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 analyzes the financial condition and results of operations of TheCarlyle Group Inc. (the "Company"). Such analysis should be read in conjunction with the consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K for the year endedDecember 31, 2019 . 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
buyout, middle market and growth capital funds, which seek a wide variety of
investments of different sizes and growth potentials. As of
our Corporate Private Equity segment had
in Fee-earning AUM.
• Real Assets - Our Real Assets segment advises our
focused real estate funds, our infrastructure funds, and our international
energy funds. The segment also includes the NGP Predecessor Funds and NGP
Carry Funds advised by NGP. As of
• Global Credit - Our Global Credit segment advises funds and vehicles that
pursue investment strategies including loans and structured credit, direct
lending, opportunistic credit, energy credit, distressed credit, aircraft
financing and servicing, and insurance. As of
Credit segment had
• 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 260 fund vehicles. As of
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 from an investment fund either an incentive fee or a special residual allocation of income, which we refer to as a performance allocation, or carried interest, in the event that specified investment returns are achieved by the fund. UnderU.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, realized performance revenues (consisting of incentive fees and performance allocations), realized principal investment income, including realized gains on our investments in our funds and other trading securities, as well as interest and other income. Our segment expenses primarily consist of compensation and benefits expenses, including salaries, bonuses, 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 14 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on the differences between our financial results reported pursuant toU.S. GAAP and our financial results for segment reporting purposes. 69 -------------------------------------------------------------------------------- Our Family of Funds The following chart presents the name (acronym), total capital commitments (in the case of our carry funds, structured credit funds, and the NGP Predecessor Funds), gross assets (in the case of our BDCs), assets under management (in the case of certain other products as noted) and vintage year of the active funds in each of our segments, as ofJune 30, 2020 . We present total capital commitments (as opposed to assets under management) for our closed-end investment funds because we believe this metric provides the most useful information regarding the relative size and scale of such funds. In the case of our products which are open-ended and accordingly do not have permanent committed capital, we generally believe the most useful metric regarding relative size and scale is assets under management. Corporate Private Equity Global Credit Real Assets 4 Buyout Carry Funds Loans & Structured Credit Real Estate Carry Funds Carlyle Realty Partners Carlyle Partners (U.S.) Cash CLO's (U.S.) CP VII$18.5 bn 2018 U.S.$19.2 bn 2012-2020 CRP VIII$5.5 bn 2017 CP VI$13.0 bn 2014 Europe €7.3 bn 2013-2020 CRP VII$4.2 bn 2014 CP V$13.7 bn 2007 Structured Credit Carry Funds CRP VI$2.3 bn 2011 Global Financial Services Partners CREV$0.5 bn 2020 CRP V$3.0 bn 2006 CGFSP III$1.0 bn 2018 CSC$0.8 bn 2017 CRP IV$1.0 bn 2005 CGFSP II$1.0 bn 2013 Direct Lending CRP III$0.6 bn 2001 Carlyle Europe Partners Business Development Companies1 Core Plus Real Estate (U.S.) CEP V €6.4 bn 2018 TCG BDC II, Inc.$1.9 bn 2017 CPI2$3.5 bn 2016 CEP IV €3.7 bn 2014 TCG BDC, Inc.$2.0 bn 2013 International Real Estate CEP III €5.3 bn 2007 Opportunistic Credit Carry Fund CER €0.5 bn 2017 CEREP CEP II €1.8 bn 2003 CCOF$2.4 bn 2017 III €2.2 bn 2007 Carlyle Asia Partners Energy Credit Carry Funds Natural Resources Funds CAP V$6.6 bn 2018 CEMOF II$2.8 bn 2015 NGP Energy Carry Funds CBPFRMB 2.0 II bn 2017 CEMOF I$1.4 bn 2011 NGP XII$4.3 bn 2017 CAP IV$3.9 bn 2014 Distressed Credit Carry Funds NGP XI$5.3 bn 2014 CAP III$2.6 bn 2008 CSP IV$2.5 bn 2016 NGP X$3.6 bn 2012 Carlyle Japan Partners CSP III$0.7 bn 2011 NGP Other Carry Funds NGP CJP IV ¥258.0 bn 2020 CSP II$1.4 bn 2007 Minerals$0.2 bn 2020 CJP III ¥119.5 bn 2013 Carlyle Aviation Partners NGP GAP$0.4 bn 2014 CJP II ¥165.6 bn 2006 SASOF V$0.9 bn 2020 NGP Predecessor Funds Carlyle Global Partners SASOF IV$1.0 bn 2018 Various3$5.7 bn 2007-2008 International Energy Carry CGP II$1.2 bn 2020 SASOF III$0.8 bn 2015 Funds CGP I$3.6 bn 2015 SASOF II$0.6 bn 2012 CIEP II$2.3 bn 2019 Securitization Carlyle MENA Partners vehicles2$2.1 bn Various CIEP I$2.5 bn 2013 9 other MENA I$0.5 bn 2008 vehicles2$2.0 bn Various Infrastructure Carry Funds Carlyle South American Buyout Fund Other Credit CRSEF$0.3 bn 2019 CSABF I$0.8 bn 2009 Fortitude5$2.4 bn 2020 CGIOF$2.2 bn 2019 Carlyle Sub-Saharan Africa Fund CPP II$1.5 bn 2014 CSSAF I$0.7 bn 2012 Investment Solutions CPOCP$0.5 bn 2013 Carlyle Peru Fund AlpInvest CPF I$0.3 bn 2012 Fund of Private Equity Funds Middle Market & Growth Carry Funds 94 vehicles €44.4 bn 2000-2020 Carlyle U.S. Venture/Growth Partners Secondary Investments CEOF II$2.4 bn 2015 68 vehicles €20.8 bn 2002-2020 CEOF I$1.1 bn 2011 Co-Investments CVP II$0.6 bn 2001 62 vehicles €15.6 bn 2002-2020 Carlyle Europe Technology Partners Metropolitan Real Estate CETP IV €1.4 bn 2019 36 vehicles$5.0 bn 2002-2020 CETP III €0.7 bn 2014 Carlyle AsiaVenture/Growth Partners CAGP V$0.3 bn 2017 CAGP IV$1.0 bn 2008Carlyle Cardinal Ireland CCI €0.3 bn 2014 Note: All amounts shown represent total capital commitments as ofJune 30, 2020 unless otherwise noted. Certain of our recent vintage funds are currently in fundraising and total capital commitments are subject to change. In addition, certain carry funds included herein may be disclosed which are not included in fund performance if they have not made an initial capital call or commenced investment activity. The NGP funds are advised byNGP Energy Capital Management, LLC , a separately registered investment adviser, and we do not serve as an investment adviser to those funds. 70 --------------------------------------------------------------------------------
(1) Amounts represent gross assets plus any available capital as ofJune 30, 2020 .
(2) Amounts represent Total AUM as of
(3) Includes NGP M&R, NGP ETP II, and NGP IX, on which we are not entitled to a
share of carried interest.
(4) Real Assets also includes the Legacy Energy funds, which we jointly advise
with
significant to our results of operations.
(5) Reflects AUM related to capital raised from third-party investors to
acquire a 76.6% interest in Fortitude Holdings .
Trends Affecting our Business
At the start of the second quarter of 2020, our proprietary portfolio company
data pointed to substantial economic contraction globally, with sharp declines
in services activity, consumption, and industrial output across geographies
excluding China , which had emerged from its pandemic-driven lockdown months
before Europe and the U.S. As of April 2020 , on a year over year basis,
discretionary retail sales in Europe plummeted by nearly 70%, hiring in the U.S.
pulled back by over 40% and industrial equipment sales in India fell 34%. This
widespread disruption is reflected in the limited second quarter official data
released to date: second quarter GDP in the U.S. and Germany declined 9.5% and
11.7% from year-ago levels, respectively, the largest declines on records back
to the 1940s. Since April, the global economy has taken the first steps in its
recovery, but the ultimate severity and duration of the crisis remain uncertain.
While there are encouraging signs of a rebound in economic activity,
particularly in China and Europe , other indicators highlight the potential for
lingering weakness, especially in the U.S. and Latin America where the virus
remains largely uncontained. In its June 2020 World Economic Outlook update, the
International Monetary Fund ("IMF") forecasts that the global economy will
contract 4.9% in 2020, a 1.9% downward revision of its initial estimate in April
2020 . The IMF does not expect gross domestic product of advanced economies to
reach 2019 levels again until 2022.
The pace and magnitude of economic decline and recovery across regions has
varied based on the stringency of lockdowns, the scale and manner of stimulus
measures, and consumer attitudes. China led the global economic recovery into
the second quarter with official GDP growth recorded at a 3.2% year-over-year
rate after declining by 6.8% year-over-year in the first quarter of 2020. Our
proprietary portfolio data also point to continued strength in its economic
rebound. After falling by 33% during the lockdown in January and February of
2020, logistics volumes in China have grown by 30% or more year-over-year for
each of April, May and June. Industrial orders also have been strong, hitting
and even slightly exceeding prior year levels after contracting by over 60% in
February 2020 . Despite supply-side strength, there is evidence that Chinese
consumers remain cautious. Our portfolio data indicate that after rapid
improvement through March and April 2020 , discretionary retail spending in China
has plateaued at levels roughly 5-8% below corresponding 2019 levels, and real
estate transactions remain subdued. Continued recovery in China and the rest of
Asia remains vulnerable to recurrences of the virus and resulting economic
lockdowns as recently occurred in Hong Kong in July.
Early and strict lockdowns across much of Europe in March 2020 led to a sharper
initial contraction in economic activity as compared to the U.S. , but the spread
of the virus in Europe now seems largely contained. The deployment of direct
state aid programs has also helped to sustain employment levels across Europe
and limit broader economic disruption from the pandemic. From February to May
2020 , Eurozone unemployment rose just 0.2 percentage points, a sharp contrast to
the U.S. where the unemployment rate stands 7.6 percentage points above its
February 2020 low. Consequently, initial indicators of the post-lockdown
recovery in Europe are strong with discretionary retail sales across our
portfolio surging in June and finishing the month just 2% below June 2019 levels
while retail foot traffic increased by 15% over the month to reach 84% of June
2019 levels. Gasoline sales in Europe rose by 50% between May 31 and June 30,
2020 as restrictions eased and normal activity resumed. Online sales in Europe
continued to grow at a 25% annual rate in June 2020 despite the simultaneous
increase in brick-and-mortar traffic and broader mobility. Additionally, on July
21 , the EU's leaders agreed to a €750 billion Recovery Fund that will channel
aid in the form of grants and low interest loans to its member countries over
the next three years. The Fund could help both to boost regional confidence and
to enable more vulnerable economies, such as Italy and Spain , to increase fiscal
stimulus despite existing high national debt levels.
In the U.S. , economic activity also improved into June 2020 . Gasoline demand
rebounded steadily throughout the second quarter, from being down approximately
50% year-over-year in early April to levels just 9.8% below year-ago demand in
June. After declining by a record 20% year-over-year in April, official U.S.
retail sales posted a record month-over-month surge of 18.2% in May 2020 led by
recoveries in durable goods purchases such as furniture and automobiles, and
finished June 1% ahead of prior year levels. Business spending also improved,
particularly for technology-related companies.
Since the rapid resurgence of the virus across Sun Belt states in mid-June 2020 ,
however, real-time data sources indicate that the economic recovery may have
significantly slowed or even reversed. U.S. commercial airline travel slowed
from a monthly growth rate of 100% in late-April and May 2020 (i.e. a doubling
of traffic every 30 days) to a 15% growth rate in June 2020 and full stagnation
(0% growth) by mid-July, while passenger volumes remain 75-80% below
corresponding 2019 levels. Some of the largest U.S. airlines have recently
announced that staffing cuts representing 30% to 45% of their respective
workforces will be necessary by the end of September when federal aid expires,
and several airlines abandoned their wide body fleets, namely
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Boeing 747 and Airbus A380 aircraft, reflecting lower demand for travel, in
particular international travel. This is a noticeable reversal in sentiment from
as recently as the end of June, when airlines announced preliminary plans to
substantially increase flight capacity in July and August on what was at the
time improving data. Of particular note are risks to the outlooks for the
transportation industry - where recovery in metrics such as discretionary air
travel and public transit ridership lags other macro indicators - and the
infrastructure sector - where the pandemic has materially altered the financial
models on current and future development projects, as well as caused severe
projected budget shortfalls at the state and local level which limit the
capacity for additional spending and thus the likelihood of new projects. The
potential for a sustained period of severely depressed commercial air travel may
have significant implications not just for the airlines, but for the myriad
companies - aircraft suppliers, their vendors and airport services firms - that
depend on the aviation industry for all or much of their revenues. The
likelihood of financial hardship for aviation- and aerospace-exposed companies
within our portfolios will likely rise the longer commercial air travel remains
substantially below prior year levels.
Other indicators also point to increased risks to the U.S. outlook for the rest
of the year. Research led by Harvard University and Brown University indicates
that while the percentage of small businesses in operation hit 90% of pre-COVID
levels by late-June, recent retrenchment reduced the percentage towards 80%.
Real-time data on U.S. hotel occupancy rates and seated restaurant diners
indicate that activity has plateaued at 55% and 60% below comparable year-ago
levels, respectively. After declining steadily through June, weekly initial
jobless claims have risen two weeks in a row to stand at 1.43 million for the
week ending July 25 , and remain at levels roughly double those of the worst week
recorded during the Global Financial Crisis. This increases the possibility
that, at a still double-digit unemployment rate of 11.1%, the recovery in the
labor market might lose momentum after just two months of rapid improvement in
May and June. Record high levels of unemployment and suppressed business
activity have in turn strained state and local finances. The Tax Policy Center
estimates that combined state revenue shortfalls for fiscal years 2020 and 2021
could total $200 billion , which will consequently necessitate substantial budget
cuts and leave little to no room for infrastructure spending or other
improvement projects. The commercial real estate and financials sectors also
face notable stress. Over 17% of commercial mortgages have either missed
payments or are in delinquency, while the ratio is much higher for those
concentrated in the hospitality (60%) and retail (40%) sectors.
This slowdown is of some concern when compared to the recovery observed in
Europe , where no such retrenchment is currently apparent, and in China , where
95% of comparable businesses had reopened at a similar point in its recovery.
While mixed economic data subject any forecasts to wide margins of error,
analysts currently estimate that U.S. second quarter 2020 earnings for companies
in the S&P 500 fell by 44.0% year-over-year, which would be the largest drop
since the fourth quarter of 2008 when earnings fell by 69.1%. The largest
estimated declines are concentrated in the consumer discretionary (which
includes the leisure and hospitality industries), energy, industrials (which
includes the transportation industry), and financials sectors. Real risks,
however, pertain to the potential for a much lower than expected recovery in the
second half of 2020 because of the prospective resurgence in coronavirus cases
throughout the U.S. Data to date have shown that local economic activity cannot
reach full potential while coronavirus case counts are substantially increasing,
due to a combination of both consumer reluctance and required lockdown measures.
A protracted second wave of the pandemic in the U.S. could therefore result in
total economic output by year-end that remains substantially below 2019 levels.
The disconnect that emerged between equity markets and underlying fundamentals
at the end of the first quarter continued into the second quarter. Despite weak
earnings outlooks and patchy macroeconomic developments, global equity markets
outperformed in Q2 2020 and the S&P 500 experienced its largest quarterly
percentage gain since 1998. At nearly 25 times the next 12 months' EBITDA as of
June 30, 2020 , S&P 500 forward earnings multiples are higher than they were in
February 2020 before the market rout. From March 31 through June 30, 2020 , the
S&P 500, MSCI ACWI, EuroStoxx 600, and Shanghai Composite rose 20%, 19%, 13%,
and 9%, respectively. In the U.S. , large technology stocks in particular
excelled with the NASDAQ 100 and S&P 500 Information Technology Sector indexes
each rising 30% from March 31 through June 30, 2020 compared to a 17% gain for
the overall S&P 500 index excluding technology.
Developed market government bond yields remain near historical lows due to
accommodative monetary policy and considerable central bank asset purchases.
Since the end of March 2020 , the 10-year Treasury yield has hovered between 60
and 70 basis points. U.S. corporate bonds have recovered strongly, largely in
response to significant support from the Federal Reserve and its decision to
purchase both investment grade and the highest-rated speculative grade debt.
Investment grade yields are now below where they were at the beginning of 2020,
while speculative grade yields are only 90 basis points above where they stood
in January 2020 . Despite the stabilization in bond markets throughout the second
quarter, global mergers and acquisitions (M&A) activity in the first half of
2020 slumped by roughly a third relative to the same period in 2019. Financing
is available for transactions on generally favorable terms, but broad
uncertainty and differing expectations around both the nature and timing of the
economic recovery have resulted in wide bid-ask spreads, particularly for larger
assets. Potential buyers and sellers are often in disagreement on valuation,
given the scale of the economic uncertainty over the next 6 to 12 months. The
abundance of readily available financing, however, suggests that M&A activity
will likely increase once the dispersion around economic projections narrows.
Large amounts
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of dry powder and several consecutive years of successful fundraising efforts
position Carlyle well to take advantage of this eventual expected uptick in
activity.
Global geopolitical tensions, already strained pre-pandemic, have been
exacerbated by the widespread economic disruption. U.S. -China relations, which
had appeared to reach a détente at the end of 2019, have soured anew in recent
months with mutual escalations in harsh rhetoric and sanctions. The imposition
of a new national security law on Hong Kong has prompted backlash from various
global players, thereby increasing overall uncertainty about risks associated
with international trade with Hong Kong , the potential for increased taxation on
Hong Kong -related transactions, and new regulatory restrictions and data
protection concerns for businesses operated in Hong Kong (including our Hong
Kong operations). Renewed nationalist sentiment has risen globally in the
aftermath of a pandemic-driven breakdown in supply chains which in some cases
has left countries and regions short of crucial goods such as medical equipment.
Disputes over digital services taxes and import tariffs on luxury goods imports
have reignited U.S. -EU trade tensions. Political instability and the potential
for a broader pullback in global trade introduce risks to the economic growth of
most economies, and particularly those with significant export-dependence.
Domestically within the U.S. , continued pressure from heightened unemployment,
coupled with increasing political divisiveness and unrest related to social
injustice as the U.S. approaches the November elections creates significant
uncertainty in pace of economic recovery. Carlyle is a global firm that depends
on the ability to execute cross-border transactions and to collaborate freely
between our offices around the world. While the rise of geopolitical tensions
and the possibility of deglobalization introduces risks to future performance
and we expect that the global recovery will continue to be uneven with differing
impacts across asset classes, industries and regions, we currently believe this
environment will create investment opportunities that we plan to strategically
pursue as they arise while also remaining circumspect in certain more troubled
asset classes, industries and regions.
In the second quarter, our portfolio benefited from the reopening of global
economies and the rebound in the public markets, resulting in strong carry fund
appreciation. Generally consistent with past patterns, Carlyle's overall
portfolio was less volatile than the public markets, appreciating 5% following
the first quarter's 7% decline (compared to the MSCI ACWI's 19% increase
following the first quarter's 23% decline). Our Corporate Private Equity funds
appreciated by 13% in the second quarter driven by strong performance in our
U.S. buyout portfolio. In our Real Assets funds, our real estate funds
appreciated 2% in the second quarter, continuing their stable performance. Our
natural resources funds appreciated 3% due to the rebound of commodity prices
from the extreme volatility experienced during the latter part of the first
quarter and early part of the second quarter. In our Global Credit segment, our
carry funds (which represent approximately 23% of the total Global Credit assets
under management) appreciated 8% in the quarter, due to more normalized
benchmarks and trading levels across credit markets. Our Investment Solutions
funds depreciated 6% in the second quarter, though the valuations of our primary
and secondary fund of funds generally reflect investment fair values on a
one-quarter lag. As a result of improved valuation levels across a number of
funds, net accrued performance revenues on our balance sheet increased to $1.8
billion at June 30, 2020 from $1.2 billion at March 31, 2020 . Significant IPO
activity in our portfolio during the first half of 2020 has increased the
portion of our traditional carry funds attributable to publicly traded companies
to 14% of fair value in the current quarter, compared to 6% at the end of 2019.
While these IPOs have performed well to date overall, and with certain of them
showing particular strength, this shift may result in an increasing correlation
to public market performance and a significant concentration of investment gains
in individual investments for certain funds. To the extent that there is
volatility in public equity markets and/or the prices of our publicly-traded
portfolio companies, there may be elevated volatility in our performance revenue
accrual in the coming quarters.
Generally, the investment period for our funds enables us to be patient in
deploying capital. During the second quarter, our carry funds invested $2.9
billion in new or follow-on transactions, and we have invested $5.9 billion year
to date. In addition, our investment teams in Corporate Private Equity have
recently signed or announced transactions for an additional $1.3 billion of
capital to be deployed in the coming quarters. While the pace of new investments
has increased from near zero in March and April, we expect our full year
deployment to be below the past few years. Large and complex transactions remain
difficult to complete, and though it is likely to improve over time, there
remains a headwind. Additionally, challenges in certain specific industries
could lead to a longer term slowdown in certain areas such as energy and
infrastructure, and the disruptive effects on the finances of many
municipalities has slowed development projects, especially where public-private
partnership is required, such as our terminal rebuilding project at JFK.
We generated $5.7 billion in realized proceeds from our carry funds in the
second quarter and realized $10.2 billion year to date. We expect near-term exit
activity to depend on the trajectory of multiple and varied macro environment
factors, but we believe that our recent IPO activity and maturing portfolio
position us well to deliver higher levels of both realized proceeds and realized
performance revenue over the long term. Although it is still too soon to assess
the overall impact from the continuing health crisis and economic uncertainty,
our investment professionals have worked closely with portfolio management teams
to best position our global, diverse portfolio.
Approximately 98% of our fee-earning assets under management is located in
closed-end fund structures with no redemption risk. With respect to our fee
revenue, about 90% is in the form of management fees from traditional
closed-end, long-dated funds,
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which are highly predictable and stable, and do not have significant exposure to
the underlying fund valuations. Growth of these fees relies on new vintages or
new carry fund families, and to the extent fundraising for these products is
delayed, growth of this revenue base will be similarly delayed. With regard to
the other 10% of fee revenue, a portion includes about $120 million annually
from management fees on our CLOs in the form of base fees and subordinated fees.
Subordinated fees represent approximately 70% of this revenue base. Credit
rating downgrades across the industry may cause the subordinated fees to be
deferred. These deferred fees can be subsequently turned back on and recaptured
based on the actual default rates and cash returns within the CLO structures.
During the second quarter, we did not recognize approximately $3.6 million of
subordinated fees which were deferred, and as of the second quarter we have
cumulatively deferred subordinated fees of approximately $7.6 million . The
performance of our CLOs is thus far stronger than we expected at the beginning
of the pandemic and we are optimistic that they will continue to improve.
However, if the economy worsens over the second half of the year, ratings
agencies could downgrade further assets in the CLO portfolios, thereby
increasing the risk that CLO subordinated fees could be deferred.
We have had a good start to the year in fundraising, with approximately $12.4
billion in new capital in the first half of the year, with particular strength
in Investment Solutions and Global Credit. We do expect to see some slowdown as
we completed several large capital raises in the first half of the year, our
funds remain well capitalized, and we have not yet started our next major
fundraising program. That said, fundraising has remained generally resilient
since the onset of the pandemic.
Since the pandemic started, our top priority has been the health and well-being
of our people, and the people at our portfolio companies and in the broader
community. They will remain our top priority as we transition back to in-office
operations. While our U.S. employees continue to work remotely, most of our
offices in Asia and Europe have reopened in varying degrees of capacity. We are
following local government advice on the ability to safely transition our U.S.
workforce back to our offices, but until such time, we continue to operate our
business and address the needs of our investors and portfolio companies through
our remote-work technology in line with our business continuity plan.
Recent Transactions
Fortitude Re Transaction
On June 2, 2020 , the Company and our partners completed the acquisition of an
incremental 76.6% ownership interest in Fortitude Group Holdings, LLC
("Fortitude Holdings ") from American International Group, Inc. ("AIG"), bringing
our combined ownership to 96.5%. The Company's interest in Fortitude Holdings
remains 19.9% (see Note 4 to the accompanying unaudited condensed consolidated
financial statements for more information).
Dividends
In July 2020 , the Company's Board of Directors declared a quarterly dividend of
$0.25 per share to common stockholders of record at the close of business on
August 11, 2020 , payable on August 18, 2020 .
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 unaudited condensed
consolidated financial statements included in this Quarterly Report on Form
10-Q.
Revenues
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 $17.5 billion of Fee-earning AUM as of June 30,
2020 were approximately 17% of total management fees recognized during both the
three and six months ended June 30, 2020 , and 16% of total management fees
recognized during both the three and six months ended June 30, 2019 . 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.
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Transaction and Portfolio Advisory Fees. Transaction and portfolio advisory fees
generally include 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 ("CCS"). Underwriting fees include gains, losses and fees arising from
securities offerings in which we participate in the underwriter syndicate, and
are generally not subject to the rebate offset as described below. When covered
by separate contractual agreements, we recognize transaction and portfolio
advisory fees for these services when the performance obligation has been
satisfied 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, and as such the rebate offset percentages generally
range from 80% to 100% of the fund's portion of the transaction and advisory
fees earned, such that a larger share of the transaction fee revenue we retain
is driven by co-investment and underwriting activity. The recognition of
portfolio advisory fees and transactions fees can be volatile as they are
primarily generated by investment activity within our funds, and therefore are
impacted by our investment pace.
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 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, refer to "- Our Family of Funds."
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Performance allocations in excess of 10% of the total for the three and six
months ended June 30, 2020 and 2019 were generated from the following funds:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(Dollars in millions)
CP VI $ 1,126.2 CRP V $ 103.5 CP VI $ 567.6 CRP V $ 164.2
CAP IV 61.3 CAP IV 190.5
CRP VII 28.2 CETP III 34.7
Alpinvest
Co - &
Secondary (25.2 ) CIEP I (160.1 )
Investments
2006-2008
CP VI (34.5 ) CP V (57.3 )
CEOF (45.7 )
Alpinvest
Co - &
Secondary (30.2 )
Investments
2006-2008
CEP III (30.2 )
CAP V (29.4 )
No other fund generated over 10% of performance allocations in the periods
presented above. Performance allocations from CP VI during the three and six
months ended June 30, 2020 were primarily driven by appreciation in a publicly
traded investment in the portfolio.
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, except in certain instances, 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 three months ended June 30, 2020 and
2019, the reversals of performance allocations were $97.5 million and $80.1
million , respectively. For the six months ended June 30, 2020 and 2019, the
reversals of performance allocations were $638.3 million and $31.9 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 June 30, 2020 , accrued performance allocations and accrued giveback
obligations were $3.8 billion and $23.0 million , respectively. Each balance
assumes a hypothetical liquidation of the funds' investments at June 30, 2020 at
their then current fair values. These assets and liabilities will continue to
fluctuate in accordance with the fair values of the funds' investments until
they are realized. As of June 30, 2020 , $14.9 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 the Company 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. Net accrued performance revenues as of
June 30, 2020 are $1.8 billion .
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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
June 30, 2020 , all investments held by our carry funds were deemed worthless,
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."
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 former 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 the Company:
Inception through June 30, 2020
Giveback Attributable to
Total Giveback Carlyle
(Dollars in millions)
Various Legacy Energy Funds $ 155.2 $ 55.0
All other Carlyle Funds 58.1 0.6
Aggregate Giveback since Inception $ 213.3 $ 55.6
The amounts above include $40.6 million attributable to Legacy Energy Fund IV
that was realized during the year ended December 31, 2019 , of which $19.9
million was attributable to the Company.
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 and
negatively impacts earnings available for distributions to unitholders 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 net performance revenues recognized each period. See "- Segment
Analysis" for the realized net performance revenues by segment and related
discussion for each period.
Investment income also represents the realized and unrealized 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 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 included our proportionate share of U.S. GAAP earnings from our strategic
investment in Fortitude Holdings prior to the contribution of our investment to
a Carlyle-affiliated investment fund (see Note 4). 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
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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.
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 June 30, 2020 :
As of June 30, 2020
Corporate
Private Real Global Investment
Equity Assets Credit Solutions Total
Consolidated Results (Dollars in millions)
Level I $ 713 $ 1,699 $ 153 $ 1,617 $ 4,182
Level II 8,532 - 1,248 - 9,780
Level III 42,592 22,852 41,334 27,400 134,178
Fair Value of Investments 51,837 24,551 42,735 29,017 148,140
Available Capital 32,453 15,625 7,257 17,857 73,192
Total AUM $ 84,290 $ 40,176 $ 49,992 $ 46,874 $ 221,332
Interest and Other Income of Consolidated Funds. Interest and other income of
Consolidated Funds primarily represents the interest earned on CLO assets.
However, 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.
Net Investment Gains (Losses) of Consolidated Funds. Net investment gains
(losses) 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, advisors, 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.
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. We intend to grant fewer
equity awards to employees than we have previously. For example, in February
2018 , 2019 and 2020, we granted approximately 13.3 million, 6.7 million and 3.2
million of restricted stock units and other awards, respectively. Compensation
charges associated with all equity-based compensation grants are excluded from
Fee Related Earnings and Distributable Earnings.
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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
transactions.
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.
Income Taxes. Following the Conversion on January 1, 2020 , all of the income
before provision for income taxes attributable to The Carlyle Group Inc. is
subject to U.S. federal, state, and local corporate income taxes. Prior to the
Conversion, the Company was generally organized as a series of pass through
entities pursuant to the United States Internal Revenue Code. As such, the
Company was not responsible for the tax liability due on certain income earned
during the year. Such income is taxed at the unitholder and non-controlling
interest holder level, and any income tax is the responsibility of the
unitholders and is paid at that level. See Note 9 to the accompanying unaudited
condensed consolidated financial statements for more information regarding the
impact of Conversion.
Income taxes 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.
In the normal course of business, we are subject to examination by federal and
certain state, local and foreign tax regulators. With a few exceptions, as of
June 30, 2020 , 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. We do not believe the outcome of any future
audit will have a material impact on our consolidated financial statements.
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.
Non-controlling Interests in Carlyle Holdings . 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 were
reflected as a non-controlling interest in the Company's financial statements.
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 and consolidated
statement of operations of The Carlyle Group Inc. do not reflect any
non-controlling interests in Carlyle Holdings .
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 and
determine amounts potentially available for distribution to the Company's common
stockholders.
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Distributable Earnings differs from income (loss) before provision for income
taxes computed in accordance with U.S. GAAP in that it includes tax expenses
associated with certain foreign 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 and dispositions, 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.
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 theoriginal 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 of our CLOs and
other securitization vehicles, as defined in the fund indentures
(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 open-ended
funds (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).
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The table below details Fee-earning AUM by its respective components at each
period.
As of June 30,
2020 2019
Consolidated Results (Dollars in millions)
Components of Fee-earning AUM
Fee-earning AUM based on capital commitments (1) $ 71,792 $ 68,634
Fee-earning AUM based on invested capital (2) 38,801 43,262
Fee-earning AUM based on collateral balances, at par (3) 25,811
23,970
Fee-earning AUM based on net asset value (4) 6,679
3,799
Fee-earning AUM based on lower of cost or fair value and other (5)
19,306 18,777
Balance, End of Period (6) (7)$ 162,389
(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.
(6) Energy III, Energy IV, and Renew II (collectively, the "Legacy Energy
Funds"), are managed with
Affiliates of both Carlyle and Riverstone act as investment advisors to each
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 committee 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
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.
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