Carlyle joins share repurchase club

The NASDAQ-listed alternatives manager reported negative ENI for the year in its credit-focused global market strategies division and joined a number of other listed alternative investment managers by announcing a $200m repurchase programme.

The Carlyle Group is the latest alternative asset manager to announce a share buyback programme. 

The firm’s management announced the $200 million buyback in tandem with its fourth quarter and full year 2015 results. The equity purchases will be funded from balance sheet cash and will primarily be sourced from the firm’s publicly listed stock, rather than employee equity compensation holdings. Other alternative managers that have announced share buybacks this earnings season include Fortress and Apollo.

The buyback is designed to bolster the firm’s share price which, as with other listed alternative investment managers, has fallen substantially over the last nine months. It traded at over $30 a share in June last year and had gradually fallen to trading under $12 before the firm published its results this morning (10 February).

“Carlyle had a strong 2015 amid challenging markets, delivering a full year distribution of $2.07 to Carlyle common unitholders. Despite our history of strong results and significant future growth opportunities, the equity market currently ascribes little value to our diversified investment platform. We are announcing a $200 million repurchase programme, as we see great value in Carlyle units,” said co-chief executive David Rubenstein in a statement.

Economic net income (ENI) for 2015 fell short of analysts’ expectations and at $397 million was 59 percent lower than 2014. Of the three main units; private equity, real assets and global market strategies, it was the credit-focused global market strategies that fared worst in the fourth quarter.

The credit business produced ENI of minus $22 million for the fourth quarter of 2015. On a full-year basis, GMS ENI stood at minus $40 million versus $115 million for 2015. The firm’s GMS carry funds returned minus eight percent for the year versus a positive 20 percent return in 2014. 

Distributable earnings from the unit fell to $39 million last year versus $91 million in 2014. That was primarily due to a decline in hedge fund management fees and the expenses related to raising the firm’s second energy mezzanine fund. 

Carlyle’s hedge fund stakes declined in value as investors pulled money out of poorly performing strategies throughout 2015. Management said on the earnings call that performance at Claren Road, a high profile victim of investor outflows, has improved. 

On markets generally, Rubenstein acknowledged that debt financing for LBOs is harder to come by. He made the point that European lenders are more willing to provide loans but estimated that, in the US, loan pricing will go up and the size of debt packages will go down. The six times EBITDA leverage that most deals are able to achieve he said, referring to the large-cap market, will fall with only very popular sectors, like media, achieving that leverage level. 

Tighter financing means more opportunities for the firm’s second energy mezzanine fund, however, he added.

Carlyle’s total assets under management fell six percent year-on-year to stand at $182.6 billion at the end of 2015. The firm raised $2.1 billion in the fourth quarter and the value of some assets – primarily listed holdings – rose by $1.5 billion. These increases were offset by almost $7 billion of distributions, a $1.4 billion foreign exchange impact and $1.1 billion in net redemptions.