Thursday, May 4, 2023

Carlyle's Earnings Call Paints Grim Picture

Carlyle Group co-founder David Rubenstein suggested things would get better after the FDIC dealt with Republic Bank.  That may not be supported by Carlyle's Q1 earnings call.

Carlyle CFO Curt Buser noted:

M&A volumes are about half of what they were just last year. IPO activity is sluggish. U.S. leveraged loans are much smaller, smaller than they have been in many, many years, and so all that activity level is depressed and it impacts our earnings, our ability to generate transaction fees, impacts performance revenues, the lower level that you see is going to impact realizations, and even at Fortitude it affects our fees there, are variable rate, and so as Fortitude does well, we make more money, but mark-to-market types of adjustments impact some of those returns and so right now, it’s at a lower level, and so that’s also impacted our thinking with respect to the current year.

..our compensation structure, we use the combination obviously of cash, carry, equity, and you’ve got to be very careful when you move the cheese

Carlyle CEO Harvey Schwartz added:

I like Curt’s language about the cheese - I don’t think that was a prepared remark, by the way, we probably wouldn’t have put that in a script, but I think he captured it well.  

Carlyle has time for interest rates to work their way back down, according to Buser.

...there’s no major issues in the PE space. Over half of the debt across the portfolio is fixed or hedged, and roughly 95% of the debt has maturities in 2025 or later. 

The 5% that matures sooner could produce some sphincter moments.  Will Carlyle throw good money after bad?  It's not their practice.

CEO Schwartz suggested people want access to Carlyle offerings:

I think there will be other products that we’ll also be exploring and taking advantage of, and from a private wealth standpoint, while still in its infancy in terms of where things are, a lot of the private wealth channel would love to have access to those product sets. 

There's always an angle for the greed and leverage boys.