Carlyle’s credit segment rocks the third quarter

The fund manager said liquidity pumped into markets by central banks has reduced the scope for distressed debt opportunities.

Carlyle Group posted strong third-quarter earnings, with the credit segment nearly doubling its growth in fee-related earnings to $22 million from the year-ago quarter. FRE for the nine months shot up 91 percent from the previous year period. The big alternative asset manager raised a total of $5.5 billion of new capital in the third quarter, with credit contributing $2.4 billion of that. The credit segment closed one new US CLO in the quarter and saw an increase in commitments across multiple separately managed accounts.

During the conference call with analysts, Carlyle CEO Kewsong Lee noted that the credit team has generated historically great returns with “lower than industry average” default and loss experience. He said there is a lot of opportunity in Carlyle’s direct lending business, especially in the small to mid-cap segment of the market. On the other hand, he said, there aren’t as many actionable opportunities as Carlyle would like in the distressed part of the market, given the extent of the Fed’s liquidity infusions overall. But he said he suspects distressed activity will increase sometime next year. He also cited the “tremendous amount” of opportunity Carlyle is seeing in its recently launched infrastructure credit business, and that given its limited partners’ focus on interesting risk-adjusted yields, infrastructure credit affords very interesting returns in a volatile environment.

Credit opportunities, he said, is benefiting from volatility and mid-cap companies’ need for transitional capital. The CEO said uncertainty regarding the real economy is also pushing more companies to look for interesting ways to secure transitional private credit.

Curtis Buser, CFO, noted on the call that Carlyle’s credit busines “should be much greater, and will continue to be a growth driver”.