Continuing its focus on credit, Carlyle to build out asset-based finance strategies

New areas of expansion could include real estate debt or infrastructure debt.

The Carlyle Group, which is making a concentrated effort to scale its credit business even further, wants to expand beyond its current collateralised loan obligations, direct lending and other corporate finance platforms.

Following its announced purchase of the Apollo Aviation Group, the Washington, DC-based firm plans to continue building out its debt strategies that lend against hard assets, senior Carlyle executives said on their third-quarter earnings call Wednesday.

“The one part of the [credit] platform that we’ve always been looking to build a capability set in is the asset-based finance business,” co-chief executive Kewsong Lee said on the call. “We are not a finance company, we are an investment management firm.”

New areas of expansion could be real estate debt or infrastructure debt, he said, adding though that it was “premature for us to describe all the different things we are looking at”. The firm wants to bring on top talent to help build out an asset-based finance strategy.

Earlier this month, Carlyle announced it would purchase Apollo Aviation, which closed its fourth fund, SASOF IV, on $950 million. The vehicle is aiming for a 13-15 percent net internal rate of return. Fund III closed on $833 million in October 2015.

“[AAG] is just the beginning of what our global credit platform wants to do in terms of tapping into opportunities to drive investment strategies that are based on hard assets as opposed to the other types of lending [that the global credit platform does],” Lee added.

The firm plans to make additional investments in its credit group, which could dampen fee-related earnings, executives said.

Carlyle is well on its way to the $100 billion fundraising goal its set across all strategies, having raised $83 billion since it set the goal in 2016. The firm set a self-imposed deadline at the end of next year to reach the $100 billion mark.

Despite the prodigious fundraising, the firm’s net income attributable per common unit fell sharply to $0.10 from $0.56 for the second quarter and $0.43 for the third quarter of last year.

Carlyle posted no net realised performance revenue for its credit funds, down from $10 million in the third quarter of 2017. Year-to-date, the firm has realised only $3 million, compared with the $20 million realised in the first three quarters of 2017. However, the global credit carry funds reported $34 million in net accrued performance revenue.

Carlyle raised $6.5 billion in the third quarter for its credit platform, which consisted of two new CLOs, several CLO resets, money for its opportunistic credit fund and several managed accounts. The credit platform made up $37.4 billion of the firm’s total $212.3 billion. The credit group AUM is a 17 percent increase from the same time last year, when that number was $31.9 billion.

Editor’s note: The story has been updated to clarify that Apollo Aviation Group bears no relation to Apollo Global Management.