Carlyle : 442.2 KB

Corrected Transcript

07-Feb-2023

The Carlyle Group, Inc. (CG)

Q4 2022 Earnings Call

	Total Pages: 23
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The Carlyle Group, Inc. (CG)	Corrected Transcript
Q4 2022 Earnings Call	07-Feb-2023

CORPORATE PARTICIPANTS

Daniel Harris	Curtis L. Buser
Head-Public Market Investor Relations, The Carlyle Group, Inc.	Chief Financial Officer, The Carlyle Group, Inc.
William E. Conway, Jr.
Co-Founder, Interim Chief Executive Officer, & Co-Chairman, The
Carlyle Group, Inc.

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OTHER PARTICIPANTS

Glenn Schorr	Rufus Hone
Analyst, Evercore Group LLC	Analyst, BMO Capital Markets Corp. (Canada)
Bill Katz	Craig Siegenthaler
Analyst, Credit Suisse Securities (USA) LLC	Analyst, BofA Securities, Inc.
Alexander Blostein	Michael J. Cyprys
Analyst, Goldman Sachs & Co. LLC	Analyst, Morgan Stanley & Co. LLC
Patrick Davitt	Gerald Edward O'Hara
Analyst, Autonomous Research LLP	Analyst, Jefferies LLC
Kenneth B. Worthington	Brian Bedell
Analyst, JPMorgan Securities LLC	Analyst, Deutsche Bank Securities, Inc.
Brian McKenna	Adam Q. Beatty
Analyst, JMP Securities LLC	Analyst, UBS Securities LLC

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The Carlyle Group, Inc. (CG)	Corrected Transcript
Q4 2022 Earnings Call	07-Feb-2023

MANAGEMENT DISCUSSION SECTION

Operator: Good day and thank you for standing by. Welcome to The Carlyle Group Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Daniel Harris, Head of Investor Relations. Please go ahead.

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Daniel Harris

Head-Public Market Investor Relations, The Carlyle Group, Inc.

Thank you, Kevin. Good morning and welcome to Carlyle's Fourth Quarter 2022 Earnings Call. With me on the call this morning is our Interim Chief Executive Officer and Co-Founder, Bill Conway; and our Chief Financial Officer, Curt Buser. This call is being webcast and a replay will be available on our website.

We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our Annual Report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time.

Earlier this morning, we issued a press release and a detailed earnings presentation, which is also available on our Investor Relations website. I'm going to begin with a quick discussion of our results and then hand the call over to Bill.

For the fourth quarter, we generated $202 million in fee-related earnings and $433 million in distributable earnings or $1.01 per share. Fee-related earnings for the full year 2022 of $834 million increased 40% compared to 2021, and FRE margin expanded to 37% from 33% last year. Strong organic growth and several strategic transactions combined to deliver another year of substantial growth. We generated $1.9 billion in distributable earnings in 2022 or $4.34 per share with a good balance of earnings from FRE, net realized performance revenue, and realized investment income.

We entered 2023 in a strong capital position. We have $1.4 billion in cash, $2.4 billion in firm investments, and $4 billion of net accrued carry on our balance sheet, in total over $20 per share. We've nothing drawn against our $1 billion revolver and our debt ratings from both S&P and Fitch improved to A-minus ratings. The strength of our balance sheet gives us confidence that we can continue to pursue growth strategies, both organic and inorganic, to help continue to deliver additional FRE growth. We delivered a quarterly dividend of $0.325 per common share. The combination of our balance sheet strength and sustainable growth in FRE allowed our board of directors to approve another increase in our fixed dividend to $1.40 per share per year, an increase of 8% year-over-year and up 40% over the past two years. This higher dividend will begin with Q1.

And with that, let me turn the call over to our Interim Chief Executive Officer and Co-Founder, Bill Conway.

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The Carlyle Group, Inc. (CG)	Corrected Transcript
Q4 2022 Earnings Call	07-Feb-2023

William E. Conway, Jr.

Co-Founder, Interim Chief Executive Officer, & Co-Chairman, The Carlyle Group, Inc.

Thank you, Dan. Good morning, everyone, and thank you for joining us today. I am pleased to be on the call to discuss Carlyle's Fourth Quarter and Full Year Results. As you've heard, Carlyle delivered strong results to our stakeholders despite the challenging market environment. The firm is operating well and I have tremendous confidence in our ability to capture investment opportunities and to continue to grow our platform in 2023.

I want to talk about three topics this morning; the outcome of our CEO selection, the strong financial performance of Carlyle in 2022, and some general thoughts on our outlook. First, we are incredibly pleased that Harvey Schwartz will join Carlyle as the new CEO on February 15. As you all know, this was an incredibly important decision for Carlyle and the search committee of the board on which I serve, drove a robust and exhaustive search for a new CEO. Following a thorough and competitive process, Harvey was unanimously chosen by the board as the right leader to move Carlyle forward in its next phase of growth. Harvey is a widely respected business builder with significant leadership experience in a high-performing, highly competitive global financial institution. He is a seasoned operator with a proven record of leading and developing a wide range of businesses and a demonstrated ability to invest in and develop the talent and organizational structure to manage and support these businesses.

As we look to the future, there's tremendous opportunity to grow and to continue to perform Carlyle, to transform Carlyle, and deliver sustainable results over the long term. Harvey brings the experience and skill set to fully capture this opportunity. As CEO, he will set and execute a strategy that advances and accelerates the diversification plan the firm has successfully pursued, as well as identify new investment opportunities to further scale the business, drive performance, and deliver growth. I am confident in Harvey's leadership and look forward to introducing him to you in the very near future.

Moving on, I'd like to discuss our 2022 results. Curt will dive into our results in more detail. But I wanted to touch on a few notable points. As Dan mentioned, we generated record fee-related earnings of $834 million in 2022, an increase of 40% over 2021, which demonstrates that our strategic focus to grow FRE and diversify our earnings mix is paying off. And we earned $1.9 billion in distributable earnings despite a volatile exit environment. We delivered investment returns that were attractive across our portfolio. Our aggregate carry fund portfolio appreciated 11% in the year, while the public markets were down about 20%. And as I said last quarter, portfolio construction and risk management matter, and we believe that this is a key differentiator that positions our investment teams to deliver superior relative performance across market cycles.

Turning to our outlook. As we enter 2023, we are confident in the strong foundation of the firm and believe that we are well-positioned to capture new growth opportunities and Harvey will focus on building off the strong foundation. At its core, our business involves raising money and investing money and then making that money that we've invested worth more.

Let me begin with some thoughts on fundraising. No doubt, the backdrop for raising new capital remains challenging, with headwinds more pronounced in certain areas than others. However, today's environment is different from what we faced entering 2022. Early last year, an unexpected and sharp change in market sentiment had investors on their back foot for most of the year. With rapidly deteriorating public equity and debt prices, the denominator effect greatly reduced LP interest and ability to make new commitments. Over the past few months, at least until last week, we've seen a gradual reduction in market volatility. Investors still believe that they have a better handle on the magnitude of further interest rate changes. In addition, Carlyle's longstanding relationships with the largest and most sophisticated investors around the globe is a benefit and we continue to see strong demand for many of our investment strategies across our three global segments.

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The Carlyle Group, Inc. (CG)	Corrected Transcript
Q4 2022 Earnings Call	07-Feb-2023

Our platform has continued to diversify. And it's important to note that roughly two-thirds of our fundraising last year came from areas such as Global Credit, Global Investment Solutions, natural resources and real estate. While corporate private equity may continue to face headwinds, we see significant capital raising opportunities across our platform. We will have more strategies raising capital in 2023 than we did in 2022, including our next vintage flagship funds in credit opportunities, secondaries, co-investments, and buyout funds across the globe. We anticipate that our overall dollar volume of fundraising in 2023 will be higher than the $30 billion we raised in 2022.

Over the past few months, I've been around the world speaking with our teams and investors and feel confident in the power of our platform. Our investors value our partnership, our global reach, and our ability to construct diverse portfolios that perform across market cycles. Now that Harvey is here, it is also taken away some uncertainty about our path forward as a firm and we think that will also have a positive impact on fundraising.

Regarding capital development, today's market conditions create new opportunities to invest capital across all of our global businesses. Recently, there's been a wider than average spread in pricing expectations between buyers and sellers, which has impacted capital development. The spread is across most asset classes, but it's been more pronounced in private equity than other strategies. But we are starting to see evidence of this spread narrowing. As debt and equity capital markets continue to reopen, the pace of deal activity is poised to accelerate. We deployed a record $35 billion in capital in 2022 with a good balance across equity, credit, and solution strategies. And we are well-positioned for further investment with $72 billion in dry powder to capitalize on an improving environment. We expect to find ample opportunities to make new investments in 2023 and beyond on behalf of our fund investors.

In addition, the improving deal environment presents an opportunity for our global credit business to provide unique capital solutions to the marketplace. In 2022, we underwrote $3.9 billion of new loan activity in our direct lending strategy and our CLO team issued nine new CLOs, while also trading $30 billion across their portfolios to better position the CLOs for the expected economic environment. And as fund investors need for liquidity persists, we are well-positioned to capitalize on this need to our secondaries and co-investments business.

Overall, 2022 was a solid year across most financial metrics for Carlyle, and we entered 2023 with strength and momentum. With Harvey as our new CEO alongside our strong leadership team, Carlyle's well-positioned and we're confident that he will build on this momentum to bolster the firm's position and create value for all our investors and shareholders.

With that, let me hand the call over to our Chief Financial Officer, Curt Buser to discuss our financial results in more detail.

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Curtis L. Buser

Chief Financial Officer, The Carlyle Group, Inc.

Thanks, Bill, and good morning, everyone. I want to start by reiterating many things Bill mentioned that emphasize the strong position Carlyle finds itself in as we begin this year. We believe our investment portfolios are in good shape and are well-positioned to weather economic volatility and we expect to deliver a long-term attractive performance for all of our stakeholders. We produced a robust $4.34 per share in distributable earnings in 2022, displaying the significant cash earnings power of our firm. We've now earned over $9 in DE per share in just the past two years. We remain focused on growing fee-related earnings and it grew by 40% in 2022. And over the past five years, our FRE CAGR has been a robust 34%. Our overall earnings mix continues to diversify as we have grown our credit, insurance, capital markets, and solutions capabilities.

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