Carlyle Group LP (NASDAQ:CG) reported ENI/unit of $1.02 above Street estimates of $0.96, primarily due to stronger than expected performance fees. Higher sequential revenue was driven by stronger performance fees & positive inv income, partially offset by lower fee revenue (-4%, driven by lower mgmt fees). Core expenses (ex perf comp) were higher (+3% q/q, driven by normalizing G&A given the absence of a 4Q insurance beni), which pressured the FRE margin by ~600bps to ~14%.

Carlyle Group

In terms of the Carlyle Group LP (NYSE:CG) businesses, from an ENI standpoint, CPE & GMS came in stronger than expected, while RA & FoF were only slightly stronger. Overall, it was a good quarter that included rising AUM, healthy fundraising / deployment / realization activity, and strong portfolio gains.

David Rubenstein Co-Founder of Carlyle Group stated on the conference call:

Separately, we continue to make progress on a number of other large funds, including our latest generation Asian buyout fund where we have had additional closings this year, and our latest generation European buyout fund we expect to have a first closing later this year. We launched two CLOs in the quarter with aggregate value of more than $1.2 billion. AlpInvest continues to receive new mandates across its platform and specifically is shortly expected to complete a $4.6 billion fund for secondary investments, $500 million of which is from investors new to AlpInvest.

Other notable events in the quarter include our first modest payout of Carlyle Partners V carry. We believe Carlyle Partners V is in terrific shape with over $950 million in accrued carry, up from $550 million just a year ago. The fund has produced significant realizations for our fund investors and has generated an 11% net internal rate of return thus far, even with a substantial number of new investments that had not yet had time to appreciate. Based on the current maturity of investments in the fund, we expect significant carry generating realizations in Carlyle Partners V in 2014 and beyond. Thus, Carlyle Partners V may follow the Carlyle Partners III and Carlyle Partners IV pattern of significant carry distributions following the end of the investment period.

Positions of Funds and Investment Teams Carlyle Group LP (NASDAQ:CG)

I would like to focus on some of our new initiatives that will further diversify and strengthen our investment capability and our firm as a whole. We have long believed that one of the best places to invest is the energy sector. We recently announced the formation of an in-house Energy Team enabling us to pursue a broad range of energy investments in Europe, Africa, Asia and Latin America. With that team, we now have an array of energy investment platforms across the firm and believe we are well-positioned, not only to take advantage of the energy revolution in the United States, but opportunities around the world. This array of funds and investment teams position Carlyle Group LP (NASDAQ:CG) to be a significant private equity and debt investor in the global energy revolution now unfolding.

Carlyle Group LP (NASDAQ:CG) Positives in the quarter via BAML

  1. Carlyle Group LP (NYSE:CG)’s Rising AUM (+4%) driven by MtM gains (+$6B) and new capital commitments (+$6B), with $6B of shadow AUM not yet earning fees;
  2. Healthy performance fees ($592M vs $240M in 4Q) driven by strong portfolio appreciation (carry funds +7% in 4Q, driven by CPE & GMS at +9%);
  3. Healthy realizations of $4.1B were driven by CPE ($3B);
  4. Healthy fundraising of $4.9B driven by FoF ($1.8B) & CPE ($1.4B);
  5. Healthy capital deployment of $2.5B & robust level of dry powder ($28B core or $46B inc FoF);
  6. Net accrued performance fees increased to ~$1.4B;
  7. Normalized distribution as expected ($0.16);
  8. NGP contribution began (~$12M of add’l EBITDA per qtr in RA) & CG recently hired an Energy team to further solidify RA;
  9. CPE in-carry ratio came in stronger than expected (likely driven by CP V); & 10) Positive outlook for returns/carry given upward trending public portfolio momentum QTD.

Carlyle Group LP (NASDAQ:CG) Issues in the quarter via BAML

  1. Carlyle Group LP (NYSE:CG)’s Lower DE ($168M vs $188M in 4Q);
  2. Weaker FRE ($36M vs $55M in 4Q) given absence of $18M 4Q ins settlement beni (roughly flat on a normalized basis) & fee step-downs in CPE;
  3. RA realized investment loss from last qtr;
  4. Slightly lower FPAUM (driven by CPE), but ~$6B of assets on the horizon;
  5. Overall AUM in-carry ratio ticked down slightly;
  6. Sluggish RE return (+1%);
  7. Tax rate remains elevated (~19%);
  8. Flat 1Q-3Q distribution policy growing less attractive vs peers;
  9. Net debt ($353M); &
  10. Unit count crept up.