions for funds earning management fees based on commitments during
the period do not affect Fee-earning AUM.
(3) Market Activity & Other represents realized and unrealized gains (losses)
on portfolio investments in our carry funds based on the lower of cost or
fair value and net asset value, as well as activity of funds with fees
based on gross asset value.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Refer to "- Segment Analysis" for a detailed discussion by segment of the activity affecting Fee-earning AUM for each of the periods presented by segment. Assets under Management "Assets under management" or "AUM" refers to the assets we manage or advise. Our AUM equals the sum of the following: (a) the aggregate fair value of our carry funds and related co-investment vehicles, NGP Predecessor Funds and separately managed accounts, plus the capital that Carlyle is entitled to call from investors in those funds and vehicles (including Carlyle commitments to those funds and vehicles and those of senior Carlyle professionals and employees) pursuant to the terms of their capital commitments to those funds and vehicles; (b) the amount of aggregate collateral balance and principal cash at par or
aggregate principal amount of the notes of our CLOs and other structured
products (inclusive of all positions);
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(c) the net asset value of our hedge fund and fund of hedge funds vehicles (pre
redemptions and subscriptions), as well as certain carry funds; and
(d) the gross assets (including assets acquired with leverage) of our business
development companies, plus the capital that Carlyle is entitled to call
from investors in those vehicles pursuant to the terms of their capital
commitments to those vehicles.
We include in our calculation of AUM and Fee-earning AUM certain energy and renewable resources funds that we jointly advise withRiverstone Holdings L.L.C. ("Riverstone") and the NGP Energy Funds that are advised by NGP. For most of our carry funds, total AUM includes the fair value of the capital invested, whereas Fee-earning AUM includes the amount of capital commitments or the remaining amount of invested capital, depending on whether the original investment period for the fund has expired. As such, Fee-earning AUM may be greater than total AUM when the aggregate fair value of the remaining investments is less than the cost of those investments. Our calculations of AUM and Fee-earning AUM may differ from the calculations of other asset managers. As a result, these measures may not be comparable to similar measures presented by other asset managers. In addition, our calculation of AUM (but not Fee-earning AUM) includes uncalled commitments to, and the fair value of invested capital in, our investment funds from Carlyle and our personnel, regardless of whether such commitments or invested capital are subject to management fees or performance allocations. Our calculations of AUM or Fee-earning AUM are not based on any definition of AUM or Fee-earning AUM that is set forth in the agreements governing the investment funds that we manage or advise. We generally use Fee-earning AUM as a metric to measure changes in the assets from which we earn recurring management fees. Total AUM tends to be a better measure of our investment and fundraising performance as it reflects investments at fair value plus available capital.Available Capital "Available Capital " refers to the amount of capital commitments available to be called for investments, which may be reduced for equity invested that is funded via a fund credit facility and expected to be called from investors at a later date, plus any additional assets/liabilities at the fund level other than active investments. Amounts previously called may be added back to available capital following certain distributions. "Expired Available Capital " occurs when a fund has passed the investment and follow-on periods and can no longer invest capital into new or existing deals. Any remainingAvailable Capital , typically a result of either recycled distributions or specific reserves established for the follow-on period that are not drawn, can only be called for fees and expenses and is therefore removed from the Total AUM calculation. The table below provides the period to period rollforward of Total AUM. Year Ended December 31, 2019 2018 2017 (Dollars in millions) Consolidated Results Total AUM Rollforward Balance, Beginning of Period$ 216,470 $ 195,061 $ 157,607 Inflows (1) 19,970 38,701 42,853 Outflows (including realizations) (2) (20,187 ) (24,760 ) (28,840 ) Market Activity & Other (3) 9,146 10,337 16,943 Foreign Exchange (4) (957 ) (2,869 ) 6,498 Balance, End of Period$ 224,442 $ 216,470 $ 195,061 (1) Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects
translation at the average quarterly rate, while the separately reported
Fundraising metric is translated at the spot rate for each individual
closing. New CLO warehouse assets are recognized as an inflow to AUM, while
corresponding fundraising will not be recognized until CLO issuance.
Inflows also includes
Apollo Aviation Group ) assets which were acquired in a transaction that closed inDecember 2018 . 96
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(2) Outflows includes distributions net of recallable or recyclable amounts in
our carry funds, related co-investment vehicles, separately managed
accounts and the NGP Predecessor Funds, gross redemptions in our open-ended
funds, runoff of CLO collateral balances and the expiration of available
capital.
(3) Market Activity & Other generally represents realized and unrealized gains
(losses) on portfolio investments in our carry funds and related
co-investment vehicles, the NGP Predecessor Funds and separately managed
accounts, as well as the net impact of fees, expenses and non-investment
income, change in gross asset value for our business development companies
and other changes in AUM.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
The table below presents the change in appreciation on portfolio investments of
our carry funds. Please refer to "- Segment Analysis" for a detailed discussion
by segment of the activity affecting Total AUM for each of the periods
presented.
Carlyle Portfolio Appreciation (1,2) vs. Major Equity Indices
[[Image Removed: imgp103no1.jpg]](1) Corporate Private Equity, Real Assets, and Global Credit carry funds only,
excluding external co-investment.
(2) For Carlyle returns, "Appreciation/Depreciation" represents realized and
unrealized gain / loss for the period on a total return basis before fees
and expenses. The percentage of return is calculated as the sum of ending
remaining investment fair market value ("FMV") and net investment outflow
(sales proceeds less net purchases) less beginning remaining investment FMV
divided by beginning remaining investment FMV.
(3) In the Corporate Private Equity, Real Assets, and Global Credit carry
funds, public investments made up 6% of remaining fair value atQ4 2019, public investments depreciated 7% while private investments
appreciated 2%, compared to 27% public depreciation and 1% private
depreciation for Q4 2018. For YTD 2019, public investments depreciated 4%
while private investments appreciated 7%, compared to 19% public
depreciation and 9% private appreciation for the comparable prior YTD
period. Public portfolio includes initial public offerings ("IPO") thatoccurred in the quarter. Investments may be reported as private in quarters
prior to the IPO quarter.
(4) The MSCI ACWI - All Cap Index represents the performance of the MSCI AllCountry World Index across all market capitalization sizes of the global
equity market. There are significant differences between the types of
securities and assets typically acquired by our carry funds and the
investments covered by the MSCI All Country World Index. Specifically, our
carry funds may make investments in securities and other assets that have a
greater degree of risk and volatility, and less liquidity, than those
securities included in the MSCI All Country World Index. Moreover,
investors in the securities included in the MSCI All Country World Index
may not be subject to the management fees, carried interest or expenses to
which investors in our carry funds are typically subject. Comparisons
between the our carry fund appreciation and the
Index are included for informational purposes only.
Consolidation of Certain Carlyle Funds
The Company consolidates all entities that it controls either through a majority
voting interest or as the primary beneficiary of variable interest entities,
which are collectively referred to as the Consolidated Funds in our consolidated
financial statements.
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-------------------------------------------------------------------------------- As ofDecember 31, 2019 , our Consolidated Funds represent approximately 2% of our AUM; 1% of our fund management fees; and less than 1% of our investment income for the year endedDecember 31, 2019 . We are not required under the consolidation guidance to consolidate in our financial statements most of the investment funds we advise. However, we consolidate certain CLOs that we advise. As ofDecember 31, 2019 , our consolidated CLOs held approximately$5.2 billion of total assets and comprised substantially all of the assets and loans payable of the Consolidated Funds. The assets and liabilities of the Consolidated Funds are generally held within separate legal entities and, as a result, the liabilities of the Consolidated Funds are non-recourse to us. Generally, the consolidation of the Consolidated Funds has a gross-up effect on our assets, liabilities and cash flows but has no net effect on the net income attributable to the Company and partners' capital. The majority of the net economic ownership interests of the Consolidated Funds are reflected as non-controlling interests in consolidated entities in the consolidated financial statements. Because only a small portion of our funds are consolidated, the performance of the Consolidated Funds is not necessarily consistent with or representative of the combined performance trends of all of our funds. For further information on our consolidation policy and the consolidation of certain funds, see Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K. Consolidated Results of Operations The following table and discussion sets forth information regarding our consolidated results of operations for the years endedDecember 31, 2019 , 2018 and 2017. Our consolidated financial statements have been prepared on substantially the same basis for all historical periods presented; however, the consolidated funds are not the same entities in all periods shown due to changes inU.S. GAAP, changes in fund terms and the creation and termination of funds. As further described above, the consolidation of these funds primarily had the impact of increasing interest and other income of Consolidated Funds, interest and other expenses of Consolidated Funds, and net investment gains of Consolidated Funds in the year that the fund is initially consolidated. The consolidation of these funds had no effect on net income attributable to the Company for the periods presented. 98 --------------------------------------------------------------------------------
Year Ended December 31,
2019 2018 2017
(Dollars in millions, except unit and per unit data)
Revenues
Fund management fees $ 1,476.2 $ 1,272.0 $ 1,026.9
Incentive fees 35.9 30.2 35.3
Investment income (loss)
Performance allocations 799.1 622.9 2,058.6
Principal investment income 769.3 186.3 232.0
Total investment income 1,568.4 809.2 2,290.6
Interest and other income 97.3 101.3 36.7
Interest and other income of Consolidated
Funds 199.2 214.5 177.7
Revenue of a real estate VIE - - 109.0
Total revenues 3,377.0 2,427.2 3,676.2
Expenses
Compensation and benefits
Cash-based compensation 833.4 746.7 652.7
Equity-based compensation 140.0 239.9 320.3
Performance allocations and incentive fee
related compensation 436.7 376.3 988.3
Total compensation and benefits 1,410.1 1,362.9 1,961.3
General, administrative, and other expenses 494.4 460.7 276.8
Interest 82.1 82.2 65.5
Interest and other expenses of Consolidated
Funds 131.8 164.6 197.6
Interest and other expenses of a real estate
VIE and loss on deconsolidation - - 202.5
Other non-operating expenses (income) 1.3 1.1 (71.4 )
Total expenses 2,119.7 2,071.5 2,632.3
Other income
Net investment gains (losses) of Consolidated
Funds (23.9 ) 4.5 88.4
Income before provision for income taxes 1,233.4 360.2 1,132.3
Provision for income taxes 49.0 31.3 124.9
Net income 1,184.4 328.9 1,007.4
Net income attributable to non-controlling
interests in consolidated entities 36.6 33.9 72.5
Net income attributable to Carlyle Holdings 1,147.8 295.0 934.9
Net income attributable to non-controlling
interests in Carlyle Holdings 766.9 178.5 690.8
Net income attributable to The Carlyle Group
L.P. 380.9 116.5 244.1
Net income attributable to Series A Preferred
Unitholders 19.1 23.6 6.0
Series A Preferred Units redemption premium 16.5 - -
Net income attributable to The Carlyle Group
L.P. common unitholders $ 345.3 $ 92.9 $ 238.1
Net income attributable to The Carlyle Group
L.P. per common unit
Basic $ 3.05 $ 0.89 $ 2.58
Diluted $ 2.82 $ 0.82 $ 2.38
Weighted-average common units
Basic 113,082,733 104,198,089 92,136,959
Diluted 122,632,889 113,389,443 100,082,548
99
-------------------------------------------------------------------------------- Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 and Year EndedDecember 31, 2018 Compared to Year EndedDecember 31, 2017 . Revenues Total revenues increased$949.8 million , or 39%, for the year endedDecember 31, 2019 as compared to 2018 and decreased$1.2 billion , or 34%, for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the changes in total revenues for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Total Revenues, prior year$ 2,427.2 $ 3,676.2 Increases (Decreases): Increase in fund management fees 204.2
245.1
Increase (decrease) in incentive fees 5.7
(5.1 ) Increase (decrease) in investment income, including performance allocations
759.2 (1,481.4 ) (Decrease) increase in interest and other income of Consolidated Funds
(15.3 ) 36.8
Decrease in revenue of a real estate VIE - (109.0 ) (Decrease) increase in interest and other income (4.0 ) 64.6 Total increase (decrease) 949.8 (1,249.0 ) Total Revenues, current year$ 3,377.0 $ 2,427.2
Fund Management Fees. Fund management fees increased
Year Ended December 31,
2019 2018
(Dollars in millions)
Higher management fees from the commencement of the
344.3
investment period for certain newly raised funds Lower management fees resulting from the change in (127.6 ) (117.3 ) basis for earning management fees from commitments to invested capital for certain funds and from distributions from funds whose management fees are based on invested capital Increase in catch-up management fees from subsequent 10.5
13.9
closes of funds that are in the fundraising period (Lower) higher transaction and portfolio advisory fees (1.4 )
10.2
All other changes 3.7 (6.0 ) Total increase in fund management fees$ 204.2 $
245.1
Fund management fees include transaction and portfolio advisory fees, net of rebate offsets, of$49.1 million ,$50.5 million , and$43.6 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. The increase for the year endedDecember 31, 2018 as compared to 2017 was driven by certain significant transactions in our Corporate Private Equity funds which closed in the fourth quarter of 2018. Investment Income. Investment income increased$759.2 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$1.5 billion for the year endedDecember 31, 2018 as compared to 2017, primarily due to the following: 100 --------------------------------------------------------------------------------
Year Ended December 31,
2019 2018
(Dollars in millions)
Increase (decrease) in performance allocations, excluding $ 176.2 $ (1,435.7 )
NGP
Decrease in investment income from NGP, which includes (162.1 ) (44.8 ) performance allocations from the investments in NGP Increase (decrease) in investment income from our buyout 8.2
(45.7 )
and growth funds
(Decrease) increase in gains on foreign currency hedges (0.6 ) 9.4
Increase (decrease) in investment income from our real 7.3 (5.3 ) assets funds, excluding NGP Increase from settlement of CEREP I tax matter in 2019 71.5
-
Decrease in investment income from our distressed debt (7.3 ) (11.0 ) funds and energy mezzanine funds Decrease in investment income from our CLOs (2.6 ) (6.2 ) Increase in income from Fortitude Re 665.0
57.9
All other changes 3.6
-
Total increase (decrease) in investment income$ 759.2
The Company's earnings from its investment in Fortitude Re for the years endedDecember 31, 2019 and 2018 was$722.9 million and$57.9 million , respectively, which represents 19.9% of Fortitude Re's estimated net income for the respective periods. These amounts are inclusive of$582.0 million and$46.2 million of unrealized gains, respectively, resulting from changes in the fair value of embedded derivatives related to certain reinsurance contracts included in Fortitude Re'sU.S. GAAP financial statements. Modified coinsurance is subject to the general accounting principles for hedging, specifically the guidance originally issued as Derivatives Implementation Group Issue No. B36: Embedded Derivatives: Modified Coinsurance Agreements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments ("DIG B36"). The significant increase in fair value on the embedded derivatives during the year is primarily a result of a narrowing of credit spreads during the period. InNovember 2019 , we signed an agreement for a Carlyle-affiliated investment fund to acquire an additional stake in Fortitude Re, which is expected to close in mid-2020. At closing, the Company will transfer its stake in Fortitude Re to the investment fund, and our investment will become an ownership interest in the fund. At that time, we will record our investment at the net asset value of our interest in the fund, which we expect to be lower than our current carrying value primarily due to these unrealized gains on embedded derivatives. Cumulative unrealized gains on embedded derivatives from the date of our investment throughDecember 31, 2019 were$628.2 million . Performance Allocations. Performance allocations increased$176.2 million for the year endedDecember 31, 2019 compared to 2018 and decreased$1.4 billion for the year endedDecember 31, 2018 as compared to 2017. Performance allocations by segment for the years endedDecember 31, 2019 , 2018 and 2017 comprised the following: Year Ended December 31, 2019 2018 2017 (Dollars in millions) Corporate Private Equity$ 248.8 $ 291.4 $ 1,629.6 Real Assets 301.6 148.4 265.2 Global Credit 38.5 9.1 21.3 Investment Solutions 210.2 174.0 142.5
Total performance allocations
Total carry fund appreciation 9% 9% 20%
Approximately$273.6 million of our performance allocations for the year endedDecember 31, 2019 were related to CP VI, CRP V, Alpinvest Co - & Secondary Investments 2006-2008 andCEP IV , while approximately$201.7 million of our performance allocations for the year endedDecember 31, 2018 were related to CP VI, CRP VII,CEP IV , CIEP I, CP V, CAP 101 -------------------------------------------------------------------------------- IV and CRP V, and approximately$1.3 billion of our performance allocations for the year endedDecember 31, 2017 were related to CP VI, CAP IV and CP V. Expectations for global economic growth have moderated significantly since the beginning of 2019, with decelerated growth in theU.S. relative to 2018 due to weakness in the industrial sector, business spending, and exports. Geopolitical uncertainty and trade frictions continued to exert a significant impact on the world economy, though investor optimism has risen substantially with the finalization of the "Phase-One" trade agreement between theU.S. andChina inJanuary 2020 . Our overall carry fund portfolio generally lagged the performance of large capU.S. stocks, while exceeding returns on the small- and mid-cap indices. Our Corporate Private Equity funds appreciated by 3% in the fourth quarter and 8% over the last twelve months. Our Real Asset funds were flat during the fourth quarter and appreciated 3% over the last twelve months, as strong appreciation in our real estate funds of 16% over 2019 was dampened by weakness in certain energy funds, in particular those with significant investments in upstream companies and/or publicly traded companies. Global Credit carry funds were down 1% in the fourth quarter but appreciated 1% for the year. Investment Solutions appreciation was 1% in the fourth quarter and 15% for the year, driven by strong investment performance in our AlpInvest funds. While slowing global growth and volatile market conditions could impact valuations in the short-term, we believe our existing portfolio of assets is high-quality and well-diversified by fund, industry sector, asset class, and region. In addition, incentive fees from Consolidated Funds decreased$1.1 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$1.3 million for the year endedDecember 31, 2018 as compared to 2017. These fees eliminate upon consolidation. Interest and Other Income. Interest and other income decreased$4.0 million for the year endedDecember 31, 2019 as compared to 2018 and increased$64.6 million for the year endedDecember 31, 2018 as compared to 2017. The decrease for the year endedDecember 31, 2019 was primarily as a result of decreased interest income related to corporate treasury investments, partially offset by the reimbursement of certain costs incurred on behalf of Carlyle funds. The increase in 2018 reflected an increase in interest income related to our CLOs and certain money market accounts, as well as the Company's adoption of the revenue recognition standard, ASU 2014-09, onJanuary 1, 2018 . As part of the adoption, the reimbursement of certain costs incurred on behalf of Carlyle funds, primarily travel and entertainment costs, that were previously presented net in our audited consolidated statements of operations are presented gross beginning onJanuary 1, 2018 . For the year endedDecember 31, 2018 , these costs were approximately$29.3 million and are presented in interest and other income and general, administrative and other expenses in our audited consolidated statements of operations. See Note 2 to our audited consolidated financial statements for more information on the adoption of the revenue recognition standard. Interest and Other Income of Consolidated Funds. Our CLOs generate interest income primarily from investments in bonds and loans inclusive of amortization of discounts and generate other income from consent and amendment fees. Substantially all interest and other income of the CLOs and other consolidated funds together with interest expense of our CLOs and net investment gains of Consolidated Funds is attributable to the related funds' limited partners or CLO investors. Accordingly, such amounts have no material impact on net income attributable to the Company. Interest and other income of consolidated funds decreased$15.3 million for the year endedDecember 31, 2019 as compared to 2018, and increased$36.8 million for the year endedDecember 31, 2018 as compared to 2017. Substantially all of the variance in interest and other income of Consolidated Funds for both periods relates to interest income from CLOs.
Revenue of a Real Estate VIE. Revenue of a real estate VIE was
102
--------------------------------------------------------------------------------Expenses Total expenses increased$48.2 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$560.8 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the changes in total expenses for the year endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Total Expenses, prior year$ 2,071.5 $ 2,632.3 Increases (Decreases): Increase (decrease) in total compensation and benefits 47.2 (598.4 ) Increase in general, administrative and other expenses 33.7
183.9
Decrease in interest and other expenses of Consolidated Funds (32.8 ) (33.0 ) Decrease in interest and other expenses of a real - (202.5 ) estate VIE and loss on deconsolidation Decrease in other non-operating income 0.2 72.5 All other changes (0.1 ) 16.7 Total increase (decrease) 48.2 (560.8 ) Total Expenses, current year$ 2,119.7 $ 2,071.5 Total Compensation and Benefits. Total compensation and benefits increased$47.2 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$598.4 million for the year endedDecember 31, 2018 as compared to 2017, due to the following: Year Ended December 31, 2019 2018 (Dollars in millions) Increase in cash-based compensation and benefits$ 86.7 $
94.0
Decrease in equity-based compensation (99.9 ) (80.4 ) Increase (decrease) in performance allocations and incentive fee related compensation 60.4 (612.0 ) Total increase (decrease) in total compensation and benefits$ 47.2 $ (598.4 )
Cash-based compensation and benefits. Cash-based compensation and benefits
increased
Year Ended December 31,
2019 2018
(Dollars in millions)
Increase in headcount and bonuses $ 36.0 $ 94.0
Increase associated with theCarlyle Aviation Partners acquisition: Compensation and benefits 20.2 - Contingent earnout 30.5 -
Total increase in base compensation and benefits
94.0
Equity-based compensation. Equity-based compensation decreased$99.9 million , or 42%, for the year endedDecember 31, 2019 as compared to 2018. The decrease in equity-based compensation from 2018 to 2019 was due primarily to to the timing of the last vesting of awards inMay 2018 related to our initial public offering in 2012 and lower rate of ongoing grants of restricted stock units during 2019. 103 -------------------------------------------------------------------------------- Equity-based compensation decreased$80.4 million , or 25%, for the year endedDecember 31, 2018 as compared to 2017. The decrease in equity-based compensation from 2017 to 2018 was due primarily to the timing of the last vesting of awards inMay 2018 related to our initial public offering in 2012. This decrease was partially offset by the ongoing grants of restricted stock units to new and existing employees during 2017 and 2018. Performance allocations and incentive fee related compensation expense. Performance allocations and incentive fee related compensation expense increased$60.4 million for the year endedDecember 31, 2019 as compared to 2018 and decreased$612.0 million for the year endedDecember 31, 2018 as compared to 2017. Performance allocations and incentive fee related compensation expense as a percentage of performance allocations and incentive fee was 52%, 58%, and 48% in the years endedDecember 31, 2019 , 2018 and 2017, respectively. Performance allocations and incentive fee related compensation as a percentage of performance allocations and incentive fees fluctuates depending on the mix of funds contributing to performance allocations and incentive fees in a given period. For our largest segment, Corporate Private Equity, our performance allocations and incentive fee related compensation expense as a percentage of performance allocations is generally around 45%. Performance allocations from our Investment Solutions segment pay a higher ratio of performance allocations as compensation, primarily as a result of the terms of our acquisition of AlpInvest. Conversely, performance allocations from the Legacy Energy funds in our Real Assets segment are primarily allocated to Carlyle because the investment teams for the Legacy Energy funds are employed by Riverstone and not Carlyle. General, Administrative and Other Expenses. General, administrative and other expenses increased$33.7 million for the year endedDecember 31, 2019 as compared to 2018, and increased$183.9 million for the year endedDecember 31, 2018 as compared to 2017, primarily due to: Year EndedDecember 31, 2019 2018 (Dollars in millions)
Certain costs incurred on behalf of Carlyle funds, primarily travel and entertainment costs, that are now presented on a gross basis as a result of the adoption of the new revenue recognition standard (See Note 2 to the consolidated financial statements)
$ - $ 29.3
Lower expenses for litigation and contingencies(1) - (119.2 ) Higher (lower) intangible asset amortization 5.5 (0.2 ) Higher depreciation and amortization 13.1
5.8
Decrease in net insurance proceeds recognized for certain legal matters 31.5
180.8
Lease assignment and termination costs (66.9 )
66.9
Higher professional fees, including corporate conversion costs 41.4
7.0
(Lower) higher external fundraising costs (34.3 )
22.6
Foreign exchange adjustments(2) 23.2
2.1
Other changes 20.2
(11.2 ) Total increase in general, administrative and other expenses
$ 33.7 $
183.9
(1) For the year endedDecember 31, 2018 compared to the year endedDecember 31, 2017 , this reflects the$144 million of commodities charges in 2017 as well as the$25 million reversal of the CCC litigation contingent reserve. See Note 9 to the consolidated financial statements for more information on our legal matters. (2) For the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , foreign exchange adjustments is primarily driven by the revaluation in our European CLOs investments. Interest and Other Expenses of Consolidated Funds. Interest and other expenses of Consolidated Funds decreased$32.8 million for the year endedDecember 31, 2019 as compared to 2018 and decreased$33.0 million for the year endedDecember 31, 2018 as compared to 2017. The decreases are primarily due to lower interest expense on the consolidated CLOs. The CLOs incur interest expense on their loans payable and incur other expenses consisting of trustee fees, rating agency fees and professional fees. Substantially all interest and other income of our CLOs together with interest expense of our CLOs and net investment gains of Consolidated Funds is attributable to the related funds' limited partners or CLO investors. Accordingly, such amounts have no material impact on net income attributable to the Company. 104
-------------------------------------------------------------------------------- Interest and Other Expenses of a Real Estate VIE and Loss on Deconsolidation. The Company disposed of its interest in UrbPlan and deconsolidated the VIE in the third quarter of 2017. See Note 16 to the consolidated financial statements for more information on the disposal transaction. Other Non-operating Expenses (Income). For the year endedDecember 31, 2017 , this caption includes the impact of the enacted tax reform legislation on our tax receivable agreement liability, which was reduced by$71.5 million . See Note 11 to the consolidated financial statements for more information on the enacted tax reform legislation. In addition, for the years endedDecember 31, 2019 , 2018 and 2017, this caption primarily represents the change in the fair value of contingent consideration associated with the Company's acquisitions. Net Investment Gains (Losses) of Consolidated Funds For the years endedDecember 31, 2019 , 2018 and 2017 net investment gains of Consolidated Funds was$23.9 million ,$4.5 million , and$88.4 million , respectively, comprised of the activity of the consolidated CLOs and certain other funds. For the consolidated CLOs, the amount reflects the net gain or loss on the fair value adjustment of both the assets and liabilities. The components of net investment gains of consolidated funds for the respective periods are: Year Ended December 31, 2019 2018 2017 (Dollars in millions) Losses attributable to other consolidated funds$ (14.2 ) $ (4.9 ) $ (54.0 ) Net (depreciation) appreciation of CLOs (4.7 ) (103.9 ) 81.0 Total (losses) gains (18.9 ) (108.8 ) 27.0 (Losses) gains from liabilities of CLOs (5.0 ) 113.3
61.4
Total net investment (losses) gains of Consolidated Funds$ (23.9 ) $ 4.5
The gains/losses on the liabilities of the CLOs reflect the fair value adjustment on the debt of the CLOs. For the years endedDecember 31, 2019 , 2018 and 2017, the unrealized investment gains/losses primarily include the appreciation/depreciation of consolidated CLO investments in loans and bonds. Net Income Attributable to Non-controlling Interests in Consolidated Entities Net income attributable to non-controlling interests in consolidated entities was$36.6 million ,$33.9 million , and$72.5 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. These amounts are primarily attributable to the net earnings of the Consolidated Funds for each period, which are substantially all allocated to the related funds' limited partners or CLO investors. The net income (loss) of our Consolidated Funds, after eliminations, was$10.0 million ,$(5.3) million , and$12.0 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Net income attributable to non-controlling interests in consolidated entities also includes net income attributable to non-controlling interests in carried interest, giveback obligations, and cash held for carried interest distributions, as well as the allocation of Urbplan's net losses that are attributable to non-controlling interests (for the year endedDecember 31, 2017 ). Net Income (Loss) Attributable toThe Carlyle Group L.P. Common Unitholders The net income attributable toThe Carlyle Group L.P. common unitholders was$345.3 million ,$92.9 million , and$238.1 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Prior to the Conversion, the Company was allocated a portion of the monthly net income (loss) attributable toCarlyle Holdings based on the Company's ownership inCarlyle Holdings (which was approximately 34%, 32%, and 30% as ofDecember 31, 2019 , 2018 and 2017, respectively). Net income or loss attributable to the Company also included 100% of the net income or loss attributable to the Company's wholly owned taxable subsidiary,Carlyle Holdings I GP Inc. , which was$(4.5) million ,$15.8 million , and$(30.3) million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. As a result, prior to the Conversion, the total net income or loss attributable to the Company has varied as a percentage of the net income or loss attributable toCarlyle Holdings . In addition, net income attributable toThe Carlyle Group L.P. common unitholders for the year endedDecember 31, 2019 was reduced by the Series A preferred units ("Preferred Units") redemption premium. Net income attributable toThe Carlyle Group L.P. common unitholders per basic common unit was$3.05 ,$0.89 , and$2.58 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Net income (loss) attributable to TheCarlyle Group L.P. common unitholders per diluted common unit was$2.82 ,$0.82 , and$2.38 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. 105 --------------------------------------------------------------------------------
Non-GAAP Financial Measures The following tables set forth information in the format used by management when making resource deployment decisions and in assessing performance of our segments. These non-GAAP financial measures are presented for the years endedDecember 31, 2019 , 2018 and 2017. Our Non-GAAP financial measures exclude the effects of unrealized performance allocations net of related compensation expense, unrealized principal investment income, consolidated funds, acquisition-related items including amortization and any impairment charges of acquired intangible assets and contingent consideration taking the form of earn-outs, charges associated with equity-based compensation, changes in the tax receivable agreement liability, corporate actions and infrequently occurring or unusual events. The following table shows our total segment Distributable Earnings, or "DE", and Fee Related Earnings, or "FRE", for the years endedDecember 31, 2019 , 2018 and 2017. Year Ended December 31, 2019 2018 2017 (Dollars in millions) Total Segment Revenues$ 2,110.1 $ 2,185.9 $ 2,216.2 Total Segment Expenses 1,463.5 1,512.0 1,546.2 (=) Distributable Earnings$ 646.6 $ 673.9 $ 670.0 (-) Realized Net Performance Revenues 164.1 319.7
552.6
(-) Realized Principal Investment Income (Loss) 87.0 48.1
(25.8 ) (+) Net Interest 57.3 44.3 48.8 (=) Fee Related Earnings$ 452.8 $ 350.4 $ 192.0
The following table sets forth our total segment revenues for the years ended
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees $ 1,570.9 $ 1,361.8 $ 1,081.0 Portfolio advisory fees, net and other 22.2 31.1 32.1 Transaction fees, net
31.3 32.1 26.9
Total fund level fee revenues 1,624.4 1,425.0 1,140.0
Realized performance revenues 374.3 682.4 1,085.3
Realized principal investment income 87.0 48.1 (25.8 )
Interest income 24.4 30.4 16.7
Total Segment Revenues $ 2,110.1 $ 2,185.9 $ 2,216.2
106
--------------------------------------------------------------------------------
The following table sets forth our total segment expenses for the years ended
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Segment Expenses
Compensation and benefits
Cash-based compensation and benefits $ 792.1 $ 740.7 $ 658.0
Realized performance revenues related compensation 210.2 362.7 532.7
Total compensation and benefits 1,002.3 1,103.4
1,190.7
General, administrative, and other indirect expenses 331.3 298.8
258.9
Depreciation and amortization expense 48.2 35.1 31.1 Interest expense 81.7 74.7 65.5 Total Segment Expenses$ 1,463.5 $ 1,512.0 $ 1,546.2
Income before provision for income taxes is the GAAP financial measure most comparable to Distributable Earnings and Fee Related Earnings. The following table is a reconciliation of income before provision for income taxes to Distributable Earnings and to Fee Related Earnings.
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Income before provision for income taxes
$ 1,132.3 Adjustments: Net unrealized performance revenues (42.3 ) 50.2 (625.2 ) Unrealized principal investment income (1) (590.9 ) (48.8 ) (73.0 ) Adjusted unrealized principal investment income from investment in Fortitude Re (1) (140.9 ) (11.7 ) - Equity-based compensation (2) 151.5 252.2
365.1
Acquisition related charges, including amortization of intangibles and impairment 52.0 22.3
35.7
Other non-operating (income) expense (3) 1.3 1.1 (71.4 ) Tax expense associated with performance revenues (14.3 ) (1.5 ) (9.2 ) Net (income) loss attributable to non-controlling interests in consolidated entities (36.6 ) (33.9 ) (72.5 ) Reserve for litigation and contingencies - - (25.0 ) Lease assignment and termination costs - 66.9 - Debt extinguishment costs 0.1 7.8 - Corporate conversion costs, severance and other adjustments 33.3 9.1
13.2
Distributable Earnings 646.6 673.9
670.0
Realized net performance revenues, net of related compensation (4) 164.1 319.7
552.6
Realized principal investment income (loss) (4) 87.0 48.1 (25.8 ) Net interest 57.3 44.3 48.8 Fee Related Earnings$ 452.8 $ 350.4 $ 192.0 (1) Adjustments to unrealized principal investment income are inclusive of$582.0 million and$46.2 million of unrealized gains, respectively,
resulting from changes in the fair value of embedded derivatives related to
certain reinsurance contracts included in Fortitude Re's
financial statements. Adjusted unrealized principal investment income from
the investment in Fortitude Re represents 19.9% of Fortitude Re's estimated
net income for the respective periods, excluding the unrealized gains
related to embedded derivatives.
(2) Equity-based compensation for the years ended December 31, 2019 , 2018 and2017 includes amounts presented in principal investment income and general,
administrative and other expenses in our
107
--------------------------------------------------------------------------------(3) Included in other non-operating (income) expense for the year ended
tax receivable agreement liability as result of the passage of the Tax Cuts
and Jobs Act of 2017.
(4) See reconciliation to most directly comparable
Year Ended December 31, 2019
Total
Carlyle Reportable
Consolidated Adjustments(5) Segments
(Dollars in millions)
Performance revenues$ 799.1 $ (424.8 ) $ 374.3 Performance revenues related compensation expense 436.7 (226.5 ) 210.2 Net performance revenues$ 362.4 $ (198.3 ) $ 164.1 Principal investment income (loss)$ 769.3 $ (682.3 ) $ 87.0 Year Ended December 31, 2018 Total Carlyle Reportable Consolidated Adjustments(5) Segments (Dollars in millions) Performance revenues$ 622.9 $ 59.5$ 682.4 Performance revenues related compensation expense 376.3 (13.6 ) 362.7 Net performance revenues$ 246.6 $ 73.1$ 319.7 Principal investment income (loss)$ 186.3 $ (138.2 ) $ 48.1 Year Ended December 31, 2017 Total Carlyle Reportable Consolidated Adjustments(5) Segments (Dollars in millions) Performance revenues$ 2,058.6 $ (973.3 ) $ 1,085.3 Performance revenues related compensation expense 988.3 (455.6 ) 532.7 Net performance revenues$ 1,070.3 $
(517.7 )
(5) Adjustments to performance revenues and principal investment income (loss)
relate to (i) unrealized performance allocations net of related
compensation expense and unrealized principal investment income, which are
excluded from our Non-GAAP results, (ii) amounts earned from the
Consolidated Funds, which were eliminated in the
but were included in the Non-GAAP results, (iii) amounts attributable to
non-controlling interests in consolidated entities, which were excluded
from the Non-GAAP results, (iv) the reclassification of NGP performance
revenues, which are included in investment income in the
financial statements, (v) the reclassification of certain incentive fees
from business development companies, which are included in fund management
fees in the Non-GAAP results, and (vi) the reclassification of certain tax
expenses associated with performance revenues. Adjustments to principal
investment income (loss) also include the reclassification of earnings for
the investment in NGP Management and its affiliates to the appropriate
operating captions for the Non-GAAP results, the exclusion of charges
associated with the investment in NGP Management and its affiliates that
are excluded from the Non-GAAP results (see Note 5 to our consolidated
financial statements), adjustments to reflect the Company's share of
Urbplan net losses, until Urbplan was deconsolidated during 2017, as
investment losses for the Non-GAAP results.
108
--------------------------------------------------------------------------------
Distributable Earnings for our reportable segments is as follows:
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Corporate Private Equity $ 296.8 $ 350.4 $ 487.9
Real Assets 282.6 207.1 24.8
Global Credit 48.4 77.5 126.9
Investment Solutions 18.8 38.9 30.4
Total $ 646.6 $ 673.9 $ 670.0
Segment Analysis
Discussed below is our DE and FRE for our segments for the periods presented.
Our segment information is reflected in the manner used by our senior management
to make operating and compensation decisions, assess performance and allocate
resources.
For segment reporting purposes, revenues and expenses are presented on a basis
that deconsolidates our Consolidated Funds. As a result, segment revenues from
management fees, realized performance revenues and realized principal investment
income (loss) are different than those presented on a consolidated U.S. GAAP
basis because these revenues recognized in certain segments are received from
Consolidated Funds and are eliminated in consolidation when presented on a
consolidated U.S. GAAP basis. Furthermore, segment expenses are different than
related amounts presented on a consolidated U.S. GAAP basis due to the exclusion
of fund expenses that are paid by the Consolidated Funds.
109
--------------------------------------------------------------------------------
Corporate Private Equity
The following table presents our results of operations for our Corporate Private
Equity segment:
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees $ 767.8 $ 634.1 $ 471.0
Portfolio advisory fees, net and other 15.8 21.1 21.2
Transaction fees, net 12.7 26.7
22.4
Total fund level fee revenues 796.3 681.9
514.6
Realized performance revenues 121.7 415.9
831.5
Realized principal investment income (loss) (3.3 ) 26.6 25.4 Interest income 6.0 9.3 5.5 Total revenues 920.7 1,133.7 1,377.0 Segment Expenses Compensation and benefits Cash-based compensation and benefits 371.7 373.2
340.7
Realized performance revenues related compensation 54.7 195.3
372.9
Total compensation and benefits 426.4 568.5
713.6
General, administrative, and other indirect expenses 140.8 167.6
132.3
Depreciation and amortization expense 23.1 17.3 15.3 Interest expense 33.6 29.9 27.9 Total expenses 623.9 783.3 889.1 (=) Distributable Earnings$ 296.8 $ 350.4 $ 487.9 (-) Realized Net Performance Revenues 67.0 220.6
458.6
(-) Realized Principal Investment Income (Loss) (3.3 ) 26.6 25.4 (+) Net Interest 27.6 20.6 22.4 (=) Fee Related Earnings$ 260.7 $ 123.8 $ 26.3 110
--------------------------------------------------------------------------------
Year Ended
Distributable Earnings Distributable earnings decreased$53.6 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$137.5 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the changes in distributable earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Distributable earnings, prior year$ 350.4 $
487.9
Increases (decreases): Increase in fee related earnings 136.9
97.5
Decrease in realized net performance revenues (153.6 ) (238.0 ) (Decrease) increase in realized principal investment income (29.9 )
1.2
(Increase) decrease in net interest (7.0 )
1.8
Total decrease (53.6 ) (137.5 ) Distributable earnings, current year$ 296.8 $
350.4
Realized Net Performance Revenues. Realized net performance revenues decreased$153.6 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$238.0 million for the year endedDecember 31, 2018 as compared to 2017. Our prior generations of carry funds have exited substantial parts of their portfolios, and our newer funds, while accruing carry, are not yet producing cash carry. Realized net performance revenues decreased in 2019 as realized proceeds from our funds declined to$5.0 billion from$8.8 billion in 2018. Specifically, the decrease in realized net performance revenues for the year endedDecember 31, 2019 as compared to 2018 was due to lower performance revenue realizations from ourU.S. ,Europe andAsia buyout funds in carry in 2019 compared to 2018. Our 2019 exit pace was below the exit pace in recent years, however at this time, we expect that exit activity and net realized performance revenues will begin to rebound in 2020. The decrease in realized net performance revenues for the year endedDecember 31, 2018 as compared to 2017 was primarily due to lower performance revenue realizations from ourU.S buyout funds in carry in 2018 compared to 2017, partially offset by higher realizations from ourEurope andAsia buyout funds in 2018 as compared to 2017. Realized net performance revenues were primarily generated by the following funds for the years endedDecember 31, 2019 , 2018 and 2017, respectively: Year Ended December 31, 2019 2018 2017 CETP III CP V CP V CAP III CEP III CGFSP I CGFSP II CAP III CAP III CETP II CETP III CEP III CP V CETP II Realized Principal Investment Income. Realized principal investment income decreased$29.9 million for the year endedDecember 31, 2019 as compared to 2018 and increased$1.2 million for the year endedDecember 31, 2018 as compared to 2017. The decrease in realized principal investment income for the year endedDecember 31, 2019 as compared to 2018 was primarily due to realized losses in 2019 in CP VI andCEP IV compared to realized gains in 2018 in CP VI,CEP III and CAP IV. 111
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Fee Related Earnings Fee related earnings increased$136.9 million for the year endedDecember 31, 2019 as compared to 2018, and increased$97.5 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the change in fee related earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Fee related earnings, prior year$ 123.8 $
26.3
Increases (decreases): Increase in fee revenues 114.4
167.3
Decrease (increase) in cash-based compensation 1.5 (32.5 ) Decrease (increase) in general, administrative and other indirect expenses 26.8 (35.3 ) All other changes (5.8 ) (2.0 ) Total increase 136.9 97.5 Fee related earnings, current year$ 260.7 $
123.8
Fee Revenues. Total fee revenues increased$114.4 million for the year endedDecember 31, 2019 as compared to 2018 and increased$167.3 million for the year endedDecember 31, 2018 as compared to 2017, due to the following: Year Ended December 31, 2019 2018 (Dollars in millions) Higher fund management fees$ 133.7 $ 163.1 (Lower) higher transaction fees (14.0 ) 4.3 Lower portfolio advisory fees, net and other (5.3 ) (0.1 ) Total increase in fee revenues$ 114.4 $ 167.3 The increase in fund management fees for the year endedDecember 31, 2019 as compared to 2018 was primarily due to the activation of management fees during the second quarter of 2018 on our seventhU.S. buyout fund ("CP VII") and our fifthAsia buyout fund ("CAP V"), as well as activation of management fees during the fourth quarter of 2018 on our fifthEurope buyout fund ("CEP V") and during the third quarter of 2019 on our fourthEurope technology fund ("CETP IV"). These increases were partially offset by lower fee rates and a lower basis for CP VI, CAP IV,CEP IV , and CETP III as they exited the investment period. The increase in fund management fees for the year endedDecember 31, 2018 as compared to 2017 was primarily due to the activation of management fees during the fourth quarter of 2018 on CEP V as well as activation of management fees during the second quarter of 2018 on CP VII and CAP V. These increases were partially offset by a lower fee rate and lower assets under management from sale of investments for CP V, as well as the step-down of effective fee rates on CP VI and CAP IV as they exit the investment period. The weighted average management fee rate increased from 1.22% atDecember 31, 2018 to 1.26% atDecember 31, 2019 . The increase in the weighted average management fee rate was driven by new fee-paying commitments with higher rates primarily in CETP IV and CEP V. Fee-earning AUM was$61.7 billion and$62.4 billion as ofDecember 31, 2019 and 2018, respectively, reflecting a decrease of$0.7 billion . The weighted average management fee rate decreased from 1.31% atDecember 31, 2017 to 1.22% atDecember 31, 2018 . The decrease in the weighted average management fee rate was driven by the step-down of effective fee rates for our funds outside the investment period. This was partially offset by the activation of newly raised Fee-earning AUM primarily in our buyout funds which earn higher rates. Fee-earning AUM was$62.4 billion and$35.6 billion as ofDecember 31, 2018 and 2017, respectively, reflecting an increase of$26.8 billion . 112 -------------------------------------------------------------------------------- The decrease in transaction fees for the year endedDecember 31, 2019 as compared to 2018 resulted primarily from transaction fees related to significant investments by ourU.S. buyout funds and one significant investment in ourAsia buyout funds in 2018, partially offset by transaction fees in one of ourJapan buyout funds in 2019.
The increase in transaction fees for the year ended
Cash-based compensation and benefits expense. Cash-based compensation and benefits expense increased$32.5 million , or 10%, for the year endedDecember 31, 2018 as compared to 2017, primarily due to increased headcount and higher cash bonuses in 2018, partially offset by lower compensation costs related to fundraising activities. General, administrative and other indirect expenses. General, administrative and other indirect expenses decreased$26.8 million for the year endedDecember 31, 2019 as compared to 2018, primarily due lower external costs associated with fundraising activities of approximately$33.3 million , partially offset by higher professional fees. General, administrative and other indirect expenses increased$35.3 million for the year endedDecember 31, 2018 as compared to 2017 primarily due to higher professional fees and higher external costs associated with fundraising activities, partially offset by positive foreign currency adjustments in the year endedDecember 31, 2018 as compared to 2017. Fee-earning AUM as of and for each of the Three Years in the Period EndedDecember 31, 2019 Fee-earning AUM is presented below for each period together with the components of change during each respective period. The table below breaks out Fee-earning AUM by its respective components at each period. As of December 31, 2019 2018 2017 (Dollars in millions) Corporate Private Equity Components of Fee-earning AUM (1) Fee-earning AUM based on capital commitments$ 38,470 $ 36,222 $ 25,809 Fee-earning AUM based on invested capital 20,958 23,737
7,675
Fee-earning AUM based on lower of cost or fair value and other 2,232 2,399
2,100
Total Fee-earning AUM$ 61,660 $ 62,358 $ 35,584 Weighted Average ManagementFee Rates (2) All Funds 1.26 % 1.22 % 1.31 % Funds in Investment Period 1.47 % 1.46 % 1.44 %
(1) For additional information concerning the components of Fee-earning AUM,
see "-Fee-earning Assets under Management."
(2) Represents the aggregate effective management fee rate of each fund in the
segment, weighted by each fund's Fee-earning AUM, as of the end of each
period presented.
113
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The table below provides the period to period rollforward of Fee-earning AUM.
Twelve Months Ended December 31,
2019 2018 2017
(Dollars in millions)
Corporate Private Equity
Fee-earning AUM Rollforward
Balance, Beginning of Period $ 62,358 $ 35,584 $ 36,327
Inflows (1) 3,470 31,485 2,086
Outflows (including realizations) (2) (3,835 ) (4,405 ) (3,692 )
Market Activity & Other (3) (111 ) 11 5
Foreign Exchange (4) (222 ) (317 ) 858
Balance, End of Period $ 61,660 $ 62,358 $ 35,584
(1) Inflows represents limited partner capital raised by our carry funds or
separately managed accounts for which management fees based on commitments
were activated during the period, and the fee-earning commitments invested
in vehicles for which management fees are based on invested capital.
Inflows exclude fundraising amounts during the period for which fees have
not yet been activated, which are referenced as Pending Fee-earning AUM.
(2) Outflows represents the impact of realizations from vehicles withmanagement fees based on remaining invested capital at cost or fair value,
changes in basis for funds where the investment period, weighted-average
investment period or commitment fee period has expired during the period,
and reductions for funds that are no longer calling for fees. Realizations
for funds earning management fees based on commitments during the period do
not affect Fee-earning AUM.
(3) Market Activity & Other represents realized and unrealized gains (losses)
on portfolio investments in our carry funds based on the lower of cost or
fair value.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Fee-earning AUM was$61.7 billion atDecember 31, 2019 , a decrease of$0.7 billion , or 1%, compared to$62.4 billion atDecember 31, 2018 . This was driven by outflows of$3.8 billion which were principally a result of dispositions in CP VI andCEP III , as well as distributions in other funds outside of their investment period. Partially offsetting this were inflows of$3.5 billion primarily related to the activation of management fees in CETP IV and new fee-paying commitments raised inCEP V. Investment and distribution activity by funds still in the investment period does not impact Fee-earning AUM as these funds are based on commitments. Fee-earning AUM was$62.4 billion atDecember 31, 2018 , an increase of$26.8 billion , or 75%, compared to$35.6 billion atDecember 31, 2017 . This was driven by inflows of$31.5 billion primarily related to the activation of management fees in CP VII and new fee-paying commitments raised in CEP V and CAP V. Partially offsetting the increase were outflows of$4.4 billion which were principally a result of basis step-downs in CP VI andCEP IV , as well as distributions in other funds outside of their investment period. Fee-earning AUM was$35.6 billion atDecember 31, 2017 , a decrease of$0.7 billion , or 2%, compared to$36.3 billion atDecember 31, 2016 . This was driven by outflows of$3.7 billion which were principally a result of distributions from CP V and other buyout funds outside of their investment period. This decrease was partially offset by inflows of$2.1 billion primarily related to equity invested by CGP which charges management fees based on invested capital, as well as new fee-paying commitments raised in CGFSP III. Also offsetting the decrease were$0.9 billion of foreign exchange gains from the translation of our Euro-denominatedEurope buyout and growth funds to USD for reporting purposes. 114 -------------------------------------------------------------------------------- Total AUM as of and for each of the Three Years in the Period EndedDecember 31, 2019 The table below provides the period to period rollforward of Total AUM. Twelve Months Ended December 31, 2019 2018 2017 (Dollars in millions) Corporate Private Equity Total AUM Rollforward Balance, Beginning of Period$ 80,759 $ 72,558 $ 50,864 Inflows (1) 7,474 16,878 20,544 Outflows (including realizations) (2) (4,361 ) (9,253 ) (9,707 ) Market Activity & Other (3) 2,869 1,258 9,713 Foreign Exchange (4) (312 ) (682 ) 1,144 Balance, End of Period$ 86,429 $ 80,759 $ 72,558 (1) Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects
translation at the average quarterly rate, while the separately reported
Fundraising metric is translated at the spot rate for each individual
closing.
(2) Outflows includes distributions net of recallable or recyclable amounts in
our carry funds, related co-investment vehicles and separately managed
accounts, as well as the expiration of available capital.
(3) Market Activity & Other generally represents realized and unrealized gains
(losses) on portfolio investments in our carry funds, related co-investment
vehicles and separately managed accounts, as well as the impact of fees,
expenses and non-investment income, and other changes in AUM.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Total AUM was$86.4 billion atDecember 31, 2019 , an increase of$5.6 billion , or 7%, compared to$80.8 billion atDecember 31, 2018 . This increase was driven by$7.5 billion of inflows primarily due to fundraising in CJP IV, CGP II, and CETP IV. Also contributing to this increase was market appreciation of$2.9 billion . The carry funds driving appreciation for the period included$0.9 billion attributable to CP VI,$0.5 billion attributable to CP VII, and$0.4 billion attributable to CAP V. Partially offsetting the increase were$4.4 billion of outflows driven primarily by distributions in ourU.S. ,Asia , andEurope buyout funds. Total AUM was$80.8 billion atDecember 31, 2018 , an increase of$8.2 billion , or 11%, compared to$72.6 billion atDecember 31, 2017 . This increase was driven by$16.9 billion of inflows primarily due to fundraising in CP VII, CEP V, and CAP V. Also contributing to this increase was market appreciation and other activity of$1.3 billion due to appreciation in our carry funds partially offset by the impact of management fees and expenses. The carry funds driving appreciation for the period included$1.0 billion attributable to CP VI,$0.5 billion attributable toCEP IV , and$0.4 billion attributable to CP V. Partially offsetting the increase were$9.3 billion of outflows driven primarily by distributions in ourU.S. ,Asia , andEurope buyout funds. Total AUM was$72.6 billion atDecember 31, 2017 , an increase of$21.7 billion , or 43%, compared to$50.9 billion atDecember 31, 2016 . This increase was driven by$20.5 billion of inflows primarily due to fundraising in CP VII, CAP V, and CGFSP III. Also contributing to this increase was market appreciation and other activity of$9.7 billion . The carry funds driving appreciation for the period included$2.8 billion attributable to CP VI,$1.7 billion attributable to CP V, and$1.5 billion attributable to CAP IV. Partially offsetting this increase were$9.7 billion of outflows driven primarily by distributions in CP V,CEP III , and various other buyout funds. Fund Performance Metrics Fund performance information for our investment funds that generally have at least$1.0 billion in capital commitments, cumulative equity invested or total value as ofDecember 31, 2019 , which we refer to as our "significant funds," is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance ofThe Carlyle Group Inc. and is also not necessarily indicative of the future performance of any particular fund. An investment in The 115 --------------------------------------------------------------------------------Carlyle Group Inc. is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns. See "Item 1A. Risk Factors - Risks Related to Our Business Operations - The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our common stock." The following tables reflect the performance of our significant funds in our Corporate Private Equity business. See "Item 1. Business - Our Family of Funds" for a legend of the fund acronyms listed below. TOTAL INVESTMENTS REALIZED/PARTIALLY REALIZED INVESTMENTS(6) As of December 31, 2019 As of December 31, 2019 LTM Fund Original Cumulative Realized Cumulative Total GrossVintage Investment Committed Invested Realized Remaining Fair Gross IRR Net IRR In Accrued Carry Invested Fair IRR (1) Period End Capital Capital(2) Value(3) Value(4) MOIC(5) (8)(16) (9)(16)
Carry/(Clawback)(10) (11) Capital(2) Value(12) MOIC(5) (8)(16) Corporate Private Equity (Reported in Local Currency, in Millions) (Reported in Local Currency, in Millions) Fully Invested/Committed Funds(7) CP IV 2005 Dec-10$ 7,850.0 $ 7,612.6 $ 17,777.3 $ 247.2 2.4x 16 % 13 % X X$ 7,612.6 $ 18,024.5 2.4x 16 % CP V 2007 May-13$ 13,719.7 $ 13,190.9 $ 25,750.0 $ 2,241.1 2.1x 18 % 14 % X X$ 10,777.9 $ 26,500.6 2.5x 24 % CP VI 2014 May-18$ 13,000.0 $ 12,874.2 $ 5,925.3 $ 13,311.0 1.5x 14 % 10 % X$ 3,080.0 $ 5,026.5 1.6x 18 %CEP II 2003 Sep-08 € 1,805.4 € 2,048.4 € 4,113.3 € 15.2 2.0x 36 % 20 % X X € 1,888.9 € 4,120.6 2.2x 43 %CEP III 2007 Dec-12 € 5,294.9 € 5,155.5 € 10,982.2 € 531.3 2.2x 19 % 14 % X X € 4,533.6 € 11,250.3 2.5x 21 % CEP IV 2014 Aug-19 € 3,669.5 € 3,710.4 €
1,220.3 € 3,697.1 1.3x 13 % 8 % X
€ 645.9 € 828.4 1.3x 11 %
CAP III 2008 May-14 $ 2,551.6 $ 2,543.2 $ 4,416.5 $ 268.3 1.8x 17 % 11 % X X $ 2,149.0 $ 4,416.7 2.1x 19 %
CAP IV 2014 Nov-18 $ 3,880.4 $ 3,966.8 $ 1,729.8 $ 3,838.5 1.4x 13 % 8 % X $ 831.8 $ 1,629.2 2.0x 21 %
CJP II 2006 Jul-12 ¥ 165,600.0 ¥ 141,866.7 ¥ 205,301.1 ¥ 1,800.0 1.5x 7 % 3 % ¥ 134,666.7 ¥ 203,831.2 1.5x 7 %
CGFSP I 2008 Sep-14 $ 1,100.2 $ 1,080.7 $ 2,434.2 $ 51.1 2.3x 20 % 14 % X X $ 1,080.7 $ 2,485.3 2.3x 20 %
CGFSP II 2013 Dec-17 $ 1,000.0 $ 942.7 $ 897.5 $ 747.4 1.7x 22 % 15 % X X $ 406.5 $ 801.0 2.0x 28 %
CEOF I 2011 May-17 $ 1,119.1 $ 1,173.1 $ 1,265.9 $ 527.8 1.5x 13 % 9 % X $ 419.9 $ 1,043.2 2.5x 37 %
CETP III 2014 May-20 € 656.6 € 568.3 € 664.8 € 553.2 2.1x 40 % 25 % X X € 160.5 € 664.8 4.1x 54 %
CAGP IV 2008 Jun-14 $ 1,041.4 $ 954.1 $ 1,076.5 $ 210.5 1.3x 8 % 3 %
$ 589.8
Various $ 11,185.9 $ 11,779.8 $ 5,600.6 1.6x 12 % 9 % $ 6,190.1 $ 11,686.7 1.9x 15 %
Coinvestments and
SMAs(13)
Fully Realized
Funds, Various $ 15,366.1 $ 41,031.4 $ 8.5 2.7x 33 % 29 % $ 15,366.1 $ 41,039.9 2.7x 33 %
Coinvestments and
SMAs(14)
Total Fully Invested/Committed Funds $ 85,089.9 $ 135,041.5 $ 32,454.7 2.0x 26 % 18 % $ 57,861.8 $ 134,477.1 2.3x 27 %
Funds in the Investment Period(7)
CP VII 2018 May-24 $ 18,510.0 $ 7,881.2 $ 39.2 $ 8,185.4 1.0x NM NM
CEP V 2018 Oct-24 € 6,416.4 € 1,399.2 € 8.0 € 1,448.9 1.0x NM NM
CAP V 2018 Jun-24 $ 6,554.2 $ 1,144.8 $ 275.0 $ 1,234.2 1.3x NM NM
CGP 2015 Dec-20 $ 3,588.0 $ 2,799.8 $ 186.7 $ 3,025.7 1.1x 5 % 4 % X
CJP III 2013 Feb-20 ¥ 119,505.1 ¥ 91,191.7 ¥ 65,897.2 ¥ 114,380.4 2.0x 25 % 16 % X
CGFSP III 2018 Dec-23 $ 1,004.6 $ 375.0 $ 2.4 $ 478.7 1.3x NM NM
CEOF II 2015 Mar-21 $ 2,400.0 $ 2,046.2 $ 160.7 $ 2,070.7 1.1x 5 % Neg
CETP IV 2019 Jul-25 € 1,350.0 € 84.0 € - € 84.0 1.0x NM NM All Other Funds, Coinvestments and Various
$ 3,669.6 $ 531.1 $ 3,908.2 1.2x NM NM SMAs(15) Total Funds in the Investment Period$ 20,421.9 $ 1,810.9 $ 21,677.5 1.2x 12 % 5 %
$ 519.4
$ 105,511.8 $ 136,852.4 $ 54,132.2 1.8x 26 % 18 %$ 58,381.2 $ 135,878.3 2.3x 27 %
(1) The data presented herein that provides "inception to date" performance
results of our segments relates to the period following the formation of
the first fund within each segment. For our Corporate Private Equity
segment our first fund was formed in 1990.
(2) Represents the original cost of investments since inception of the fund.
(3) Represents all realized proceeds since inception of the fund.
(4) Represents remaining fair value, before management fees, expenses and
carried interest, and may include remaining escrow values for realized
investments.
116
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(5) Multiple of invested capital ("MOIC") represents total fair value, before
management fees, expenses and carried interest, divided by cumulative
invested capital.
(6) An investment is considered realized when the investment fund has
completely exited, and ceases to own an interest in, the investment. An
investment is considered partially realized when the total amount of
proceeds received in respect of such investment, including dividends,
interest or other distributions and/or return of capital, represents at
least 85% of invested capital and such investment is not yet fullyrealized. Because part of our value creation strategy involves pursuing
best exit alternatives, we believe information regarding Realized/Partially
Realized MOIC and Gross IRR, when considered together with the other
investment performance metrics presented, provides investors with
meaningful information regarding our investment performance by removing the
impact of investments where significant realization activity has not yet
occurred. Realized/Partially Realized MOIC and Gross IRR have limitations
as measures of investment performance, and should not be considered in
isolation. Such limitations include the fact that these measures do notinclude the performance of earlier stage and other investments that do not
satisfy the criteria provided above. The exclusion of such investments will
have a positive impact on Realized/Partially Realized MOIC and Gross IRR in
instances when the MOIC and Gross IRR in respect of such investments are
less than the aggregate MOIC and Gross IRR. Our measurements of
Realized/Partially Realized MOIC and Gross IRR may not be comparable to
those of other companies that use similarly titled measures. We do notpresent Realized/Partially Realized performance information separately for
funds that are still in the investment period because of the relatively
insignificant level of realizations for funds of this type. However, to the
extent such funds have had realizations, they are included in the
Realized/Partially Realized performance information presented for Total
Corporate Private Equity.
(7) Fully Invested funds are past the expiration date of the investment period
as defined in the respective limited partnership agreement. In instances
where a successor fund has had its first capital call, the predecessor fund
is categorized as fully invested.
(8) Gross Internal Rate of Return ("Gross IRR") represents the annualized IRR
for the period indicated on Limited Partner invested capital based oncontributions, distributions and unrealized value before management fees,
expenses and carried interest.
(9) Net Internal Rate of Return ("Net IRR") represents the annualized IRR for
the period indicated on Limited Partner invested capital based oncontributions, distributions and unrealized value after management fees,
expenses and carried interest. Fund level IRRs are based on aggregate
Limited Partner cash flows, and this blended return may differ from that of
individual Limited Partners. As a result, certain funds may generate
accrued performance revenues with a blended Net IRR that is below the
preferred return hurdle for that fund.
(10) Fund has a net accrued performance fee balance/(giveback obligation) as of
the current quarter end, driven by a significant portion of the fund's
asset base.
(11) Fund has generated realized net performance fees/(realized giveback) in the
last twelve months.
(12) Represents all realized proceeds combined with remaining fair value, before
management fees, expenses and carried interest.
(13) Aggregate includes the following funds, as well as related co-investments,
separately managed accounts (SMA's), and certain other stand-alone
investments arranged by us: CUSGF III, CVP II, MENA, CCI, CSSAF I, CSABF,
and CPF.
(14) Aggregate includes the following funds, as well as related co-investments,
separately managed accounts (SMAs), and certain other stand-alone
investments arranged by us: CP I, CP II, CP III, CEP I, CAP I, CAP II, CBPF
I, CJP I, CMG, CVP I, CEVP I, CETP I, CETP II, CAVP I, CAVP II, CAGP III
and Mexico .
(15) Aggregate includes the following funds, as well as related co-investments,
separately managed accounts (SMAs), and certain other stand-alone
investments arranged by us: CAGP V and CBPF II.
(16) For funds marked "NM," IRR may be positive or negative, but is considered
not meaningful because of the limited time since initial investment and
early stage of capital deployment. For funds marked "Neg," IRR is negative
as of reporting period end.
(17) For purposes of aggregation, funds that report in foreign currency have
been converted to U.S. dollars at the reporting period spot rate.
117
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Real Assets
For purposes of presenting our results of operations for this segment, our
earnings from our investments in NGP are presented in the respective operating
captions and the net income or loss from Urbplan allocable to the Company (after
consideration of amounts allocable to non-controlling interests) is presented
within principal investment income. We disposed of our interests in Urbplan in a
transaction in which a third party acquired operational control and all of the
economic interests in Urbplan in 2017 (see Note 16 to our consolidated financial
statements). The following table presents our results of operations for our Real
Assets segment:
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees $ 338.8 $ 317.9 $ 263.6
Portfolio advisory fees, net and other 1.7 4.5 3.0
Transaction fees, net 8.7 4.4
4.5
Total fund level fee revenues 349.2 326.8
271.1
Realized performance revenues 180.1 150.3
92.0
Realized principal investment income (loss) 76.6 13.5 (63.2 ) Interest income 2.7 4.4 3.0 Total revenues 608.6 495.0 302.9 Segment Expenses Compensation and benefits Cash-based compensation and benefits 138.9 135.1
128.1
Realized performance revenues related compensation 90.5 66.6
41.6
Total compensation and benefits 229.4 201.7
169.7
General, administrative, and other indirect expenses 74.4 64.1
84.3
Depreciation and amortization expense 9.0 6.8 7.1 Interest expense 13.2 15.3 17.0 Total expenses 326.0 287.9 278.1 (=) Distributable Earnings$ 282.6 $ 207.1 $ 24.8 (-) Realized Net Performance Revenues 89.6 83.7
50.4
(-) Realized Principal Investment Income (Loss) 76.6 13.5 (63.2 ) (+) Net Interest 10.5 10.9 14.0 (=) Fee Related Earnings$ 126.9 $ 120.8 $ 51.6 118
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Year Ended
Distributable Earnings Distributable earnings increased$75.5 million for the year endedDecember 31, 2019 as compared to 2018 and increased$182.3 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the change in distributable earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Distributable earnings, prior year$ 207.1 $ 24.8 Increases (decreases): Increase in fee related earnings 6.1
69.2
Increase in realized net performance revenues 5.9
33.3
Increase in realized principal investment income 63.1 76.7 Decrease in net interest 0.4 3.1 Total increase 75.5 182.3 Distributable earnings, current year$ 282.6
Realized Net Performance Revenues. Realized net performance revenues increased$5.9 million for the year endedDecember 31, 2019 as compared to 2018, and increased$33.3 million for the year endedDecember 31, 2018 as compared to 2017. The increase in realized net performance revenues for the year endedDecember 31, 2019 as compared to 2018 was primarily due to higher realizations on ourU.S. real estate funds, partially offset by$19 million of realized clawback on Riverstone Legacy Energy Fund IV. The increase in realized net performance revenues for the year endedDecember 31, 2018 as compared to the year endedDecember 31, 2017 was primarily due to higher realizations on ourU.S. real estate funds. Realized net performance revenues were primarily generated by the following funds for the years endedDecember 31, 2019 , 2018 and 2017, respectively: Year Ended December 31, 2019 2018 2017 CRP VII CRP VII CRP VI CRP V CRP III CPOCP CPI CRP VI Energy IV (clawback) CRP III CRP VI Realized Principal Investment Income (Loss). Realized principal investment income increased$63.1 million for the year endedDecember 31, 2019 as compared to 2018, and increased$76.7 million for the year endedDecember 31, 2018 as compared to 2017. The increase in realized principal investment income for the year endedDecember 31, 2019 as compared to 2018 primarily relates to the recovery of$71.5 million from the final resolution of French Tax litigation concerning a European real estate fund, which reversed a portion of an investment loss recognized in 2015 (see Note 9 of our consolidated financial statements for more information on this matter).
The increase in realized principal investment income for the year ended
119
--------------------------------------------------------------------------------Fee Related Earnings Fee related earnings increased$6.1 million for the year endedDecember 31, 2019 as compared to 2018 and increased$69.2 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the change in fee related earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Fee related earnings, prior year$ 120.8 $
51.6
Increases (decreases): Increase in fee revenues 22.4
55.7
Increase in cash-based compensation (3.8 )
(7.0 ) (Increase) decrease in general, administrative and other indirect expenses
(10.3 ) 20.2
Decrease in interest expense 2.1 1.7 All other changes (4.3 ) (1.4 ) Total increase 6.1 69.2 Fee related earnings, current year$ 126.9 $
120.8
Fee Revenues. Total fee revenues increased
Year Ended December 31,
2019 2018
(Dollars in millions)
Higher fund management fees $ 20.9 $ 54.3
Higher (lower) transaction fees 4.3 (0.1 )
(Lower) higher portfolio advisory fees, net and other (2.8 ) 1.5
Total increase in fee revenues$ 22.4 $
55.7
The increase in fund management fees for the year endedDecember 31, 2019 as compared to 2018 primarily reflects the increased management fees from CGI, CIEP II, CPI and NGP XII, partially offset by lower management fees from CRP VII, CIEP I, CEREP III and CRP V. Management fees also increased as a result of$26.4 million in catch-up management fees for subsequent closes in 2019 for CGI and NGP XII. The increase in fund management fees for the year endedDecember 31, 2018 as compared to 2017 primarily reflects increased management fees from our eighthU.S. real estate fund ("CRP VIII"), as well as from NGP XII. Management fees also increased as a result of$16.0 million in catch-up management fees for subsequent closes in 2018 for CGI, NGP XII and CRP VIII. The total weighted average management fee rate increased to 1.25% atDecember 31, 2019 from 1.22% atDecember 31, 2018 primarily due to the activation of new fee-paying commitments raised in CIEP II and CGIOF with higher effective rates than theDecember 31, 2018 segment weighted average. The weighted average management fee rate for funds in the investment period decreased to 1.28% atDecember 31, 2019 from 1.32% atDecember 31, 2018 primarily due to the step-down of CIEP I to a lower fee rate and basis, and the aforementioned new fee-paying commitments raised in CIEP II and CGIOF with lower fee rates than the CIEP I commitments they effectively replaced. The total weighted average management fee rate increased to 1.22% atDecember 31, 2018 from 1.20% atDecember 31, 2017 primarily due to new fee-paying commitments raised in NGP XII and CGIOF with higher effective rates. The weighted average management fee rate for funds in the investment period decreased to 1.32% atDecember 31, 2018 from 1.35% atDecember 31, 2017 primarily due to effective rates for newer funds in the investment period being lower than their predecessors. 120 --------------------------------------------------------------------------------
The increase in transaction fees for the year ended
Cash-based compensation and benefits expense. Cash-based compensation and
benefits expense increased
Cash-based compensation and benefits expense increased$7.0 million for the year endedDecember 31, 2018 as compared to 2017 primarily due to an increase in headcount and higher cash bonuses in 2018 versus 2017, partially offset by lower compensation associated with fundraising activities of$4.1 million . General, administrative and other indirect expenses. General, administrative and other indirect expenses increased$10.3 million for the year endedDecember 31, 2019 as compared to 2018, primarily due to increased professional fees. General, administrative and other indirect expenses decreased$20.2 million for the year endedDecember 31, 2018 as compared to 2017, primarily due to a decrease in external costs associated with fundraising activities of$6.7 million related to CRP VIII, a positive impact in foreign currency adjustments recorded in 2018 compared to 2017 and a decrease in legal costs. Fee-earning AUM as of and for each of the Three Years in the Period EndedDecember 31, 2019 Fee-earning AUM is presented below for each period together with the components of change during each respective period. The table below breaks out Fee-earning AUM by its respective components at each period. As of December 31, 2019 2018 2017 (Dollars in millions) Real Assets Components of Fee-earning AUM (1) Fee-earning AUM based on capital commitments$ 16,432 $ 15,052 $ 16,453 Fee-earning AUM based on invested capital (2) 14,054 16,090
13,901
Fee-earning AUM based on net asset value 2,308 1,479
892
Fee-earning AUM based on lower of cost or fair value and other (3) 357 356
353
Total Fee-earning AUM (4)$ 33,151 $ 32,977 $ 31,599 Weighted Average ManagementFee Rates (5) All Funds 1.25 % 1.22 % 1.20 % Funds in Investment Period 1.28 % 1.32 % 1.35 %
(1) For additional information concerning the components of Fee-earning AUM,
See "-Fee-earning Assets under Management."
(2) Includes amounts committed to or reserved for investments for certain real
estate funds.
(3) Includes certain funds that are calculated on gross asset value.
(4) Energy III, Energy IV, and Renew II (collectively, the "Legacy Energy
Funds"), are managed with
Affiliates of both Carlyle and Riverstone act as investment advisers to
each of the Legacy Energy Funds. With the exception of Energy IV and Renew
II, where Carlyle has a minority representation on the funds' management
committees, management of each of the Legacy Energy Funds is vested in
committees with equal representation by Carlyle and Riverstone, and the
consent of representatives of both Carlyle and Riverstone is required for
investment decisions. As of
in the aggregate, approximately
Fee-earning AUM. NGP IX or in the case of NGP M&R and NGP ETP II, certain
affiliated entities (collectively, the "NGP Predecessor Funds") and NGP X,
NGP GAP, NGP XI, and NGP XII (referred to herein as, the "NGP Carry Funds",
collectively with the NGP Predecessor Funds, the "NGP Energy Funds"), are
managed by
the NGP Energy Funds had, in the aggregate, approximately
AUM and $11.4 billion in Fee-earning AUM.
121
--------------------------------------------------------------------------------
(5) Represents the aggregate effective management fee rate of each fund in the
segment, weighted by each fund's Fee-earning AUM, as of the end of each
period presented. Calculation reflects Carlyle's 10% and 55% interest inmanagement fees earned by the Legacy Energy funds and the NGP Energy Funds,
respectively.
The table below provides the period to period rollforward of Fee-earning AUM.
Twelve Months Ended December 31,
2019 2018 2017
(Dollars in millions)
Real Assets
Fee-earning AUM Rollforward
Balance, Beginning of Period $ 32,977 $ 31,599 $ 27,487
Inflows (1) 4,845 4,408 8,812
Outflows (including realizations) (2) (4,756 ) (2,818 ) (4,925 )
Market Activity & Other (3) 102 (128 ) 106
Foreign Exchange (4) (17 ) (84 ) 119
Balance, End of Period $ 33,151 $ 32,977 $ 31,599
(1) Inflows represents limited partner capital raised by our carry funds or
separately managed accounts for which management fees based on commitments
were activated during the period, the fee-earning commitments invested in
vehicles for which management fees are based on invested capital, and gross
subscriptions in open-ended vehicles with management fees based on net
asset value. Inflows exclude fundraising amounts during the period forwhich fees have not yet been activated, which are referenced as Pending
Fee-earning AUM.
(2) Outflows represents the impact of realizations from vehicles withmanagement fees based on remaining invested capital at cost or fair value,
changes in basis for funds where the investment period, weighted-average
investment period or commitment fee period has expired during the period,
reductions for funds that are no longer calling for fees, and gross
redemptions in open-ended vehicles with management fees based on net asset
value. Realizations for funds earning management fees based on commitments
during the period do not affect Fee-earning AUM.
(3) Market Activity & Other represents realized and unrealized gains (losses)
on portfolio investments in our carry funds based on the lower of cost or
fair value and net asset value.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Fee-earning AUM was$33.2 billion atDecember 31, 2019 , an increase of$0.2 billion , or 1%, compared to$33.0 billion atDecember 31, 2018 . The increase was driven by inflows of$4.8 billion primarily related to new fee-paying commitments raised in CIEP II and CGIOF, as well as capital invested by CPI. This was offset by outflows of$4.8 billion primarily related to distributions in ourU.S. Real Estate , NGP Energy, and Legacy Energy funds, as well as a fee basis step-down inCIEP I. Investment and distribution activity by funds still in the original investment period do not impact Fee-earning AUM as these funds are based on commitments and not invested capital. Fee-earning AUM was$33.0 billion atDecember 31, 2018 , an increase of$1.4 billion , or 4%, compared to$31.6 billion atDecember 31, 2017 . The increase was driven by inflows of$4.4 billion primarily related to new fee-paying commitments raised in NGP XII, CRP VIII, CER, and CGIOF, as well as capital invested by CPI. This was partially offset by outflows of$2.8 billion primarily related to distributions in ourU.S. Real Estate , NGP Energy, and Legacy Energy funds. Fee-earning AUM was$31.6 billion atDecember 31, 2017 , an increase of$4.1 billion , or 15%, compared to$27.5 billion atDecember 31, 2016 . The increase was driven by inflows of$8.8 billion primarily related to new fee-paying commitments raised in CRP VIII and NGP XII. This was partially offset by outflows of$4.9 billion primarily related to distributions in our Legacy Energy,U.S. Real Estate , and NGP Energy funds. 122 -------------------------------------------------------------------------------- Total AUM as of and for each of the Three Years in the Period EndedDecember 31, 2019 The table below provides the period to period rollforward of Total AUM. Twelve Months Ended December 31, 2019 2018 2017 (Dollars in millions) Real Assets Total AUM Rollforward Balance, Beginning of Period$ 45,640 $ 42,888 $ 34,252 Inflows (1) 3,189 5,698 10,205 Outflows (including realizations) (2) (5,543 ) (4,879 ) (4,950 ) Market Activity & Other (3) 79 2,080 3,269 Foreign Exchange (4) (10 ) (147 ) 112 Balance, End of Period$ 43,355 $ 45,640 $ 42,888 (1) Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects
translation at the average quarterly rate, while the separately reported
Fundraising metric is translated at the spot rate for each individual
closing.
(2) Outflows includes distributions net of recallable or recyclable amounts in
our carry funds, related co-investment vehicles, separately managed
accounts and the NGP Predecessor Funds, gross redemptions in our open-ended
funds, and the expiration of available capital.
(3) Market Activity & Other generally represents realized and unrealized gains
(losses) on portfolio investments in our carry funds and related
co-investment vehicles, the NGP Predecessor Funds and separately managed
accounts, as well as the net impact of fees, expenses and non-investment
income, and other changes in AUM.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
(5) Includes expiring available capital, the impact of capital calls for fees
and expenses and other changes in AUM.
Total AUM was$43.4 billion atDecember 31, 2019 , a decrease of$2.2 billion , or 5%, compared to$45.6 billion atDecember 31, 2018 . This increase was driven by$5.5 billion of outflows primarily due to distributions in ourU.S. Real Estate , NGP Energy, and Legacy Energy funds. This was partially offset by$3.2 billion of inflows primarily attributable to fundraising in CGIOF, CIEP II, CPI, and NGP XII. Total AUM was$45.6 billion atDecember 31, 2018 , an increase of$2.7 billion , or 6%, compared to$42.9 billion atDecember 31, 2017 . This increase was driven by$5.7 billion of inflows primarily attributable to fundraising in CIEP II, NGP XII, CPI, CGIOF, and CER. Also driving the increase was$2.1 billion of market and other activity including appreciation of$0.7 billion attributable to CRP VII,$0.5 billion attributable to CIEP I, and$0.2 billion attributable to NGP XI. Partially offsetting the increase were$4.9 billion of outflows primarily due to distributions in ourU.S. Real Estate , Legacy Energy, and NGP Energy funds. Total AUM was$42.9 billion atDecember 31, 2017 , an increase of$8.6 billion , or 25%, compared to$34.3 billion atDecember 31, 2016 . This increase was driven by$10.2 billion of inflows primarily attributable to fundraising in CRP VIII, NGP XII, and CPI. Also driving the increase was$3.3 billion of market and other activity including appreciation of$1.2 billion attributable to NGP XI,$0.5 billion attributable to CRP VII, and$0.3 billion attributable to CIEP I. Partially offsetting the increase were$5.0 billion of outflows primarily due to distributions in ourU.S. Real Estate , Legacy Energy, andEurope Real Estate funds. Fund Performance Metrics Fund performance information for our investment funds that have at least$1.0 billion in capital commitments, cumulative equity invested or total value as ofDecember 31, 2019 and excluding the NGP Predecessor Funds, which we refer to as our "significant funds," is generally included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance ofThe Carlyle Group Inc. and is also not necessarily indicative of the future performance of any particular fund. An investment inThe Carlyle Group Inc. is not an investment in any of our funds. There can be no assurance 123 -------------------------------------------------------------------------------- that any of our funds or our other existing and future funds will achieve similar returns. See "Item 1A. Risk Factors - Risks Related to Our Business Operations - The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our common stock." The following tables reflect the performance of our significant funds in our Real Assets business. See "Business - Our Family of Funds" for a legend of the fund acronyms listed below. TOTAL INVESTMENTS REALIZED/PARTIALLY REALIZED INVESTMENTS(6) As of December 31, 2019 As of December 31, 2019 LTM Fund Original Cumulative Realized Cumulative Total GrossVintage Investment Committed Invested Realized Remaining Fair Gross IRR Net IRR In Accrued Carry Invested Fair IRR (1) Period End Capital Capital(2) Value(3) Value(4) MOIC(5) (8)(16) (9)(16) Carry/(Clawback)(10) (11) Capital(2) Value(12) MOIC(5) (8)(16) Real Assets (Reported in Local Currency, in Millions) (Reported in Local Currency, in Millions) Fully Invested/Committed Funds(7) CRP III 2000 May-05$ 564.1 $ 522.5 $ 1,585.3 $ 283.8 3.6x 44 % 30 % X X $ 522.5$ 1,869.1 3.6x 44 % CRP IV 2004 Dec-09$ 950.0 $ 1,260.5 $ 1,708.0 $ 287.2 1.6x 7 % 4 %$ 1,203.5 $ 1,972.4 1.6x 7 % CRP V 2006 Nov-11$ 3,000.0 $ 3,370.8 $ 5,055.6 $ 829.2 1.7x 12 % 9 % X X$ 3,248.7 $ 5,766.7 1.8x 13 % CRP VI 2010 Mar-16$ 2,340.0 $ 2,155.2 $ 3,587.9 $ 359.0 1.8x 27 % 19 % X X$ 1,705.4 $ 3,452.7 2.0x 32 % CRP VII 2014 Mar-19$ 4,161.6 $ 3,704.7 $ 3,402.6 $ 2,453.6 1.6x 21 % 13 % X X$ 1,835.9 $ 3,311.3 1.8x 26 % CEREP III 2007 May-11 € 2,229.5 € 2,052.6 € 2,362.2 € 116.5 1.2x 4 % 1 % € 1,911.5 € 2,384.5 1.2x 5 % CIEP I 2013 Sep-19$ 2,500.0 $ 2,288.5 $ 860.6 $ 2,624.5 1.5x 24 % 13 % X $ 665.4$ 1,480.1 2.2x 27 % NGP X 2012 May-17$ 3,586.0 $ 3,302.7 $ 2,953.7 $ 788.2 1.1x 4 % 1 %$ 2,018.0 $ 2,904.6 1.4x 15 % NGP XI 2014 Oct-19$ 5,325.0 $ 4,695.3 $ 1,570.4 $ 4,345.4 1.3x 10 % 7 %$ 1,353.8 $ 1,538.8 1.1x 34 % Energy III 2005 Oct-11$ 3,800.0 $ 3,569.7 $ 5,248.6 $ 231.8 1.5x 9 % 6 %$ 3,152.1 $ 5,044.9 1.6x 11 % Energy IV 2007 Dec-13$ 5,979.1 $ 6,373.2 $ 6,778.2 $ 1,009.8 1.2x 6 % 2 % (X)$ 5,606.4 $ 7,014.0 1.3x 8 % Renew II 2008 May-14$ 3,417.5 $ 2,833.5 $ 2,930.9 $ 1,174.0 1.4x 7 % 4 % (X)$ 2,376.5 $ 3,008.2 1.3x 5 % All Other Active Funds, Various$ 5,385.5 $ 6,556.2 $ 2,618.0 1.7x 9 % 8 %$ 3,567.4 $ 6,715.2 1.8x 11 % Coinvestments and SMAs(13) Fully Realized Funds, Various$ 7,816.9 $ 10,641.1 $ 13.1 1.4x 18 % 9 %$ 7,816.9 $ 10,654.2 1.4x 19 % Coinvestments and SMAs(14) Total Fully Invested/Committed Funds$ 49,583.6 $ 55,531.3 $ 17,148.5 1.5x 12 % 7 %$ 37,218.8 $ 57,409.6 1.5x 14 % Funds in the Investment Period(7) CRP VIII 2017 May-22$ 5,505.1 $ 2,022.3 $ 90.8 $ 2,186.9 1.1x NM NM NGP XII 2017 Jul-22$ 4,277.6 $ 1,777.7 $ 0.1 $ 1,894.7 1.1x NM NM CIEP II 2019 Apr-25$ 1,754.5 $ 399.8 $ -$ 407.3 1.0x NM NM CPP II 2014 Apr-21$ 1,526.7 $ 1,098.2 $ 292.1 $ 1,121.9 1.3x 13 % 7 % CPI 2016 n/a$ 2,540.3 $ 2,326.0 $ 408.2 $ 2,339.8 1.2x 14 % 11 % X X CGIOF 2018 Sep-23$ 2,201.4 $ 153.4 $ 28.8 $ 143.8 1.1x NM NM All Other Funds, Various$ 1,792.8 $ 62.2 $ 1,916.7 1.1x NM NM Coinvestments and SMAs(15) Total Funds in the Investment Period$ 9,570.3 $ 882.2 $ 10,011.1 1.1x 12 % 5 % $ 142.4$ 252.4 1.8x NM TOTAL REAL ASSETS(17)$ 59,153.9 $ 56,413.4 $ 27,159.5 1.4x 12 % 7 %$ 37,361.3 $ 57,662.0 1.5x 14 %
(1) The data presented herein that provides "inception to date" performance
results of our segments relates to the period following the formation of
the first fund within each segment. For our Real Assets segment our first
fund was formed in 1997.
(2) Represents the original cost of investments since inception of the fund.
(3) Represents all realized proceeds since inception of the fund.
(4) Represents remaining fair value, before management fees, expenses and
carried interest, and may include remaining escrow values for realized
investments.
(5) Multiple of invested capital ("MOIC") represents total fair value, before
management fees, expenses and carried interest, divided by cumulative
invested capital.
(6) An investment is considered realized when the investment fund has
completely exited, and ceases to own an interest in, the investment. An
investment is considered partially realized when the total amount of
proceeds received in respect of such investment, including dividends,
interest or other distributions and/or return of capital, represents at
least 85% of
124
-------------------------------------------------------------------------------- invested capital and such investment is not yet fully realized. Because part of our value creation strategy involves pursuing best exit alternatives, we believe information regarding Realized/Partially Realized MOIC and Gross IRR, when considered together with the other investment performance metrics presented, provides investors with meaningful information regarding our investment performance by removing the impact of investments where significant realization activity has not yet occurred. Realized/Partially Realized MOIC and Gross IRR have limitations as measures of investment performance, and should not be considered in isolation. Such limitations include the fact that these measures do not include the performance of earlier stage and other investments that do not satisfy the criteria provided above. The exclusion of such investments will have a positive impact on Realized/Partially Realized MOIC and Gross IRR in instances when the MOIC and Gross IRR in respect of such investments are less than the aggregate MOIC and Gross IRR. Our measurements of Realized/Partially Realized MOIC and Gross IRR may not be comparable to those of other companies that use similarly titled measures. We do not present Realized/Partially Realized performance information separately for funds that are still in the investment period because of the relatively insignificant level of realizations for funds of this type. However, to the extent such funds have had realizations, they are included in the Realized/Partially Realized performance information presented for Total Real Assets. (7) Fully Invested funds are past the expiration date of the investment period
as defined in the respective limited partnership agreement. In instances
where a successor fund has had its first capital call, the predecessor fund
is categorized as fully invested.
(8) Gross Internal Rate of Return ("Gross IRR") represents the annualized IRR
for the period indicated on Limited Partner invested capital based oncontributions, distributions and unrealized value before management fees,
expenses and carried interest.
(9) Net Internal Rate of Return ("Net IRR") represents the annualized IRR for
the period indicated on Limited Partner invested capital based oncontributions, distributions and unrealized value after management fees,
expenses and carried interest. Fund level IRRs are based on aggregate
Limited Partner cash flows, and this blended return may differ from that of
individual Limited Partners. As a result, certain funds may generate
accrued performance revenues with a blended Net IRR that is below the
preferred return hurdle for that fund.
(10) Fund has a net accrued performance fee balance/(giveback obligation) as of
the current quarter end, driven by a significant portion of the fund's
asset base.
(11) Fund has generated realized net performance fees/(realized giveback) in the
last twelve months.
(12) Represents all realized proceeds combined with remaining fair value, before
management fees, expenses and carried interest.
(13) Aggregate includes the following funds, as well as related co-investments,
separately managed accounts (SMAs), and certain other stand-alone
investments arranged by us: NGP GAP and CPOCP.
(14) Aggregate includes the following funds: CRP I, CRP II, CRCP I, CAREP I,
CAREP II, CEREP I, CEREP II, Energy I, Energy II, Renew I, and CIP.
(15) Aggregate includes CCR, CRSEF, and CER. Return is not considered
meaningful, as the investment period commenced in October 2016 for CCR,
December 2019 for CRSEF, and December 2017 for CER.
(16) For funds marked "NM," IRR may be positive or negative, but is considered
not meaningful because of the limited time since initial investment and
early stage of capital deployment. For funds marked "Neg," IRR is negative
as of reporting period end.
(17) For purposes of aggregation, funds that report in foreign currency have
been converted to U.S. dollars at the reporting period spot rate.
Global Credit
We continue to invest in growing our Global Credit business, and in the near to
midterm this segment will incur additional expenses to build a more diversified
business and raise additional capital.
The following table presents our results of operations for our Global Credit
segment:
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees $ 307.2 $ 243.0 $ 191.5
Portfolio advisory fees, net and other 4.7 5.1 7.5
Transaction fees, net 9.9 1.0 -
Total fund level fee revenues 321.8 249.1 199.0
Realized performance revenues 1.8 9.8 75.4
Realized principal investment income 12.0 7.9 11.9
Interest income 14.2 15.3 7.1
Total revenues 349.8 282.1 293.4
Segment Expenses
Compensation and benefits
Cash-based compensation and benefits 185.2 140.4 104.5
Realized performance revenues related compensation 0.4 4.5 35.0
Total compensation and benefits 185.6 144.9 139.5
General, administrative, and other indirect expenses 78.9 30.5 7.4
Depreciation and amortization expense 9.9 6.3 5.1
Interest expense 27.0 22.9 14.5
Total expenses 301.4 204.6 166.5
(=) Distributable Earnings $ 48.4 $ 77.5 $ 126.9
(-) Realized Net Performance Revenues 1.4 5.3 40.4
(-) Realized Principal Investment Income 12.0 7.9 11.9
(+) Net Interest 12.8 7.6 7.4
(=) Fee Related Earnings $ 47.8 $ 71.9 $ 82.0
125
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Year Ended
Distributable Earnings Distributable earnings decreased$29.1 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$49.4 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the changes in distributable earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Distributable earnings, prior year$ 77.5 $
126.9
Increases (decreases): Decrease in fee related earnings (24.1 ) (10.1 ) Decrease in realized net performance revenues (3.9 ) (35.1 ) Increase (decrease) in realized principal investment income 4.1 (4.0 ) Increase in net interest (5.2 ) (0.2 ) Total decrease (29.1 ) (49.4 ) Distributable earnings, current year$ 48.4 $
77.5
Realized Net Performance Revenues. Realized net performance revenues decreased$3.9 million for the year endedDecember 31, 2019 as compared to 2018 and decreased$35.1 million for the year endedDecember 31, 2018 as compared to 2017. The majority of realized net performance revenues was generated by our distressed debt carry funds and our business development companies in 2018 and 2017. Realized Principal Investment Income. Realized principal investment income increased$4.1 million for the year endedDecember 31, 2019 as compared to 2018 and decreased$4.0 million for the year endedDecember 31, 2018 as compared to 2017. The increase in realized principal investment income for the year endedDecember 31, 2019 as compared to 2018 was primarily due to higher dividends from ourInterval Fund in 2019. The decrease in realized principal investment income for the year endedDecember 31, 2018 as compared to 2017 was primarily due to realized losses on investments in one of our energy mezzanine funds. Fee Related Earnings Fee related earnings decreased$24.1 million for the year endedDecember 31, 2019 as compared to 2018, and decreased$10.1 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the change in fee related earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Fee related earnings, prior year$ 71.9 $
82.0
Increases (Decreases): Increase in fee revenues 72.7
50.1
Increase in cash-based compensation (44.8 ) (35.9 ) Increase in general, administrative and other indirect expenses (48.4 ) (23.1 ) All other changes (3.6 ) (1.2 ) Total decrease (24.1 ) (10.1 ) Fee related earnings, current year$ 47.8 $
71.9
Fee Revenues. Total fee revenues increased
126
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Year Ended December 31,
2019 2018
(Dollars in millions)
Higher fund management fees $ 64.2 $ 51.5
Higher transaction fees 8.9 1.0
Lower portfolio advisory fees, net and other (0.4 ) (2.4 )
Total increase in fee revenues $ 72.7 $ 50.1
The increase in fund management fees for the year ended December 31, 2019 as
compared to 2018 was primarily driven by management fees from Carlyle Aviation
Partners , which was acquired in December 2018 , management fees from CLOs that
originated in 2018 and 2019, as well as increased management fees from our
direct lending platform.
The increase in fund management fees for the year ended December 31, 2018 as
compared to 2017 was primarily due to an increase in fund management fees from
CLOs that originated in 2017 and 2018 as well as increased management fees from
our direct lending platform.
The weighted average management fee rate on our carry funds decreased from 1.23%
at December 31, 2018 to 1.20% at December 31, 2019 primarily due to the
step-down of the fee rate and basis in CEMOF II.
The weighted average management fee rate on our carry funds decreased from 1.35%
at December 31, 2017 to 1.23% at December 31, 2018 primarily due to new funds
raised or acquired with lower effective fee rates.
The increase in transaction fees for for the year ended December 31, 2019 as
compared to 2018 resulted primarily from underwriting fees related to CCS in
2019.
Cash-based compensation and benefits expense. Cash-based compensation and
benefits expense increased $44.8 million for the year ended December 31, 2019 as
compared to 2018 primarily due to the Carlyle Aviation Partners acquisition, as
well as increased headcount and higher cash bonuses.
Cash-based compensation and benefits expense increased
We expect that as we add new talent to our growing Global Credit business, our cash-based compensation and benefits expense will increase. However, as this strategy raises incremental capital, we expect positive impact from additional fee revenue to more than offset our increased compensation levels. General, administrative and other indirect expenses. General, administrative and other indirect expenses increased$48.4 million for the year endedDecember 31, 2019 as compared to 2018 and increased$23.1 million for the year endedDecember 31, 2018 as compared to 2017, primarily due to the following: Year Ended December 31, 2019 2018 (Dollars in millions) Decrease in insurance recoveries related to litigation $ - $ 35.3 Decrease in legal costs related to commodities(1) - (144.2 ) Decrease in insurance recovery related to commodities(2) 31.5
145.5
Decrease in external costs associated with fundraising activities (1.7 ) (5.7 ) All other changes (3) 18.6 (7.8 ) Total increase$ 48.4 $ 23.1 (1) For the year endedDecember 31, 2018 compared to the year endedDecember 31, 2017 , this reflects the$144.2 million of commodities charges in 2017. (2) For the year endedDecember 31, 2018 compared to the year endedDecember 31, 2017 , this reflects$31.5 million of insurance proceeds as compared to$177.0 million of insurance proceeds in 2017. 127 -------------------------------------------------------------------------------- (3) For the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , this reflects increases due to theCarlyle Aviation Partners . Fee-earning AUM as of and for each of the Three Years in the Period EndedDecember 31, 2019 Fee-earning AUM is presented below for each period together with the components of change during each respective period. The table below breaks out Fee-earning AUM by its respective components at each period. As of December 31, 2019 2018 2017 (Dollars in millions) Global Credit Components of Fee-earning AUM (1) Fee-earning AUM based on capital commitments$ 4,727 $ 7,403 $ 5,026 Fee-earning AUM based on invested capital 4,509 1,885
1,457
Fee-earning AUM based on collateral balances, at par 24,887 22,921
18,625
Fee-earning AUM based on net asset value 1,561 867
42
Fee-earning AUM based on other (2) 2,178 2,076
2,112
Total Fee-earning AUM$ 37,862 $ 35,152 $ 27,262 Weighted Average ManagementFee Rates (3) All Funds, excluding CLOs 1.20 % 1.23 % 1.35 % (1) For additional information concerning the components of Fee-earning AUM, see "-Fee-earning Assets under Management."
(2) Includes funds with fees based on gross asset value.
(3) Represents the aggregate effective management fee rate for carry funds and
hedge funds, weighted by each fund's Fee-earning AUM, as of the end of each
period presented. Management fees for CLOs are based on the total par
amount of the assets (collateral) and principal balance of the notes in the
fund and are not calculated as a percentage of equity and are therefore not
included.
The table below provides the period to period rollforward of Fee-earning AUM.
Twelve Months Ended December 31,
2019 2018 2017
(Dollars in millions)
Global Credit
Fee-earning AUM Rollforward
Balance, Beginning of Period $ 35,152 $ 27,262 $ 24,126
Inflows (1) 4,437 9,179 5,547
Outflows (including realizations) (2) (2,663 ) (1,228 ) (3,556 )
Market Activity & Other (3) 1,067 253 363
Foreign Exchange (4) (131 ) (314 ) 782
Balance, End of Period $ 37,862 $ 35,152 $ 27,262
(1) Inflows represents limited partner capital raised by our carry funds or
separately managed accounts for which management fees based on commitments
were activated during the period, the fee-earning commitments invested in
vehicles for which management fees are based on invested capital, the
fee-earning collateral balance of new CLO issuances, as well as gross
subscriptions in our vehicles for which management fees are based on net
asset value. Inflows exclude fundraising amounts during the period forwhich fees have not yet been activated, which are referenced as Pending
Fee-earning AUM. This also includes
Aviation Partners (formerlyApollo Aviation Group ) assets which were acquired in a transaction that closed inDecember 2018 . (2) Outflows represents the impact of realizations from vehicles with
management fees based on remaining invested capital at cost or fair value,
changes in basis for funds where the investment period, weighted-average
investment period or commitment fee period has expired during the period,
reductions for funds that are no longer calling for fees, gross
128
-------------------------------------------------------------------------------- redemptions in our open-ended funds, and runoff of CLO collateral balances. Realizations for funds earning management fees based on commitments during the period do not affect Fee-earning AUM. (3) Market Activity & Other represents realized and unrealized gains (losses)
on portfolio investments in funds or vehicles based on the lower of cost or
fair value or net asset value, as well as activity of funds with fees based
on gross asset value.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Fee-earning AUM was $37.9 billion at December 31, 2019 , an increase of $2.7
billion , or 8%, compared to $35.2 billion at December 31, 2018 . Driving the
increase were inflows of $4.4 billion primarily attributable to new fee-paying
capital raised in our U.S. and Europe CLO's and follow-on closes in CCOF, as
well as $1.1 billion of market and other activity primarily related to increases
in gross asset value in our BDC's and securitization vehicles. Partially
offsetting the increase were $2.7 billion of outflows primarily related to a fee
basis step-down in CEMOF II and runoff of our CLO collateral balances.
Distributions from carry funds still in the investment period do not impact
Fee-earning AUM as these funds are based on commitments and not invested
capital.
Fee-earning AUM was $35.2 billion at December 31, 2018 , an increase of $7.9
billion , or 29%, compared to $27.3 billion at December 31, 2017 . Driving the
increase were inflows of $9.2 billion primarily attributable to the acquisition
of Carlyle Aviation Partners and new fee-paying capital raised in our U.S. and
Europe CLO's. Partially offsetting the increase were $1.2 billion of outflows
primarily related to runoff of our CLO collateral balances as well as
distributions from carry funds outside the investment period.
Fee-earning AUM was $27.3 billion at December 31, 2017 , an increase of $3.2
billion , or 13%, compared to $24.1 billion at December 31, 2016 . Driving the
increase were inflows of $5.5 billion primarily attributable to new fee-paying
capital raised in our U.S. and Europe CLO's and new fee-paying commitments
raised in CSP IV. Also driving the increase was foreign exchange activity of
$0.8 billion related the translation of our Euro-denominated CLO Fee-earning AUM
to USD for reporting purposes. Partially offsetting the increase were $3.6
billion of outflows primarily related to runoff of our CLO collateral balances
as well as distributions from carry funds outside the investment period.
Total AUM as of and for each of the Three Years in the Period Ended December 31,
2019
The table below provides the period to period rollforward of Total AUM.
Twelve Months Ended December 31,
2019 2018 2017
(Dollars in millions)
Global Credit
Total AUM Rollforward
Balance, Beginning of Period $ 44,417 $ 33,324 $ 29,399
Inflows (1) 6,338 12,062 6,618
Outflows (including realizations) (2) (2,396 ) (1,148 ) (4,040 )
Market Activity & Other (3) 1,190 511 516
Foreign Exchange (4) (137 ) (332 ) 831
Balance, End of Period $ 49,412 $ 44,417 $ 33,324
(1) Inflows reflects the impact of gross fundraising during the period. For
funds or vehicles denominated in foreign currencies, this reflects
translation at the average quarterly rate, while the separately reported
Fundraising metric is translated at the spot rate for each individual
closing. New CLO warehouse assets are recognized as an inflow to AUM, while
corresponding fundraising will not be recognized until CLO issuance.
Inflows also includes
Apollo Aviation Group ) assets which were acquired in a transaction that closed inDecember 2018 .
(2) Outflows includes distributions net of recallable or recyclable amounts in
our carry funds, related co-investment vehicles, and separately managed
accounts, gross redemptions in our open-ended funds, runoff of CLO
collateral balances, and the expiration of available capital.
(3) Market Activity & Other generally represents realized and unrealized gains
(losses) on portfolio investments in our carry funds, related co-investment
vehicles, and separately managed accounts, as well as the impact of fees,
expenses
129
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and non-investment income, change in gross asset value for our business development companies and other changes in AUM. (4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Total AUM was$49.4 billion atDecember 31, 2019 , an increase of$5.0 billion , or 11%, compared to$44.4 billion atDecember 31, 2018 . This was driven by$6.3 billion of inflows primarily due to newU.S. and Europe CLO issuances, as well as additional closes in CCOF. Also driving the increase was market and other activity of$1.2 billion , the majority of which was attributable to increases in the gross asset value of our BDC's and securitization vehicles. Partially offsetting the increase were outflows of$2.4 billion primarily related to distributions in our Energy Credit and Aviation funds, as well as CLO run-off. Total AUM was$44.4 billion atDecember 31, 2018 , an increase of$11.1 billion , or 33%, compared to$33.3 billion atDecember 31, 2017 . This was driven by$12.1 billion of inflows primarily due to the acquisition ofCarlyle Aviation Partners , as well as newU.S. and Europe CLO issuances and additional closes in our second BDC. Partially offsetting the increase were outflows of$1.1 billion primarily related to CLO run-off and distributions in our Global Credit carry funds. Total AUM was$33.3 billion atDecember 31, 2017 , an increase of$3.9 billion , or 13%, compared to$29.4 billion atDecember 31, 2016 . This was driven by$6.6 billion of inflows primarily due to newU.S. and Europe CLO issuances, as well as fundraising in CSC and CCOF. Also contributing to the increase were foreign exchange gains of$0.8 billion attributable to our Euro-denominated CLO's. Partially offsetting the increase were outflows of$4.0 billion primarily related to CLO run-off and distributions in our Global Credit carry funds. Fund Performance Metrics Fund performance information for certain of our Global Credit Funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance ofThe Carlyle Group Inc. and is also not necessarily indicative of the future performance of any particular fund. An investment inThe Carlyle Group Inc. is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns. See "Item 1A. Risk Factors - Risks Related to Our Business Operations - The historical returns attributable to our funds including those presented in this report should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our common stock." 130 -------------------------------------------------------------------------------- The following table reflects the performance of certain funds in our Global Credit business. These tables separately present funds that, as of the periods presented, had at least$1.0 billion in capital commitments, cumulative equity invested or total equity value. See "Business - Our Family of Funds" for a legend of the fund acronyms listed below. (Dollars in millions) TOTAL INVESTMENTS As of December 31, 2019 Original Cumulative Remaining In Accrued LTM Realized Global Credit Fund Investment Committed Invested Realized Fair Value Gross IRR Net IRR Carry/(Clawback)
Carry/(Clawback)
(Carry Funds Only) Vintage (1) Period End Capital Capital (2) Value (3) (4) MOIC (5) (6) (12) (7) (12) (13)
(14)
Active Fully Invested/Committed Funds (8) CSP II 2007 Jun-11$ 1,352.3 $ 1,352.3 $ 2,430.8 $ 79.4 1.9x 17 % 12 % X CSP III 2011 Aug-15$ 702.8 $ 702.8 $ 845.6 $ 274.9 1.6x 25 % 15 % X CEMOF I 2011 Dec-15$ 1,382.5 $ 1,603.4 $ 860.0 $ 282.9 0.7x Neg Neg CEMOF II 2015 Feb-20$ 2,819.2 $ 1,636.2 $ 537.0 $ 1,209.1 1.1x 5 % Neg All Other Active Funds, Various$ 1,993.2 $ 1,925.0 $ 637.5 1.3x 10 % 5 % Coinvestments and SMAs (9) Fully Realized Funds, Various$ 1,312.1 $ 1,804.7 $ - 1.4x 12 % 7 % Coinvestments and SMAs (10) Total Fully Invested/Committed Funds$ 8,599.8 $ 8,403.2 $ 2,484.0 1.3x 10 % 4 % Funds in the Investment Period (8) CSP IV 2016 Dec-20$ 2,500.0 $ 1,335.9 $ 506.0 $ 1,038.6 1.2x NM NM CCOF 2017 Jun-22$ 2,373.4 $ 1,336.8 $ 166.5 $ 1,295.4 1.1x NM NM X All Other Funds, Coinvestments and Various$ 1,423.6 $
448.2
$ 4,096.3 $ 1,120.7 $ 3,516.2 1.1x NM NM TOTAL Global$ 12,696.1 $ 9,523.9 $ 6,000.2 1.2x 11 % 5 % Credit
(1) The data presented herein that provides "inception to date" performance
results of our segments relates to the period following the formation of
the first fund within each segment. For our Global Credit segment our first
carry fund was formed in 2004.
(2) Represents the original cost of investments net of investment levelrecallable proceeds which is adjusted to reflect recyclability of invested
capital for the purpose of calculating the fund MOIC.
(3) Represents all realized proceeds since inception of the fund.
(4) Represents remaining fair value, before management fees, expenses and
carried interest, and may include remaining escrow values for realized
investments.
(5) Multiple of invested capital ("MOIC") represents total fair value, before
management fees, expenses and carried interest, divided by cumulative
invested capital.
(6) Gross Internal Rate of Return ("Gross IRR") represents the annualized IRR
for the period indicated on Limited Partner invested capital based oncontributions, distributions and unrealized value before management fees,
expenses and carried interest.
(7) Net Internal Rate of Return ("Net IRR") represents the annualized IRR for
the period indicated on Limited Partner invested capital based oncontributions, distributions and unrealized value after management fees,
expenses and carried interest. Fund level IRRs are based on aggregate
Limited Partner cash flows, and this blended return may differ from that of
individual Limited Partners. As a result, certain funds may generate
accrued performance revenues with a blended Net IRR that is below the
preferred return hurdle for that fund.
(8) Fully Invested funds are past the expiration date of the investment period
as defined in the respective limited partnership agreement. In instances
where a successor fund has had its first capital call, the predecessor fund
is categorized as fully invested.
(9) Aggregate includes the following funds, as well as related co-investments,
separately managed accounts (SMAs), and certain other stand-alone
investments arranged by us: SASOF II, SASOF III, and CASCOF.
(10) Aggregate includes the following funds, as well as related co-investments,
separately managed accounts (SMAs), and certain other stand-alone
investments arranged by us: CSP I, CMP I, and CMP II.
(11) Aggregate includes the following funds, as well as related co-investments,
separately managed accounts (SMAs), and certain other stand-alone
investments arranged by us: SASOF IV and CSC.
(12) For funds marked "NM," IRR may be positive or negative, but is considered
not meaningful because of the limited time since initial investment and
early stage of capital deployment. For funds marked "Neg," IRR is negative
as of reporting period end.
131
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(13) Fund has a net accrued performance fee balance/(giveback obligation) as of
the current quarter end, driven by a significant portion of the fund's
asset base.
(14) Fund has generated realized net performance fees/(realized giveback) in the
last twelve months.
Investment Solutions
The following table presents our results of operations for our Investment
Solutions segment:
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Segment Revenues
Fund level fee revenues
Fund management fees $ 157.1 $ 166.8 $ 154.9
Portfolio advisory fees, net and other - 0.4 0.4
Total fund level fee revenues 157.1 167.2 155.3
Realized performance revenues 70.7 106.4 86.4
Realized principal investment income 1.7 0.1 0.1
Interest income 1.5 1.4 1.1
Total revenues 231.0 275.1 242.9
Segment Expenses
Compensation and benefits
Cash-based compensation and benefits 96.3 92.0 84.7
Realized performance revenues related compensation 64.6 96.3 83.2
Total compensation and benefits 160.9 188.3 167.9
General, administrative, and other indirect expenses 37.2 36.6 34.9
Depreciation and amortization expense 6.2 4.7 3.6
Interest expense 7.9 6.6 6.1
Total expenses 212.2 236.2 212.5
(=) Distributable Earnings $ 18.8 $ 38.9 $ 30.4
(-) Realized Net Performance Revenues 6.1 10.1 3.2
(-) Realized Principal Investment Income 1.7 0.1 0.1
(+) Net Interest 6.4 5.2 5.0
(=) Fee Related Earnings $ 17.4 $ 33.9 $ 32.1
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Year Ended
Distributable Earnings Distributable earnings decreased$20.1 million for the year endedDecember 31, 2019 as compared to 2018, and increased$8.5 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the change in distributable earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Distributable earnings, prior year$ 38.9 $
30.4
Increases (decreases): (Decrease) increase in fee related earnings (16.5 )
1.8
(Decrease) increase in realized net performance revenues (4.0 )
6.9
Increase in realized principal investment income 1.6 - Increase in net interest (1.2 ) (0.2 ) Total (decrease) increase (20.1 ) 8.5
Distributable earnings, current year
Realized Net Performance Revenues. Realized net performance revenues decreased$4.0 million for the year endedDecember 31, 2019 as compared to 2018, and increased$6.9 million for the year endedDecember 31, 2018 as compared to 2017. Substantially all of the realized net performance revenues were generated from the AlpInvest carry fund vehicles for the years endedDecember 31, 2019 , 2018 and 2017. Performance revenues from our Investment Solutions segment pay a higher ratio of performance revenues as compensation, primarily as a result of the terms of our acquisition of AlpInvest. Under our arrangements with the historical owners and management team of AlpInvest, we generally do not retain any carried interest with respect to the historical investments and commitments to our AlpInvest fund vehicles that existed as ofJuly 1, 2011 (including any options to increase any such commitments exercised after such date). We are entitled to 15% of the carried interest with respect to commitments from the historical owners of AlpInvest for the period between 2011 and 2020, except in certain instances, and 40% of the carried interest in respect of all other commitments (including all future commitments from third parties). As funds that have launched since our acquisition of AlpInvest in 2011 begin to realize performance revenues, an increasing share of net realized performance revenues will be for our benefit. Fee Related Earnings Fee related earnings decreased$16.5 million for the year endedDecember 31, 2019 as compared to 2018, and increased$1.8 million for the year endedDecember 31, 2018 as compared to 2017. The following table provides the components of the change in fee related earnings for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 (Dollars in millions) Fee related earnings, prior year$ 33.9 $
32.1
Increases (decreases): (Decrease) increase in fee revenues (10.1 )
11.9
Increase in cash-based compensation (4.3 ) (7.3 ) Increase in general, administrative and other indirect expenses (0.6 ) (1.7 ) All other changes (1.5 ) (1.1 ) Total (decrease) increase (16.5 ) 1.8 Fee related earnings, current year$ 17.4 $ 33.9 133
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Fee Revenues. Total fee revenues decreased$10.1 million for the year endedDecember 31, 2019 as compared to 2018, primarily due to decreased management fees from our private equity fund vehicles and lower catch-up management fees on our real estate fund-of-fund vehicles. In addition, realizations have outpaced new fundraising, leading to lower Fee-earning AUM. Total fee revenues increased$11.9 million for the year endedDecember 31, 2018 as compared to 2017, primarily due to ongoing fundraising efforts and increased commitments from our private equity fund vehicles, as well as$4.6 million of catch-up management fees in 2018 from our real estate fund-of-fund vehicles. Cash-based compensation and benefits expense. Cash-based compensation and benefits expense increased$4.3 million for the year endedDecember 31, 2019 as compared to 2018, primarily due to an increase in headcount and 2019 cash bonuses. Cash-based compensation and benefits expense increased$7.3 million for the year endedDecember 31, 2018 as compared to 2017, primarily due to an increase in 2018 cash bonuses. General, administrative and other indirect expenses. General, administrative and other indirect expenses increased$1.7 million for the year endedDecember 31, 2018 as compared to 2017, primarily due to higher professional fees, partially offset by positive foreign currency adjustments. Fee-earning AUM as of and for each of the Three Years EndedDecember 31, 2019 Fee-earning AUM is presented below for each period together with the components of change during each respective period. The table below breaks out Fee-earning AUM by its respective components during the period. As of December 31, 2019 2018 2017 (Dollars in millions) Investment Solutions Components of Fee-earning AUM (1) Fee-earning AUM based on capital commitments$ 12,430 $ 11,355 $ 11,330 Fee-earning AUM based on invested capital (2) 2,118 1,657
1,230
Fee-earning AUM based on net asset value 662 942
842
Fee-earning AUM based on lower of cost or fair market value 13,174 15,111 16,748 Total Fee-earning AUM$ 28,384 $ 29,065 $ 30,150
(1) For additional information concerning the components of Fee-earning AUM,
see "-Fee-earning Assets under Management."
(2) Includes amounts committed to or reserved for certain AlpInvest and
Metropolitan carry funds.
Twelve Months Ended December 31,
2019 2018 2017
(Dollars in millions)
Investment Solutions
Fee-earning AUM Rollforward
Balance, Beginning of Period $ 29,065 $ 30,150 $ 27,054
Inflows (1) 3,708 5,092 6,234
Outflows (including realizations) (2) (4,039 ) (5,035 ) (5,776 )
Market Activity & Other (3) 57 (74 ) (231 )
Foreign Exchange (4) (407 ) (1,068 ) 2,869
Balance, End of Period $ 28,384 $ 29,065 $ 30,150
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(1) Inflows represents limited partner capital raised by our carry funds or
separately managed accounts for which management fees based on commitments
were activated during the period and the fee-earning commitments invested
in vehicles for which management fees are based on invested capital.
Inflows exclude fundraising amounts during the period for which fees have
not yet been activated, which are referenced as Pending Fee-earning AUM.
(2) Outflows represents the impact of realizations from vehicles withmanagement fees based on remaining invested capital at cost or fair value,
changes in basis for funds where the investment period, weighted-average
investment period or commitment fee period has expired during the period,
and reductions for funds that are no longer calling for fees. Distributions
for funds earning management fees based on commitments during the period do
not affect Fee-earning AUM.
(3) Market Activity & Other represents realized and unrealized gains (losses)
on portfolio investments in our carry funds based on the lower of cost or
fair value and net asset value.
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Fee-earning AUM was$28.4 billion atDecember 31, 2019 , a decrease of$0.7 billion , or 2%, compared to$29.1 billion atDecember 31, 2018 . This decrease was driven by outflows of$4.0 billion primarily attributable to distributions in our AlpInvest funds as well as$0.4 billion of foreign exchange activity related to the translation of our AlpInvest Fee-earning AUM from EUR to USD. Partially offsetting this decrease were inflows of$3.7 billion primarily attributable to fundraising in our AlpInvest funds as well as capital deployed in our AlpInvest funds which charge fees based on invested capital. Distributions from funds still in the commitment or weighted-average investment period do not impact Fee-earning AUM as these funds are based on commitments and not invested capital. Increases in fair value may have an impact on Fee-earning AUM for Investment Solutions as the management fees for many fully committed funds are based on fair value or on the lower of cost or fair value of the underlying investments. Fee-earning AUM was$29.1 billion atDecember 31, 2018 , a decrease of$1.1 billion , or 4%, compared to$30.2 billion atDecember 31, 2017 . This decrease was driven by outflows of$5.0 billion primarily attributable to distributions in our AlpInvest funds as well as$1.1 billion of foreign exchange activity related to the translation of our AlpInvest Fee-earning AUM from EUR to USD. Partially offsetting this decrease were inflows of$5.1 billion primarily attributable to fundraising in our AlpInvest and MRE funds. Fee-earning AUM was$30.2 billion atDecember 31, 2017 , an increase of$3.1 billion , or 11%, compared to$27.1 billion atDecember 31, 2016 . This increase was driven by inflows of$6.2 billion primarily related to the activation of fee-paying mandates in our AlpInvest funds and$2.9 billion of foreign exchange activity related to the translation of our AlpInvest Fee-earning AUM from EUR to USD. Partially offsetting this increase were outflows of$5.8 billion primarily attributable to distributions in our AlpInvest funds. Total AUM as of and for each of the Three Years EndedDecember 31, 2019 The table below provides the period to period rollforward of Total AUM. Twelve Months Ended December 31, 2019 2018 2017 (Dollars in millions) Investment Solutions Total AUM Rollforward Balance, Beginning of Period$ 45,654 $ 46,291 $ 43,092 Inflows (1) 2,969 4,063 5,486 Outflows (including realizations) (2) (7,887 ) (9,480 ) (10,143 ) Market Activity & Other (3) 5,008 6,488 3,445 Foreign Exchange (4) (498 ) (1,708 ) 4,411 Balance, End of Period$ 45,246 $ 45,654 $ 46,291 (1) Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects
translation at the average quarterly rate, while the separately reported
Fundraising metric is translated at the spot rate for each individual
closing.
135
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(2) Outflows includes distributions in our carry funds, related co-investment
vehicles and separately managed accounts, as well as the expiration of
available capital.
(3) Market Activity & Other generally represents realized and unrealized gains
(losses) on portfolio investments in our carry funds, related co-investment
vehicles and separately managed accounts, the net impact of fees, expenses
and non-investment income, as well as other changes in AUM. The fair market
values for our Investment Solutions carry funds are based on the latest
available valuations of the underlying limited partnership interests (in
most cases as of
plus the net cash flows since the latest valuation, up to December 31,
2019 .
(4) Foreign Exchange represents the impact of foreign exchange rate
fluctuations on the translation of our non-
Activity during the period is translated at the average rate for the
period. Ending balances are translated at the spot rate as of the period
end.
Total AUM was$45.2 billion as ofDecember 31, 2019 , a decrease of$0.5 billion , or 1%, compared to$45.7 billion as ofDecember 31, 2018 . Driving this decrease were$7.9 billion of outflows primarily due to distributions in our AlpInvest funds and$0.5 billion of foreign exchange losses related to the translation of our AlpInvest AUM from EUR to USD. Offsetting the decrease were$3.0 billion of inflows from new commitments raised in our AlpInvest and MRE funds, and$5.0 billion of market and other activity. Market appreciation was driven by 15% appreciation in our AlpInvest funds and 3% appreciation in our MRE funds. Total AUM was$45.7 billion as ofDecember 31, 2018 , a decrease of$0.6 billion , or 1%, compared to$46.3 billion as ofDecember 31, 2017 . Driving this decrease were$9.5 billion of outflows primarily due to distributions in our AlpInvest funds and$1.7 billion of foreign exchange losses related to the translation of our AlpInvest AUM from EUR to USD. Offsetting the decrease were$4.1 billion of inflows from new commitments raised in our AlpInvest and MRE funds, and$6.5 billion of market and other activity. Market appreciation was driven by 19% appreciation in our AlpInvest funds and 8% appreciation in our MRE funds. Total AUM was$46.3 billion as ofDecember 31, 2017 , an increase of$3.2 billion , or 7%, compared to$43.1 billion as ofDecember 31, 2016 . This increase was driven by$5.5 billion of inflows from new commitments raised primarily in our AlpInvest funds,$4.4 billion of foreign exchange gains related to the translation of our AlpInvest AUM from EUR to USD, and$3.4 billion of market and other activity. Market appreciation was driven by 10% appreciation in our AlpInvest funds and 12% appreciation in our MRE funds. Offsetting this increase were$10.1 billion of outflows primarily due to distributions in our AlpInvest funds. Fund Performance Metrics Fund performance information for our investment funds that have at least$1.0 billion in capital commitments, cumulative equity invested or total value as ofDecember 31, 2019 , which we refer to as our "significant funds," is generally included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance ofThe Carlyle Group Inc. and is also not necessarily indicative of the future performance of any particular fund. An investment inThe Carlyle Group Inc. is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns. See "Item 1A. Risk Factors-Risks Related to Our Business Operations-The historical returns attributable to our funds, including those presented in this report, should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our common stock." 136 --------------------------------------------------------------------------------
The following tables reflect the performance of our significant funds in our Investment Solutions business.
TOTAL INVESTMENTS
As of December 31, 2019
Cumulative
Invested Net
Capital
Realized Remaining Fair Total Fair MOIC Gross IRR
Investment Solutions (1) Vintage Year Fund Size (2)(3) Value (3) Value Value (4)
(Reported in Local Currency, in Millions)
AlpInvest
Fully Committed Funds
(6)
Main Fund I - Fund
Investments 2000 € 5,174.6 € 4,347.8 € 7,073.5 € 84.3 € 7,157.8 1.6x 12 % 11 % Main Fund II - Fund Investments
2003 € 4,545.0 € 4,935.6 € 7,542.6 € 369.6 € 7,912.2 1.6x 10 % 9 % Main Fund III - Fund Investments
2005 € 11,500.0 € 13,198.4 € 18,951.1 € 2,948.3 € 21,899.4 1.7x 10 % 10 % Main Fund IV - Fund Investments
2009 € 4,877.3 € 5,461.8 € 6,386.8 € 3,594.0 € 9,980.8 1.8x 17 % 16 % Main Fund V - Fund Investments
2012 € 5,080.0 € 5,189.4 € 2,822.9 € 5,238.8 € 8,061.7 1.6x 16 % 15 % Main Fund VI - Fund Investments
2015 € 1,106.4 € 871.0 € 231.9 € 918.7 € 1,150.6 1.3x 17 % 16 % Main Fund II - Secondary Investments
2003 € 998.4 € 1,029.9 € 1,865.9 € 16.4 € 1,882.3 1.8x 27 % 26 % Main Fund III - Secondary Investments 2006 € 2,250.0 € 2,415.0 €
3,634.2 € 71.1 € 3,705.3 1.5x 11 % 10 % Main Fund IV - Secondary Investments
2010 € 1,859.1 € 1,979.5 € 3,152.4 € 221.8 € 3,374.2 1.7x 19 % 18 %
Main Fund V - Secondary
Investments 2011 € 4,272.8 € 4,177.7 € 4,919.5 € 1,894.7 € 6,814.2 1.6x 20 % 18 %
Main Fund III -
Co-Investments 2006 € 2,760.0 € 2,858.3 € 3,634.6 € 564.1 € 4,198.7 1.5x 6 % 5 %
Main Fund IV -
Co-Investments 2010 € 1,475.0 € 1,379.6 € 3,171.1 € 508.1 € 3,679.1 2.7x 23 % 22 %
Main Fund V -
Co-Investments 2012 € 1,122.2 € 1,051.1 € 1,736.0 € 1,080.5 € 2,816.5 2.7x 30 % 28 %
Main Fund VI -
Co-Investments 2014 € 1,114.6 € 955.8 € 1,045.9 € 1,122.1 € 2,168.1 2.3x 29 % 27 % Main Fund II - Mezzanine Investments
2004 € 700.0 € 774.1 € 1,060.6 € 12.1 € 1,072.7 1.4x 8 % 7 % Main Fund III - Mezzanine Investments 2006 € 2,000.0 € 2,025.9 €
2,545.0 € 192.8 € 2,737.7 1.4x 10 % 9 % All Other Active Funds (10)
Various € 2,420.1 € 1,391.6 € 1,524.1 € 2,915.7 1.2x 5 % 4 % Fully Realized Funds Various
€ 2,169.9 € 4,899.7 € 1.2 € 4,900.9 2.3x 35 % 32 % Total Fully Committed Funds
€ 57,241.2 € 76,065.4 € 20,362.7 € 96,428.1 1.7x 13 % 12 %
Funds in the Commitment
Period (6)
Main Fund VI - Secondary
Investments 2017 € 5,209.4 € 3,469.9 € 505.8 € 3,624.4 € 4,130.2 1.2x 17 % 13 %
Main Fund VII -
Co-investments 2017 € 2,529.0 € 1,495.4 € 54.2 € 1,607.5 € 1,661.6 1.1x 9 % 6 % All Other Funds (10) Various
€ 1,566.2 € 203.5 € 1,492.2 € 1,695.6 1.1x 9 % 7 % Total Funds in the Commitment Period
€ 6,531.5 € 763.4 € 6,724.0 € 7,487.4 1.1x 13 % 10 % TOTAL ALPINVEST
€ 63,772.6 € 76,828.8 € 27,086.8 € 103,915.6 1.6x 13 % 12 % TOTAL ALPINVEST (USD) (11)
$ 71,606.3 $ 86,266.4 $ 30,414.1 $ 116,680.4 1.6x
Metropolitan Real Estate Active Fully Committed Funds Various $ 2,720.0 $ 2,538.7 $
2,701.5 $ 665.6 $ 3,367.1 1.3x 7 % 5 % Fully Realized Funds Various $ 611.2 $ 588.7 $ 710.4 $ 0.5 $ 710.9 1.2x 4 % 2 % Total Fully Committed Funds (6)
$ 3,331.2 $ 3,127.5 $ 3,411.9 $ 666.1 $ 4,078.1 1.3x 6 % 4 % MRE Secondaries Fund II 2017 $ 1,162.5 $ 298.9 $ 60.1 $ 270.5 $ 330.6 1.1x NM NM All Other Funds in the Commitment Period
Various $ 500.5 $ 110.4 $ 7.7 $ 102.1 $ 109.7 1.0x NM NM Total Funds in the Commitment Period (6)
$ 1,663.0 $ 409.4 $
67.7 $ 372.6 $ 440.3 1.1x 9 % Neg
TOTAL
(1) Includes private equity and mezzanine primary fund investments, secondary
fund investments and co-investments originated by the AlpInvest team, as
well as real estate primary fund investments, secondary fund investments
and co-investments originated by the Metropolitan Real Estate team.
Excluded from the performance information shown are
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-------------------------------------------------------------------------------- a) investments that were not originated by AlpInvest, b) Direct Investments, which was spun off from AlpInvest in 2005, and (c) LP co-investment vehicles by AlpInvest. As of December 31, 2019, these excluded investments represent $0.4 billion of AUM at AlpInvest. (2) Represents the original cost of investments since inception of the fund.
(3) To exclude the impact of FX, all AlpInvest foreign currency cash flows
have been converted to Euro at the reporting period spot rate.
(4) Represents all realized proceeds combined with remaining fair value,
before management fees, expenses and carried interest. To exclude the
impact of FX, all AlpInvest foreign currency cash flows have been
converted to Euro at the reporting period spot rate.
(5) Multiple of invested capital ("MOIC") represents total fair value, before
management fees, expenses and carried interest, divided by cumulative
invested capital.
(6) Fully Committed funds are past the expiration date of the commitment
period as defined in the respective limited partnership agreement.
(7) Gross Internal Rate of Return ("Gross IRR") represents the annualized IRR
for the period indicated on Limited Partner invested capital based on
investment contributions, distributions and unrealized value of the
underlying investments, before management fees, expenses and carried
interest at the AlpInvest/Metropolitan Real Estate level.
(8) Net Internal Rate of Return ("Net IRR") represents the annualized IRR for
the period indicated on Limited Partner invested capital based on
contributions, distributions and unrealized value after management fees,
expenses and carried interest. Fund level IRRs are based on aggregate
Limited Partner cash flows, and this blended return may differ from that
of individual Limited Partners. As a result, certain funds may generate
accrued performance revenues with a blended Net IRR that is below the
preferred return hurdle for that fund.
(9) For funds marked "NM," IRR may be positive or negative, but is considered
not meaningful because of the limited time since initial investment and
early stage of capital deployment. For funds marked "Neg," IRR is negative
as of reporting period end.
(10) Aggregate includes Main Fund VII - Fund Investments, Main Fund VIII - Fund
Investments, Main Fund IX - Fund Investments, Main Fund X - Fund
Investments, Main Fund XI - Fund Investments, Main Fund I -
Co-Investments, Main Fund I - Mezzanine Investments, Main Fund IV -
Mezzanine Investments, Main Fund V - Mezzanine Investments, AlpInvest
CleanTech Funds and funds which are not included as part of a main fund.
(11) Represents the U.S. dollar equivalent balance translated at the spot rate
as of period end.
Liquidity and Capital Resources
Historical Liquidity and Capital Resources
We have historically required limited capital resources to support the working
capital and operating needs of our business. Our management fees have largely
covered our operating costs and all realized performance allocations, after
covering the related compensation, are available for distribution to
equityholders. Historically, approximately 95% of all capital commitments to our
funds have been provided by our fund investors, with the remaining amount
typically funded by our senior Carlyle professionals, advisors and other
professionals.
Our Sources of Liquidity
We have multiple sources of liquidity to meet our capital needs, including cash
on hand, annual cash flows, accumulated earnings and funds from our senior
revolving credit facility, which has $775.0 million of available capacity as of
December 31, 2019. We believe these sources will be sufficient to fund our
capital needs for at least the next twelve months. If we determine that market
conditions are favorable after taking into account our liquidity requirements,
including the amounts available under our senior revolving credit facility, we
may seek to issue and sell shares of our common stock in a registered public
offering or a privately negotiated transaction, or we may issue additional
senior notes, other debt or preferred equity. In September 2019, we issued
$425.0 million of 3.500% senior notes due September 19, 2029 and used the net
proceeds from that issuance to redeem the Preferred Units outstanding.
Cash and cash equivalents. Cash and cash equivalents were approximately $793.4
million at December 31, 2019. However, a portion of this cash is allocated for
specific business purposes, including, but not limited to, (i) performance
allocations and incentive fee-related cash that has been received but not yet
distributed as performance allocations and
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incentive fee related compensation and amounts owed to non-controlling
interests; (ii) proceeds received from realized investments that are allocable
to non-controlling interests; and (iii) regulatory capital.
Corporate Treasury Investments. These investments represent investments in U.S.
Treasury and government agency obligations, commercial paper, certificates of
deposit, other investment grade securities and other investments with original
maturities of greater than three months when purchased. There were no corporate
treasury investments as of December 31, 2019.
After deducting cash amounts allocated to the specific requirements mentioned
above, the remaining cash and cash equivalents is approximately $691 million as
of December 31, 2019. This remaining amount will be used towards our primary
liquidity needs, as outlined in the next section. This amount does not take into
consideration ordinary course of business payables and reserves for specific
business purposes.
Senior Revolving Credit Facility. On February 11, 2019, the Company entered into
an amendment and restatement of its senior revolving credit facility. In
connection with this amendment and restatement, the capacity under the revolving
credit facility was increased to $775.0 million, the term was extended to
February 11, 2024, and the $25.0 million term loan was repaid. Principal amounts
outstanding under the amended and restated revolving credit facility accrue
interest, at the option of the borrowers, either (a) at an alternate base rate
plus an applicable margin not to exceed 0.50% per annum, or (b) at LIBOR plus an
applicable margin not to exceed 1.50% per annum (3.01% at December 31, 2019).
The senior revolving credit facility is unsecured. Under the amended and
restated facility, we are required to maintain management fee earning assets (as
defined in the amended and restated senior revolving credit facility) of at
least $75.0 billion and a total leverage ratio of less than 3.0 to 1.0, in each
case, tested on a quarterly basis. Non-compliance with any of the financial or
non-financial covenants without cure or waiver would constitute an event of
default under the senior revolving credit facility. An event of default
resulting from a breach of certain financial or non-financial covenants may
result, at the option of the lenders, in an acceleration of the principal and
interest outstanding, and a termination of the senior revolving credit facility.
The senior revolving credit facility also contains other customary events of
default, including defaults based on events of bankruptcy and insolvency,
nonpayment of principal, interest or fees when due, breach of specified
covenants, change in control and material inaccuracy of representations and
warranties.
Global Credit Revolving Credit Facility. In December 2018, certain subsidiaries
of the Company established a $250.0 million revolving line of credit, primarily
intended to support certain lending activities within the Global Credit segment.
The credit facility includes a $125.0 million line of credit with a one-year
team, and a $125.0 million line of credit with a three-year term. The revolving
line of credit was extended by one year in December 2019. Principal amounts
outstanding under the facility accrue interest, at the option of the borrowers,
either (a) at an alternate base rate plus applicable margin not to exceed 1.00%,
or (b) at the Eurocurrency rate plus an applicable margin not to exceed 2.00%.
As of December 31, 2019, there was $35.8 million outstanding under this
facility.
CLO Borrowings. For certain of our CLOs, the Company finances a portion of its
investment in the CLOs through the proceeds received from term loans with
financial institutions. The Company's outstanding CLO term loans were $324.9
million and $309.9 million at December 31, 2019 and 2018, respectively. The CLO
term loans are secured by the Company's investments in the respective CLO, have
a general unsecured interest in the Carlyle entity that manages the CLO, and
generally do not have recourse to any other Carlyle entity. As of December 31,
2019, $306.9 million of these loans are secured by investments attributable to
Carlyle Holdings. See Note 7 of our financial statements for more information on
our CLO term loans.
Senior Notes. Certain indirect finance subsidiaries of the Company have issued
senior notes, on which interest is payable semi-annually, as discussed below.
The senior notes are unsecured and unsubordinated obligations of the respective
subsidiary and are fully and unconditionally guaranteed, jointly and severally,
by the Company and each of the Carlyle Holdings partnerships. The indentures
governing each of the senior notes contain customary covenants that, among other
things, limit the issuers' and the guarantors' ability, subject to certain
exceptions, to incur indebtedness secured by liens on voting stock or profit
participating equity interests of their subsidiaries or merge, consolidate or
sell, transfer or lease assets. The notes also contain customary events of
default. All or a portion of the notes may be redeemed at our option, in whole
or in part, at any time and from time to time, prior to their stated maturity,
at the make-whole redemption price set forth in the notes. If a change of
control repurchase event occurs, the notes are subject to repurchase at the
repurchase price as set forth in the notes.
3.500% Senior Notes. In September 2019, Carlyle Finance Subsidiary L.L.C. issued
$425.0 million of 3.500% senior notes due September 19, 2029 at 99.841% of par.
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5.650% Senior Notes. In September 2018, Carlyle Finance L.L.C. issued $350.0
million of 5.650% senior notes due September 15, 2048 at 99.914% of par.
3.875% Senior Notes. In January 2013, Carlyle Holdings Finance L.L.C. issued
$500.0 million of 3.875% senior notes due February 1, 2023 at 99.966% of par. In
September 2018, we completed a tender offer to purchase $250.0 million in
aggregate principal amount of these notes. As of December 31, 2019, $250.0
million of these notes remain outstanding.
5.625% Senior Notes. In March 2013, Carlyle Holdings II Finance L.L.C. issued
$400.0 million of 5.625% senior notes due March 30, 2043 at 99.583% of par. In
March 2014, an additional $200.0 million of these notes were issued at 104.315%
of par and are treated as a single class with the already outstanding $400.0
million aggregate principal amount of these notes.
Promissory Notes. On January 1, 2016, the Company issued a $120.0 million
promissory note to BNRI as a result of a contingent consideration arrangement
entered into in 2012 between the Company and BNRI as part of the Company's
strategic investment in NGP. Interest on the promissory note accrued at the
three month LIBOR plus 2.50%. The promissory note was scheduled to mature on
January 1, 2022. In December 2016, the Company repurchased $11.2 million of the
promissory note. In September 2018, the Company prepaid the $108.8 million
remaining balance outstanding under the promissory note, plus $1.2 million of
accrued but unpaid interest.
Additionally, in June 2017, as part of the settlement with investors in two
commodities investment vehicles managed by an affiliate of the Company
(discussed in Note 9 to the consolidated financial statements), the Company
issued a series of promissory notes, aggregating to $53.9 million, to the
investors of these commodities investment vehicles. Interest on these promissory
notes accrued at the three month LIBOR plus 2%. These promissory notes matured
on July 15, 2019 and were fully repaid as of that date.
Obligations of CLOs. Loans payable of the Consolidated Funds represent amounts
due to holders of debt securities issued by the CLOs. We are not liable for any
loans payable of the CLOs. Several of the CLOs issued preferred shares
representing the most subordinated interest, however these tranches are
mandatorily redeemable upon the maturity dates of the senior secured loans
payable, and as a result have been classified as liabilities under U.S. GAAP,
and are included in loans payable of Consolidated Funds in our consolidated
balance sheets. Loans payable of the CLOs are collateralized by the assets held
by the CLOs and the assets of one CLO may not be used to satisfy the liabilities
of another. This collateral consists of cash and cash equivalents, corporate
loans, corporate bonds and other securities.
Preferred Units. In September 2017, we issued 16 million of our Preferred Units
for net proceeds of approximately $387.5 million. In October 2019, we completed
the redemption of our Preferred Units for $25.339757 per unit, which is equal to
$25.25 per preferred unit plus declared and unpaid distributions to, but
excluding, the redemption date.
Realized Performance Allocation Revenues. Another source of liquidity we may use
to meet our capital needs is the realized performance allocation revenues
generated by our investment funds. Performance allocations are generally
realized when an underlying investment is profitably disposed of and the fund's
cumulative returns are in excess of the preferred return. For certain funds,
performance allocations are realized once all invested capital and expenses have
been returned to the fund's investors and the fund's cumulative returns are in
excess of the preferred return. Incentive fees earned on our CLO vehicles
generally are paid upon the dissolution of such vehicles.
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--------------------------------------------------------------------------------Our accrued performance allocations by segment as of December 31, 2019, gross and net of accrued giveback obligations, are set forth below:
Accrued Accrued Net Accrued
Performance Giveback Performance
Asset Class Allocations Obligation Revenues
(Dollars in millions)
Corporate Private Equity $ 2,107.5 $ (5.0 ) $ 2,102.5
Real Assets 764.4 (17.2 ) 747.2
Global Credit 136.9 - 136.9
Investment Solutions 846.8 - 846.8
Total $ 3,855.6 $ (22.2 ) $ 3,833.4
Plus: Accrued performance allocations from
NGP Carry Funds -
Less: Accrued performance allocation-related compensation (2,038.2 )
Plus: Receivable for giveback obligations from current and former employees
1.4
Less: Deferred taxes on accrued performance allocations (66.2 )
Less: Net accrued performance allocations attributable to non-controlling interests in consolidated entities
(4.3 )
Net accrued performance revenues before timing differences 1,726.1
Less/Plus: Timing differences between the period when accrued performance revenues are realized and the period they are collected/distributed
(6.0 )
Net accrued performance revenues attributable to Carlyle Holdings
$ 1,720.1
The net accrued performance revenues attributable to Carlyle Holdings, excluding
realized amounts, related to our carry funds and our other vehicles as of
December 31, 2019, as well as the carry fund appreciation (depreciation), is set
forth below by segment (Dollars in millions):
Carry Fund Appreciation/(Depreciation)(1)
Net Accrued
FY 2017 FY 2018 FY 2019 Performance
Revenues
Overall Carry Fund 20% 9% 9%Appreciation/(Depreciation)
Corporate Private Equity 32% 5% 8% $ 1,138.8
Real Assets(2) 19% 5% 3% 404.8
Real Estate 17% 8% 16% 310.2
Natural Resources 30% 6% (5)% 94.6
Global Credit Carry Funds 11% 5% 1% 75.1
Investment Solutions Carry Funds 10% 19% 15% 101.4
Net Accrued Performance Revenues $ 1,720.1
(1) Appreciation/(Depreciation) represents unrealized gain/(loss) for the period
on a total return basis before fees and expenses. The percentage of return is
calculated as: ending remaining investment fair market value plus net investment
outflow (sales proceeds minus net purchases) minus beginning remaining
investment fair market value divided by beginning remaining investment fair
market value. Amounts are fund only, and do not include coinvestments.
(2) Includes $2.7 million of net accrued clawback from our Legacy Energy funds.
Realized Principal Investment Income. Another source of liquidity we may use to
meet our capital needs is the realized principal investment income generated by
our equity method investments and other principal investments. Principal
investment income is realized when we redeem all or a portion of our investment
or when we receive or are due cash income, such as dividends or distributions.
Certain of the investments attributable to Carlyle Holdings (excluding certain
general partner interests, strategic investments, and investments in certain
CLOs) may be sold at our discretion as a source of liquidity.
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--------------------------------------------------------------------------------Investments as of December 31, 2019 consist of the following:
Investments in Investments in NGP Investment in
Carlyle Funds (1) Fortitude Re (1) Total
(Dollars in millions)
Investments, excluding performance
allocations $ 1,364.3 $ 383.6 $ 1,200.9 $ 2,948.8
Less: Amounts attributable to
non-controlling interests in
consolidated entities (303.1 ) - - (303.1 )
Plus: Investments in Consolidated
Funds, eliminated in
consolidation 178.3 - - 178.3
Less: Strategic equity method
investments in NGP
Management - (383.6 ) - (383.6 )
Less: Mark-to-market gains associated
with strategic
equity method investment in Fortitude
Re - - (628.2 ) (628.2 )
Total investments attributable to
Carlyle Holdings, exclusive of NGP
Management $ 1,239.5 $ - $ 572.7 $ 1,812.2
(1) See Note 5 to our consolidated financial statements. Our investments as of December 31, 2019 can be further attributed as follows: Adjusted investment in Fortitude Re
$ 572.7
Investments in Carlyle Funds, excluding CLOs: Corporate Private Equity funds 398.7 Real Assets funds(1) 200.4 Global Credit funds 98.0 Investment Solutions funds 39.7 Total investments in Carlyle Funds, excluding CLOs 736.8 Investments in CLOs 455.7 Other investments 47.0 Total investments attributable to Carlyle Holdings
1,812.2
CLO loans and other borrowings attributable to Carlyle Holdings (2) (342.7 ) Total investments attributable to Carlyle Holdings, net of CLO loans $ 1,469.5
(1) Excludes our strategic equity method investment in NGP Management and investments in NGP general partners - accrued performance allocations. (2) Of the $324.9 million in total CLO term loans outstanding as of December 31, 2019 and as disclosed in Note 7 to the consolidated financial statements, $306.9 million are collateralized by investments attributable to Carlyle Holdings. Also includes $35.8 million of borrowings under a credit facility to fund Carlyle Capital Solutions investments. Our adjusted strategic equity method investment in Fortitude Re of $572.7 million includes $152.6 million of adjusted net income for the period from closing through December 31, 2019, and excludes $628.2 million of unrealized mark-to-market gains associated with our pro rata share of the changes in the fair value of embedded derivatives related to certain reinsurance contracts included in Fortitude Re'sU.S. GAAP financial statements. Modified coinsurance is subject to the general accounting principles for derivatives and hedging, specifically the guidance originally issued as Derivatives Implementation Group Issue No. B36: Embedded Derivatives: Modified Coinsurance Agreements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments ("DIG B36"). This guidance can cause significant volatility in earnings that is not necessarily consistent with the underlying performance of Fortitude Re. We believe it is meaningful to reflect our investment in Fortitude Re excluding the effects of these fair value changes as these fluctuations are not considered by Fortitude Re in assessing its performance, which is consistent with industry practice when evaluating performance. During the years ended December 31, 2019 and 2018, our investment in Fortitude Re generated $140.9 million and $11.7 million of principal investment income, respectively, excluding the unrealized market to market gains on embedded derivatives. 142 --------------------------------------------------------------------------------
Our Liquidity Needs We generally use our working capital and cash flows to invest in growth initiatives, service our debt, fund the working capital needs of our business and investment funds and pay dividends to our common stockholders. In the future, we expect that our primary liquidity needs will be to:
• provide capital to facilitate the growth of our existing business lines;
• provide capital to facilitate our expansion into new, complementary
business lines, including acquisitions;
• pay operating expenses, including compensation and compliance costs and
other obligations as they arise;
• fund costs of litigation and contingencies, including related legal costs;
• fund the capital investments of Carlyle in our funds;
• fund capital expenditures;
• repay borrowings and related interest costs and expenses;
• pay earnouts and contingent cash consideration associated with our
acquisitions and strategic investments;
• pay income taxes, including corporate income taxes following the Conversion;
• pay dividends to our common stockholders in accordance with our
dividend policy,
• make installment payments under the deferred obligation to formerholders of Carlyle Holdings partnership units, which were exchanged in
the Conversion, and;
• repurchase our common stock.
Preferred Unit Redemption. In October 2019, we completed the redemption of our
Preferred Units for $25.339757 per unit, which is equal to $25.25 per Preferred
Unit plus declared and unpaid distributions to, but excluding, the redemption
date.
Preferred Unit Distributions. With respect to distribution year 2019, the Board
of Directors declared a distribution to preferred unitholders totaling
approximately $19.1 million, or $1.191321 per preferred unit, consisting of the
following:
Preferred Unit Distributions
Distribution per Distribution to
Preferred Unit Preferred Unitholders Distribution Year Record Date Payment Date
$ 0.367188 $ 5.9 2019 March 1, 2019 March 15, 2019
0.367188 5.9 2019 June 1, 2019 June 17, 2019
0.367188 5.9 2019 September 1, 2019 September 16, 2019
0.089757 1.4 2019 October 4, 2019 October 7, 2019
$ 1.191321 $ 19.1
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With respect to distribution year 2018, the Board of Directors declared a distribution to preferred unitholders totaling approximately $23.6 million, consisting of the following:
Preferred Unit Distributions
Distribution per Distribution to
Preferred Unit Preferred Unitholders Distribution Year Record Date Payment Date
$ 0.367188 $ 5.9 2018 March 1, 2018 March 15, 2018
0.367188 5.9 2018 June 1, 2018 June 15, 2018
0.367188 5.9 2018 September 1, 2018 September 17, 2018
0.367188 5.9 2018 December 1, 2018 December 17, 2018
$ 1.468752 $ 23.6
Common Stockholder Dividends. Our dividend policy as a Corporation beginning
with the dividend payable to stockholders on February 25, 2020 is to pay
dividends in an initial amount of $0.25 per share of common stock ($1.00 per
share annually), subject to the discretion of our Board of Directors and
compliance with applicable law.
With respect to dividend year 2019, our Board of Directors has declared
cumulative dividends to common stockholders totaling approximately $194.8
million, or $1.18 per common share, consisting of the following:
Common Stock Dividends - Dividend Year 2019
Dividend per Common Dividend to Common
Quarter Share Stockholders (1) Record Date Payment Date
Q1 2019 $ 0.19 $ 21.0 May 13, 2019 May 20, 2019
Q2 2019 0.43 49.9 August 12, 2019 August 19, 2019
Q3 2019 0.31 36.5 November 12,2019 November 19, 2019
Q4 2019 0.25 87.4 February 18,
2020 February 25, 2020
Total $ 1.18 $ 194.8 (1) The dividend to common stockholders for Q4 2019 reflects the exchange of all Carlyle Holdings partnership units to shares of common stock inThe Carlyle Group Inc. in connection with the Conversion on January 1, 2020. With respect to distribution year 2018, our Board of Directors declared a dividend of approximately $144.1 million to common stockholders, consisting of the following: Common Stock Dividends - Dividend Year 2018 Dividend per Common Dividend to Common Quarter Share Stockholders Record Date Payment Date Q1 2018 $ 0.27 $ 27.8 May 11, 2018 May 17, 2018 Q2 2018 0.22 23.3 August 13, 2018 August 17, 2018 Q3 2018 0.42 45.5 November 13, 2018 November 20, 2018 Q4 2018 0.43 47.5 February 19, 2019 February 26, 2019 Total $ 1.34 $ 144.1 144
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With respect to distribution year 2017, our Board of Directors declared a dividend of approximately $137.6 million to common stockholders, consisting of the following:
Common Stock Dividends - Dividend Year 2017
Dividend per Common Dividend to Common
Quarter Share Stockholders Record Date Payment Date
Q1 2017 $ 0.10 $ 9.0 May 15, 2017 May 22, 2017
Q2 2017 0.42 40.3 August 14, 2017 August 21, 2017
Q3 2017 0.56 55.1 November 10, 2017 November 16, 2017
Q4 2017 0.33 33.2 February 20, 2018 February 27, 2018
Total $ 1.41 $ 137.6
Fund Commitments. Generally, we intend to have Carlyle commit to fund
approximately 0.75% to 1% of the capital commitments to our future carry funds,
although we may elect to invest additional amounts in funds focused on new
investment areas. We may, from time to time, exercise our right to purchase
additional interests in our investment funds that become available in the
ordinary course of their operations. We expect our senior Carlyle professionals
and employees to continue to make significant capital contributions to our funds
based on their existing commitments, and to make capital commitments to future
funds consistent with the level of their historical commitments. We also intend
to make investments in our open-end funds and our CLO vehicles. Our investments
in our European CLO vehicles will comply with the risk retention rules as
discussed in "Risk Retention Rules" later in this section.
Since our inception through December 31, 2019, we and our senior Carlyle
professionals, operating executives and other professionals have invested or
committed to invest in or alongside our funds. Approximately 3% to 5% of all
capital commitments to our funds are funded collectively by us and our senior
Carlyle professionals, operating executives and other professionals.
The current unfunded commitment of Carlyle and our senior Carlyle professionals,
operating executives and other professionals to our investment funds as of
December 31, 2019, consisted of the following:
Unfunded
Asset Class Commitment
(Dollars in millions)
Corporate Private Equity $ 2,378.7
Real Assets 972.2
Global Credit 412.5
Investment Solutions 100.5
Total $ 3,863.9
A substantial majority of the remaining commitments are expected to be funded by
senior Carlyle professionals, operating executives and other professionals
through our internal co-investment program. Of the $3.9 billion of unfunded
commitments, approximately $3.3 billion is subscribed individually by senior
Carlyle professionals, operating executives and other professionals, with the
balance funded directly by the Company.
Repurchase Program. In December 2018, our Board of Directors authorized the
repurchase of up to $200 million of common stock and/or Carlyle Holdings units.
This program, which was effective January 1, 2019, authorized the repurchase of
shares of common stock from time to time in open market transactions, in
privately negotiated transactions or otherwise. As described below, we no longer
intend to make further purchases under this repurchase program. For the year
ended December 31, 2019, we paid an aggregate of $34.5 million to repurchase and
retire approximately 1.6 million units with all of the repurchases done via open
market brokered transactions.
In connection with the Conversion, in January 2020 our Board of Directors
re-authorized the December 2018 repurchase program, under which $165.5 million
is remaining as of December 31, 2019. Under the repurchase program, shares of
common stock may be repurchased from time to time in open market transactions,
in privately negotiated transactions or otherwise. The timing and actual number
of shares of common stock repurchased will depend on a variety of factors,
including
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legal requirements, price, economic and market conditions. The share repurchase
program may be suspended or discontinued at any time and does not have a
specified expiration date.
Cash Flows
The significant captions and amounts from our consolidated statements of cash
flows which include the effects of our Consolidated Funds and CLOs in accordance
with U.S. GAAP are summarized below.
Year Ended December 31,
2019 2018 2017
(Dollars in millions)
Statements of Cash Flows Data
Net cash provided by (used in) operating
activities, including investments in
Carlyle funds and Fortitude Re $ 358.6 $ (343.5 ) $ (7.1 )
Net cash used in investing activities (27.8 ) (99.1 ) (34.0 )
Net cash (used in) provided by financing
activities (149.2 ) 72.0 318.6
Effect of foreign exchange rate change 8.1 (19.9 )
67.3
Net change in cash, cash equivalents and restricted cash $ 189.7 $ (390.5 )
$ 344.8
Net Cash Used in Operating Activities. Net cash used in operating activities was primarily driven by our earnings in the respective periods after adjusting for significant non-cash activity, including non-cash performance allocations and incentive fees, the related non-cash performance allocations and incentive fee related compensation, non-cash principal investment income, non-cash equity-based compensation, and depreciation, amortization and impairments, all of which are included in earnings. Cash used to purchase investments as well as the proceeds from the sale of such investments are reflected in our cash flows from operating activities as this investment activity is a normal part of our operations. During the year ended December 31, 2019, investment proceeds were $389.2 million while investment purchases were $312.4 million. Investment proceeds in 2019 also included $71.5 million received from the resolution of French tax litigation. During the year ended December 31, 2018, investment proceeds were $893.4 million while investment purchases were $867.4 million, which included cash outflows of $393.8 million related to our investment in Fortitude Re. During the year ended December 31, 2017, investment proceeds were $467.5 million while investment purchases were $888.5 million, which included cash outflows of $404.8 million and $263.4 million related to corporate treasury investments and investments in CLOs, respectively. Operating cash inflows primarily include the receipt of management fees and realized performance allocations and incentive fees, while operating cash outflows primarily include payments for operating expenses, including compensation and general, administrative, and other expenses. During the years ended December 31, 2019, 2018 and 2017, net cash provided by operating activities primarily includes the receipt of management fees and realized performance allocations and incentive fees, totaling approximately $1.9 billion, $2.0 billion, and $2.1 billion, respectively. These inflows were partially offset by payments for compensation and general, administrative, and other expenses of approximately $1.6 billion, $1.7 billion, and $1.7 billion for the years ended December 31, 2019, 2018 and 2017, respectively. The net cash used in operating activities for the year ended December 31, 2019 also reflects the investment activity of our Consolidated Funds. For the year ended December 31, 2019, proceeds from the sales and settlements of investments by the Consolidated Funds were $2.1 billion, while purchases of investments by the Consolidated Funds were $2.2 billion. For the year ended December 31, 2018, proceeds from the sales and settlements of investments by the Consolidated Funds were $2.7 billion, while purchases of investments by the Consolidated Funds were $3.7 billion. For the year ended December 31, 2017, proceeds from the sales and settlements of investments by the Consolidated Funds were $2.6 billion, while purchases of investments by the Consolidated Funds were $2.9 billion.Net Cash Used In Investing Activities. Our investing activities generally reflect cash used for acquisitions and fixed assets and software for internal use. Purchases of fixed assets were $27.8 million, $31.3 million and $34.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. During the year ended December 31, 2018, cash used in investing activities principally reflects the acquisition of Carlyle Aviation Partners. Net Cash Provided by Financing Activities. In 2019, we received net proceeds of $420.6 million from the issuance of $425 million of 3.500% senior notes, and $41.0 million from the issuance of various CLO borrowings, paid $405.4 million to repurchase our outstanding Preferred Units, paid $34.5 million to repurchase 1.6 million units under our repurchase program 146 -------------------------------------------------------------------------------- and paid off a $25 million term loan. In 2018, we received net proceeds of $345.7 million from the issuance of $350 million of 5.650% senior notes, paid $255 million to repurchase $250 million of 3.875% senior note, and paid $108.8 million to prepay the remaining balance outstanding under a promissory note to BNRI. In 2017, we received net proceeds of $387.5 million from the issuance of preferred units and $265.6 million from the issuance of various CLO term loans. Dividends to our common stockholders were $154.9 million, $129.8 million, and $118.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. Distributions to the non-controlling interest holders in Carlyle Holdings were $313.3 million, $288.8 million, and $295.6 million the years ended December 31, 2019, 2018 and 2017, respectively. The net (payments) borrowings on loans payable by our Consolidated Funds during the years ended December 31, 2019, 2018 and 2017 were $224.8 million, $818.0 million, and $147.2 million, respectively. For the years ended December 31, 2019, 2018 and 2017, contributions from non-controlling interest holders were $57.8 million, $31.3 million, and $119.2 million, respectively, which relate primarily to contributions from the non-controlling interest holders in Consolidated Funds. For the years ended December 31, 2019, 2018 and 2017, distributions to non-controlling interest holders were $62.4 million, $105.2 million, and $118.0 million, respectively, which relate primarily to distributions to the non-controlling interest holders in Consolidated Funds. Our Balance Sheet Total assets were $13.8 billion at December 31, 2019, an increase of $894.6 million from December 31, 2018. The increase in total assets was primarily attributable to increases in investments, including accrued performance allocations of $1.1 billion, driven in part by the increase in the carrying value of our investment in Fortitude Re. The increase in total assets was also attributable to the recognition of lease right-of-use assets, net of $203.8 million and an increase in cash and cash equivalents of $163.8 million. Investments of consolidated funds decreased $279.3 million due to the deconsolidation of two CLOs during the year ended, December 31, 2019, partially offset by the consolidation of one CLO. Due from affiliates and other receivables, net and cash and cash equivalents held at Consolidated Funds also decreased by $167.2 million and $125.1 million, respectively. Total liabilities were $10.8 billion at December 31, 2019, an increase of $761.3 million from December 31, 2018. The increase in liabilities was primarily attributable to increases in debt obligations of $425.9 million (see Note 5), an increase in due to affiliates of $368.1 million, an increase in lease liabilities of $288.2 million and an increase in accrued compensation and benefits of $274.2 million. These increases were partially offset by decreases in other liabilities of Consolidated Funds of $294.0 million and a decrease in loans payable of Consolidated Funds of $133.4 million from December 31, 2018 to 2019, driven by the deconsolidation of two CLOs during the year ended December 31, 2019. The assets and liabilities of the Consolidated Funds are generally held within separate legal entities and, as a result, the assets of the Consolidated Funds are not available to meet our liquidity requirements and similarly the liabilities of the Consolidated Funds are non-recourse to us. For example, as previously discussed, the CLO term loans generally are secured by the Company's investment in the CLO, have a general unsecured interest in the Carlyle entity that manages the CLO, and do not have recourse to any other Carlyle entity. Our balance sheet without the effect of the Consolidated Funds can be seen in Note 20 to the consolidated financial statements included in this Annual Report on Form 10-K. At December 31, 2019, our total assets were $8.8 billion, including cash and cash equivalents and corporate treasury investments totaling $793.4 million and net accrued performance revenues of $1.7 billion. Unconsolidated Entities Our corporate private equity funds and certain of our real estate funds have entered into lines of credit secured by their investors' unpaid capital commitments or by a pledge of the equity of the underlying investment. These lines of credit are used primarily to reduce the overall number of capital calls to investors or for working capital needs. In certain instances, however, they may be used for other investment related activities, including serving as bridge financing for investments. The degree of leverage employed varies among portfolio companies. Off-balance Sheet Arrangements In the normal course of business, we enter into various off-balance sheet arrangements including sponsoring and owning limited or general partner interests in consolidated and non-consolidated funds, entering into derivative transactions, entering into operating leases and entering into guarantee arrangements. We also have ongoing capital commitment arrangements with certain of our consolidated and non-consolidated funds. We do not have any other off-balance sheet arrangements that would require us to fund losses or guarantee target returns to investors in any of our other investment funds. 147 -------------------------------------------------------------------------------- For further information regarding our off-balance sheet arrangements, see Note 2 and Note 9 to the consolidated financial statements included in this Annual Report on Form 10-K. Contractual Obligations The following table sets forth information relating to our contractual obligations as of December 31, 2019 on a consolidated basis and on a basis excluding the obligations of the Consolidated Funds: 2020 2021-2022
2023-2024 Thereafter Total
(Dollars in millions)
Debt obligations (including senior
notes)(a) $ 35.8 $ 40.4 $ 511.6 $ 1,397.9 $ 1,985.7
Interest payable(b) 89.6 176.3 149.8 1,151.8 1,567.5
Other consideration(c) 76.4 203.7 191.8 95.0 566.9
Operating lease obligations(d) 56.9 103.8 102.6 438.4 701.7
Capital commitments to Carlyle funds(e) 3,863.9 - - - 3,863.9
Tax receivable agreement payments(f) - 17.6 14.1 75.6 107.3
Loans payable of Consolidated Funds(g) 78.9 157.4 157.6 5,200.0 5,593.9 Unfunded commitments of the CLOs(h)
3.0 - - - 3.0
Consolidated contractual obligations 4,204.5 699.2 1,127.5 8,358.7 14,389.9
Loans payable of Consolidated Funds(g) (78.9 ) (157.4 ) (157.6 ) (5,200.0 ) (5,593.9 )
Capital commitments to Carlyle funds(e) (3,332.8 ) - - - (3,332.8 )
Unfunded commitments of the CLOs(h) (3.0 ) - - - (3.0 )
Carlyle Operating Entities contractual
obligations $ 789.8 $ 541.8 $ 969.9 $ 3,158.7 $ 5,460.2
(a) The table above assumes that no prepayments are made on the senior notes.
The CLO terms loans are included in the table above based on the earlier of
the stated maturity date or the date the CLO is expected to be dissolved.
See Note 7 to the consolidated financial statements for the various maturity
dates of the CLO term loans and senior notes.
(b) The interest rates on the debt obligations as of December 31, 2019 consist
of: 3.500% on $425.0 million of senior notes, 5.650% on $350 million of
senior notes, 3.875% on $250.0 million of senior notes, 5.625% on $600.0
million of senior notes, and a range of approximately 1.75% to 3.90% for our
CLO term loans. Interest payments assume that no prepayments are made and
loans are held until maturity with the exception of the CLO term loans,
which are based on the earlier of the stated maturity date or the date the
CLO is expected to be dissolved.
(c) These obligations represent our estimate of amounts to be paid on the
contingent cash and other obligations associated with our acquisition of
Carlyle Aviation Partners (see Note 3) and our investment in Fortitude Re
(see Note 5) and other obligations, as well as the deferred payment
obligations described below. In connection with the Conversion, formerholders of Carlyle Holdings partnership units will receive cash payments
aggregating to approximately $344 million, which is equivalent to $1.50 per
Carlyle Holdings partnership unit exchanged in the Conversion, payable in
five annual installments of $0.30 each beginning in 2020. The payment
obligations are unsecured obligations of the Company or a subsidiarythereof, subordinated in right of payment to indebtedness of the Company and
its subsidiaries, and do not bear interest.
(d) We lease office space in various countries around the world and maintain our
headquarters in
amended non-cancelable lease agreement expiring on March 31, 2030. In July,
we entered into a new non-cancelable lease agreement expiring in 2036 for
new office space in
expire in various years through 2032. The amounts in this table represent
the minimum lease payments required over the term of the lease.
(e) These obligations generally represent commitments by us to fund a portion of
the purchase price paid for each investment made by our funds. Commitments
to the funds are generally due on demand and are therefore presented in the
less than one year category. A substantial majority of these investments is
expected to be funded by senior Carlyle professionals and other
professionals through our internal co-investment program. Of the $3.9
billion of unfunded commitments to the funds, approximately $3.3 billion is
subscribed individually by senior Carlyle professionals, advisors and other
professionals, with the balance funded directly by the Company.
(f) In connection with our initial public offering, we entered into a tax
receivable agreement with the limited partners of the Carlyle Holdings
partnerships whereby we agreed to pay such limited partners 85% of the
amount of cash tax savings, if any, in
tax realized as a result of increases in tax basis resulting from exchanges
of Carlyle Holdings partnership units for common units of The
Holdings partnership units do not have any rights to payments under the tax
receivable agreement except for payment obligations pre-existing at the time
of the Conversion with respect to exchanges that occurred prior to the
Conversion. These obligations are more than offset by the future cash tax
savings that we are expected to realize.
(g) These obligations represent amounts due to holders of debt securities issued
by the consolidated CLO vehicles. These obligations include interest to be
paid on debt securities issued by the consolidated CLO vehicles. Interest
payments assume that no prepayments are made and loans are held until
maturity. For debt securities with rights only to the residual value of the
CLO and no stated interest, no interest payments were included in this
calculation. Interest payments on variable-rate debt securities are based on
interest rates in effect as of December 31, 2019, at spreads to market rates
pursuant to the debt agreements, and range from 0.40% to 9.24.%.
(h) These obligations represent commitments of the CLOs to fund certaininvestments. These amounts are generally due on demand and are therefore
presented in the less than one year category.
Excluded from the table above are liabilities for uncertain tax positions of $15.1 million at December 31, 2019 as we are unable to estimate when such amounts may be paid.
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Contingent Cash Payments For Business Acquisitions and Strategic Investments
We have certain contingent cash obligations associated with our acquisition of
Carlyle Aviation Partners and our strategic investment in Fortitude Re. For our
acquisition of Carlyle Aviation Partners, the contingent cash payments relate to
an earn-out of up to $150.0 million that is payable upon the achievement of
certain revenue and earnings performance targets during 2020 through 2025, which
will be accounted for as compensation expense. We accrue the compensation
liability over the service period.
For our strategic investment in Fortitude Re, the contingent cash payment
relates to performance-based contingent cash consideration payable to AIG
following December 31, 2023.
Based on the terms of the underlying contracts, the maximum amount that could be
paid from contingent cash obligations associated with the acquisition of Carlyle
Aviation Partners and the strategic investment in Fortitude Re as of
December 31, 2019 is $245.0 million versus the liabilities recognized on the
balance sheet of $31.4 million.
Risk Retention Rules
We will continue to comply with the risk retention rules governing CLOs issued
in Europe for which we are a sponsor, which require a combination of capital
from our balance sheet, commitments from senior Carlyle professionals, and/or
third party financing.
For additional information related to the U.S. Risk Retention Rules, see
"-Financial regulatory changes in the United States could adversely affect our
business and the possibility of increased regulatory focus could result in
additional burdens and expenses on our business" within Item 1A.
Guarantees
See Note 9 to the consolidated financial statements included in this Annual
Report on Form 10-K for information related to our material guarantees.
Indemnifications
In many of our service contracts, we agree to indemnify the third-party service
provider under certain circumstances. The terms of the indemnities vary from
contract to contract, and the amount of indemnification liability, if any,
cannot be determined and has not been included in the estimate above or recorded
in our consolidated financial statements as of December 31, 2019.
Contingent Obligations (Giveback)
Carried interest is ultimately realized when: (1) an underlying investment is
profitably disposed of, (2) certain costs borne by the limited partner investors
have been reimbursed, (3) the fund's cumulative returns are in excess of the
preferred return and (4) we have decided to collect carry rather than return
additional capital to limited partner investors. Realized carried interest may
be required to be returned by us in future periods if the fund's investment
values decline below certain levels. When the fair value of a fund's investments
remains constant or falls below certain return hurdles, previously recognized
performance allocations are reversed.
See Note 9 to the consolidated financial statements included in this Annual
Report on Form 10-K for additional information related to our contingent
obligations (giveback).
Other Contingencies
In the ordinary course of business, we are a party to litigation,
investigations, inquiries, employment-related matters, disputes and other
potential claims. We discuss certain of these matters in Note 9 to the
consolidated financial statements included in this Annual Report on Form 10-K.
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Carlyle Common Stock and Carlyle Holdings Partnership Units
Rollforwards of shares of our common stock outstanding and Carlyle Holdings
partnership units for the years ended December 31, 2019 and 2018 are as follows:
Shares as of Shares Shares as of
December 31, Shares Shares Shares Repurchased / December 31,
2018 Issued (1) Forfeited Exchanged Retired 2019
The Carlyle Group
Inc. common shares 107,746,443 10,063,471 - 1,659,588 (1,628,851 ) 117,840,651
Carlyle Holdings
partnership units 230,977,836 9,387 - (1,659,588 ) - 229,327,635
Total 338,724,279 10,072,858 - - (1,628,851 ) 347,168,286
(1) Units issued include restricted common units and units issued and delivered in connection with our equity method investment in NGP.
Shares as of Shares Shares as of
December 31, Shares Shares Repurchased / December 31,
2017 Shares Issued Forfeited Exchanged Retired 2018
The Carlyle Group Inc.
common shares 100,100,650 8,757,156 - 3,836,022 (4,947,385 ) 107,746,443
Carlyle Holdings
partnership units 234,813,858 - - (3,836,022 ) - 230,977,836
Total 334,914,508 8,757,156 - - (4,947,385 ) 338,724,279
The Carlyle Group Inc. common stock issued during the period presented in the tables above relate to the vesting of the Company's restricted stock units and shares issued and delivered in connection with our equity method investment in NGP during the years ended December 31, 2019 and 2018. Further,The Carlyle Group Inc. common stock in the tables above include 7,782 shares of common stock that the Company acquired from Carlyle Holdings on January 1, 2018 upon the vesting of certain of the Company's unvested common stock associated with the acquisition of the remaining 40% equity interest in AlpInvest in August 2013. The Carlyle Holdings partnership units exchanged relate to the exchange of Carlyle Holdings partnership units held by NGP and certain limited partners for shares of common stock on a one-for-one basis. Beginning with the second quarter of 2017, senior Carlyle professionals were able to exchange their Carlyle Holdings partnership units for shares of common stock on a quarterly basis, subject to the terms of the Exchange Agreement. During 2019 and 2018, senior Carlyle professionals and affiliates exchanged approximately 1.7 million and 3.8 million, respectively, of their Carlyle Holdings partnership units for shares of common stock. All outstanding Carlyle Holdings partnership units were exchanged for an equivalent number of shares of our common stock in connection with the Conversion.The Carlyle Group Inc. common stock repurchased during the period presented in the tables above relate to shares repurchased during the years ended December 31, 2019 and 2018 and subsequently retired as part of our stock repurchase programs. The total shares as of December 31, 2019 as shown above exclude approximately 2.3 million shares of common stock in connection with the vesting of restricted stock units subsequent to December 31, 2019 that will participate in the common stockholder dividend that will be paid. Critical Accounting Policies Principles of Consolidation. The Company consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of variable interest entities ("VIEs"). The Company describes the policies and procedures it uses in evaluating whether an entity is consolidated in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K. As part of its consolidation procedures, the Company evaluates: (1) whether it holds a variable interest in an entity, (2) whether the entity is a VIE, and (3) whether the Company's involvement would make it the primary beneficiary. • In evaluating whether the Company holds a variable interest, fees
(including management fees, incentive fees and performance allocations)
that are customary and commensurate with the level of services
provided, and where the Company does not hold other economic interests
in the entity that would absorb more than an insignificant amount of
the expected losses or returns of the entity, are not considered
variable interests. The Company considers all economic interests,
including indirect interests, to determine if a fee is considered a
variable interest.
150
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• For those entities where the Company holds a variable interest, the
Company determines whether each of these entities qualifies as a VIEand, if so, whether or not the Company is the primary beneficiary. The
assessment of whether the entity is a VIE is generally performed
qualitatively, which requires judgment. These judgments include: (a)
determining whether the equity investment at risk is sufficient to
permit the entity to finance its activities without additional
subordinated financial support, (b) evaluating whether the equity
holders, as a group, can make decisions that have a significant effecton the economic performance of the entity, (c) determining whether two
or more parties' equity interests should be aggregated, and (d)
determining whether the equity investors have proportionate voting
rights to their obligations to absorb losses or rights to receive
returns from an entity.
• For entities that are determined to be VIEs, the Company consolidates
those entities where it has concluded it is the primary beneficiary.
The primary beneficiary is defined as the variable interest holder with
(a) the power to direct the activities of a VIE that most significantly
impact the entity's economic performance and (b) the obligation to
absorb losses of the entity or the right to receive benefits from theentity that could potentially be significant to the VIE. In evaluating
whether the Company is the primary beneficiary, the Company evaluates
its economic interests in the entity held either directly or indirectly
by the Company.
Changes to these judgments could result in a change in the consolidation conclusion for a legal entity. Entities that do not qualify as VIEs are generally assessed for consolidation as voting interest entities. Under the voting interest entity model, the Company consolidates those entities it controls through a majority voting interest. Performance Allocations. Performance allocations consist principally of the allocation of profits from certain of the funds to which the Company is entitled (commonly known as carried interest). The Company is generally entitled to a 20% allocation (which can vary by fund) of the net realized income or gain as a carried interest after returning the invested capital, the allocation of preferred returns and return of certain fund costs (generally subject to catch-up provisions as set forth in the fund limited partnership agreement). Carried interest is ultimately realized when: (i) an underlying investment is profitably disposed of, (ii) certain costs borne by the limited partner investors have been reimbursed, (iii) the fund's cumulative returns are in excess of the preferred return and (iv) the Company has decided to collect carry rather than return additional capital to limited partner investors. While carried interest is recognized upon appreciation of the funds' investment values above certain return hurdles set forth in each respective partnership agreement, the Company recognizes revenues attributable to performance allocations based upon the amount that would be due pursuant to the fund partnership agreement at each period end as if the funds were terminated at that date. Accordingly, the amount recognized as performance allocations reflects the Company's share of the gains and losses of the associated funds' underlying investments measured at their then-current fair values relative to the fair values as of the end of the prior period. Because of the inherent uncertainty, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is reasonably possible that the difference could be material. If, at December 31, 2019, all of the investments held by the Company's funds were deemed worthless, a possibility that management views as remote, the amount of realized and distributed carried interest subject to potential giveback would be $0.4 billion, on an after-tax basis where applicable. See Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K for information related to performance allocations for various fund types, preferred return hurdle rates, the timing of performance allocation recognition in investment income, and the potential for performance allocation income reversal. Performance Allocation Related Compensation. A portion of the performance allocations earned is due to employees and advisors of the Company. These amounts are accounted for as compensation expense in conjunction with the recognition of the related performance allocation revenue and, until paid, are recognized as a component of the accrued compensation and benefits liability. Accordingly, upon a reversal of performance allocation revenue, the related compensation expense, if any, is also reversed. Income Taxes. Certain of the wholly-owned subsidiaries of the Company and the Carlyle Holdings partnerships are subject to federal, state, local and foreign corporate income taxes at the entity level and the related tax provision attributable to the Company's share of this income is reflected in the consolidated financial statements. Based on applicable federal, foreign, state and local tax laws, the Company records a provision for income taxes for certain entities. Tax positions taken by the Company are subject to periodic audit byU.S. federal, state, local and foreign taxing authorities. 151 -------------------------------------------------------------------------------- On January 1, 2020, the Company converted from The Carlyle Group L.P., aDelaware limited partnership, toThe Carlyle Group Inc. , aDelaware corporation. As a result, all of the income before provision for income taxes attributable toThe Carlyle Group Inc. will be subject toU.S. federal (and state and local) corporate income taxes. The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement reporting and the tax basis of assets and liabilities using enacted tax rates in effect for the period in which the difference is expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change in the provision for income taxes. Further, deferred tax assets are recognized for the expected realization of available net operating loss and tax credit carry forwards. A valuation allowance is recorded on the Company's gross deferred tax assets when it is more likely than not that such asset will not be realized. When evaluating the realizability of the Company's deferred tax assets, all evidence, both positive and negative, is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future earnings. The Company has approximately $270 million of deferred tax assets as of December 31, 2019. Changes in judgment as it relates to the realizability of these assets, as well as potential changes in corporate tax rates would have the effect of significantly reducing the value of the deferred tax assets. On December 22, 2017, the Tax Cuts and Jobs Act was enacted. The Act includes numerous changes in existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. This took effect on January 1, 2018. As a result of the reduction of the federal corporate income tax rate, the Company revalued its deferred tax assets and liabilities as of December 31, 2017 using the newly enacted rate. The revaluation resulted in the recognition of additional provision for income taxes of approximately $113.0 million in 2017. In addition, the Company's tax receivable agreement liability was reduced by approximately $71.5 million in 2017 due to the reduction in the federal corporate income tax rate. UnderU.S. GAAP for income taxes, the amount of tax benefit to be recognized is the amount of benefit that is "more likely than not" to be sustained upon examination. The Company analyzes its tax filing positions in all of theU.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established, which is included in accounts payable, accrued expenses and other liabilities in the consolidated financial statements. The Company recognizes accrued interest and penalties related to unrecognized tax positions in the provision for income taxes. If recognized, the entire amount of unrecognized tax positions would be recorded as a reduction in the provision for income taxes. Fair Value Measurement.U.S. GAAP establishes a hierarchal disclosure framework which ranks the observability of market price inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, will generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows: Level I - inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The type of financial instruments included in Level I include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price. Level II - inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs. Level III - inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately-held 152 -------------------------------------------------------------------------------- entities, non-investment grade residual interests in securitizations, collateralized loan obligations, and certain over-the-counter derivatives where the fair value is based on unobservable inputs. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. In the absence of observable market prices, the Company values its investments using valuation methodologies applied on a consistent basis. For some investments little market activity may exist. Management's determination of fair value is then based on the best information available in the circumstances and may incorporate management's own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for non-performance and liquidity risks. Investments for which market prices are not observable include private investments in the equity of operating companies and real estate properties, and certain debt positions. The valuation technique for each of these investments is described in Note 4 to the consolidated financial statements included in this Annual Report on Form 10-K. The valuation methodologies can involve subjective judgments, and the fair value of assets established pursuant to such methodologies may be incorrect, which could result in the misstatement of fund performance and accrued performance allocations. Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values of such investments as reflected in an investment fund's net asset value do not necessarily reflect the prices that would be obtained by us on behalf of the investment fund when such investments are realized. Realizations at values significantly lower than the values at which investments have been reflected in prior fund net asset values would result in reduced earnings or losses for the applicable fund, the loss of potential performance allocations and incentive fees. Changes in values attributed to investments from quarter to quarter may result in volatility in the net asset values and results of operations that we report from period to period. Also, a situation where asset values turn out to be materially different than values reflected in prior fund net asset values could cause investors to lose confidence in us, which could in turn result in difficulty in raising additional funds. See "Risk Factors - Risks Related to Our Company - Valuation methodologies for certain assets in our funds can involve subjective judgments, and the fair value of assets established pursuant to such methodologies may be incorrect, which could result in the misstatement of fund performance and accrued performance allocations." Principal Equity-Method Investments. The Company accounts for all investments in which it has or is otherwise presumed to have significant influence, including investments in the unconsolidated funds and strategic investments, using the equity method of accounting. The carrying value of equity-method investments is determined based on amounts invested by the Company, adjusted for the equity in earnings or losses of the investee allocated based on the respective partnership or other agreement, less distributions received. The Company evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. Equity-based Compensation. Compensation expense relating to the issuance of equity-based awards to Carlyle employees is measured at fair value on the grant date. The compensation expense for awards that vest over a future service period is recognized over the relevant service period on a straight-line basis. The compensation expense for awards that do not require future service is recognized immediately. Cash settled equity-based awards are classified as liabilities and are re-measured at the end of each reporting period. The compensation expense for awards that contain performance conditions is recognized when it is probable that the performance conditions will be achieved; in certain instances, such compensation expense may be recognized prior to the grant date of the award. The compensation expense for awards that contain market conditions is based on a grant-date fair value that factors in the probability that the market conditions will be achieved and is recognized over the requisite service period on a straight-line basis. The Company recognizes equity-based award forfeitures in the period they occur as a reversal of previously recognized compensation expense. Equity-based awards issued to non-employees are recognized as general, administrative and other expenses, except to the extent they are recognized as a part of equity method earnings because they are issued to employees of the Company's equity method investees. In determining the aggregate fair value of any award grants, we make judgments as to the grant-date fair value, particularly the discount related to awards that do not participate in distributions during the vesting period. 153
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Intangible Assets andGoodwill . The Company's intangible assets primarily consist of acquired contractual rights to earn future fee income, including management and advisory fees. Finite-lived intangible assets are amortized over their estimated useful lives, which range from four to ten years, and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.Goodwill represents the excess of cost over the identifiable net assets of businesses acquired and is recorded in the functional currency of the acquired entity.Goodwill is recognized as an asset and is reviewed for impairment annually as of October 1 and between annual tests when events and circumstances indicate that impairment may have occurred. Recent Accounting Pronouncements We discuss the recent accounting pronouncements in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K.
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