Carlyle plans to add professionals to the credit business within its BDC, raise larger follow on funds within its distressed and energy mezzanine fund platforms and explore options for growing its CLO business, the company said in its quarterly earnings call yesterday (27 April).
In the meantime, the firm's Global Market Strategies (GMS) has seen some declines. “Our GMS carry funds were down 12 percent, largely driven by the effect of energy prices on credits in that sector,” said co-chief executive David Rubenstein. While the company expects prospects for the platform to improve this year, it also outlined challenges facing GMS.
“GMS is an important of our long-term growth strategy, but near term investments in new credit products and carry funds are delaying the acceleration of profitability for this segment,” said Carlyle chief financial officer Curtis Buser on the call. “For example, fundraising costs in the first quarter of $5 million offset the higher fee revenues from activating fees s on our second energy mezzanine fund,” he added.
Another challenge facing GMS cited by Carlyle was the continued decline in hedge fund assets under management and related fee revenue. Hedge fund assets fell to $6.3 billion from $8.3 billion at the end of last year, Buser said, with an additional $1 billion to $2 billion in run-off expected this year as redeemed assets are sold and returned to investors.
Carlyle also said it was looking into how best to grow its CLO business and take advantage of the opportunities resulting from the pressure on smaller firms as a result of upcoming risk retention regulations. In addition to the $400 million CLO Carlyle closed in early April, the firm said that it expects to close one, and possible two, additional CLOS this quarter.
Addressing its energy mezzanine fund, Carlyle said that the modest improvement in energy prices was brief and came very late in the quarter, so it did not present that much an opportunity in the beginning of 2016. Co-chief executive Bill Conway said that while he expects energy prices will improve over the long term, there is a growing realization that they will be lower for longer and that previous expectations of a quicker recovery had been based on hope. Carlyle said that the energy mezzanine fund was currently at around $2.8 billion and that the head of the fund was recently in China talking to a large investor expected to join the fund. The vehicle is expected to close soon on around $3 billion.
Overall, Carlyle reported $129 million in distributable earnings on a pre-tax basis and a quarterly distribution of $0.26 per common unit in the first quarter. The company invested $3.9 billion in equity during the first quarter and reported $3.2 billion in realised proceeds during the same period. The $89 million in economic net income reported by Carlyle was down nearly 70 percent from last year but still better than expectations.