Carlyle Dealmakers Quadrupled Profit on Exits in 2021

(Bloomberg) -- Carlyle Group Inc. dealmakers' cut of profits from successfully exiting investments more than quadrupled in 2021, another example of the burgeoning wealth created in a boom year for private equity.

The firm sold out of a record $15.3 billion of deals in the fourth quarter, Washington-based Carlyle said Thursday in a statement. Distributable earnings, or profit available to shareholders, surged to $902.8 million in the quarter, a 281% increase from a year earlier.

Carlyle's dealmakers received $1.41 billion of the profits tied to exits in 2021, a 315% increase from the prior year in so-called realized performance revenues related compensation. Employee pay and benefits almost doubled in 2021 to $2.3 billion, a figure that excludes stock-based compensation, which also increased.

“We pay for performance, and we had a great year,” Chief Executive Officer Kewsong Lee, 56, said in an interview. “Our people earned it.”

When dealmakers make profits, shareholders win, too, he said. Carlyle also disclosed Thursday that it's boosting its quarterly dividend by 30% to 32.5 cents a share.

Carlyle shares fell 6.2% at 11:02 a.m. in New York trading and have been down this year largely due to concerns of higher interest rates. The shares gained 75% in 2021. Rising rates threaten to trim valuations of private equity-backed companies and make buyout firms more hesitant about cashing out of deals.

Lee said a fall in asset values can create attractive buying prices. “Volatility creates opportunity,” he said.

Cash Haul

Carlyle raised $51.3 billion in fresh capital from investors across strategies last year, almost double from the previous year, and the firm managed $301 billion as of Dec. 31. The latest cash haul reflects the appetite among pensions and endowments for returns that aren't correlated to stocks and bonds, bringing Carlyle closer to its goal of raising about $130 billion from 2021 through 2024.

Of that money raised, some $17 billion went to credit strategies. The firm sees credit as a major source of recurring fee incomes that public shareholders prize. A substantial part of its credit funds are in floating rate debt, providing some protection with the Fed poised to raise interest rates.

On Wednesday, Carlyle announced that its credit arm agreed to acquire iStar Inc.'s net lease business in a deal with about $3 billion in enterprise value. The firm will manage the business for investors, while funding some $200 million through its balance sheet. The company hopes to attract new retail investors to that real estate credit strategy and turn it into a $10 billion business.

On the earnings call on Thursday, Carlyle signaled it's weighing further acquisitions and other corporate deals to grow its credit business.

Lee, who took over as sole CEO in 2020, has ambitions to turbocharge Carlyle's growth and profit. And without accounting for any acquisitions, Carlyle is targeting fee-related earnings growth of more than 20% in 2022.

“We've got a lot of initiatives to grow organically and inorganically in a thoughtful way,” he said in the interview.

Fourth-quarter earnings highlights:

Distributable earnings were $2.01 a share, beating the $1.21 average estimate of analysts surveyed by Bloomberg
Dry powder for deals totaled $84 billion on Dec. 31, up from $76 billion a year earlier
Fee-related earnings rose 20% to $174.5 million, and fee-earning assets rose 14% to $193 billion, helped by a 23% increase in credit assets
Net income totaled $647.6 million, or $1.77 a share, up from $518.8 million, or $1.44, in the final three months of 2020