Carlyle Group CEO Harvey Schwartz said in the company’s fourth quarter earnings call 7 February that Carlyle’s Global Credit segment is “positioned for strong growth”, coming off four years of growth that have increased the segment’s assets under management by 300 percent.
Moreover, Carlyle’s Global Credit segment became the company’s largest in 2023, having appreciated 12 percent over 2023, and 4 percent in the fourth quarter, to $188 billion in assets under management at year end.
Firmwide, the manager reported a quarterly loss of $692 million, or $1.92 a share, driven by a one-time non-cash charge of $1.1 billion. The firm attributed the loss to changes in its compensation program designed to link pay more closely to performance.
The net loss for 2023 was $608 million, or $1.68 a share.
The Global Credit segment, though, was a bright spot. It was in the asset class’s context that Schwartz said, “We have strong momentum coming into 2024 and a deep pipeline of growth opportunities.”
CFO John Redett echoed this view. Speaking of firm-wide fundraising, Redett said that there was a “strong finish to the year… bringing in $37 billion in 2023, more than 20 percent higher than the prior year”.
He added: “Included in that total is more than $9 billion in new capital raised by Global Credit in the fourth quarter alone.”
In liquid credit, Carlyle has a fair value of $39 billion in its US collateralised loan obligations. It has $12 billion in European CLOs, along with $4 billion fair value for its business development companies and $3 billion for Carlyle Tactical Private Credit (CTAC), according to Carlyle’s presentation.
CTAC is a continuously-offered, unlisted closed-end investment company structured as an interval fund. It has been in the market since June 2018.
The Global Credit carry funds appreciated 4 percent in the fourth quarter, driven in part by tightening spreads. They appreciated 12 percent year-on-year. By comparison, corporate private equity appreciated 2 percent and 5 percent, respectively.
Attracting and rewarding talent
In the earnings call, management acknowledged that Carlyle took a $1.1 billion one-time charge relating to the changes in its compensation program. Although it resulted in the net loss, Schwartz said that “first and foremost” compensation is about “attracting and rewarding talent… we want to make sure our talent gets paid for its performance”.
The company had announced that it plans to free up steadier cash flows for shareholders and that it has authorised a plan to repurchase as much as $1.4 billion for stock. Redett said that the buybacks are appropriate because the firm doesn’t believe that the market price reflects the value of the company’s stock.
Redett, who took on the role of CFO on 1 October 2023, said in the earnings call that there is no contradiction between the company’s desire to rework the incentives of its employees, a process expected to play out in the years to come, and its desire to reinvest earnings in the business. “Investing into our businesses remains our top priority,” he said.
On fundraising, Schwartz said that Q4 was the third-largest fundraising quarter in the firm’s history, with a total raise of $16.9 billion. Schwartz also said that the firm’s “capital lite model gives us a lot of flexibility” and that “the opportunity to build on the Fortitude platform is quite clear”.