Carlyle Group Inc.’s new chief executive officer, Harvey Schwartz, signaled he’ll push for change at the private-equity firm as shares tumbled the most in three years following a disappointing earnings report.
First-quarter distributable earnings fell 10 percent from a year earlier to $271.6 million, or 63 cents a share, Carlyle said in a statement. That missed the 67-cent average estimate of 17 analysts surveyed by Bloomberg. Assets under management gained 17 percent to $381 billion.
“Let me be clear. We’re not pleased with our first quarter results,” Schwartz said. “As we grow, we’re also working to identify areas where we can instill more discipline around our operations.”
Dealmakers have recently slowed the pace of cashing out bets in a stretch when bank collapses and interest-rate hikes roiled markets. The firm pared back the pace of investments in major funds and raised less money for new deals compared with a year ago.
The dealmaking slump reflects the challenge ahead for the new CEO as he works to reshape the firm in one of the toughest stretches for private equity. The results underscore the need for Schwartz to keep reducing Washington-based Carlyle’s reliance on any one major business.
Schwartz told analysts that he’s focused on closing the valuation gap between Carlyle and peers. Carlyle’s $9.6 billion market capitalization is less than a third of competitors Apollo Global Management and KKR & Co. Inc. and is dwarfed by Blackstone Inc.
“The brand is great and it’s disproportionate to the valuation,” Schwartz said.
The firm signaled that its fee-related earnings this year would be more muted than 2022 and pick up next year.
Challenges Ahead
Taking the top job in February, Schwartz was tapped to evaluate budgets, lift underperforming units and convince shareholders the firm can continue to grow beyond its buyout roots. Carlyle’s last CEO, Kewsong Lee, stepped down after a power struggle atop the firm.
In his first weeks on the job, Schwartz spoke with major investors, embarked on a listening tour and attended presentations by executives.
On Thursday, he told analysts he sees an opportunity to expand Carlyle’s presence among wealthy individuals, grow its real estate business and take more market share in its credit business. He stressed the firm would be deliberate as it invests in its growth.
Carlyle’s credit arm was its only business that added fee-related earnings in the quarter, which jumped 92 percent to $47.9 million. That powered a 5.5 percent increase in those profits across the firm.
Carlyle has continued to boost credit assets through its insurance business, after taking a stake in Fortitude Reinsurance Co. Ltd. in 2018. Fortitude’s $28 billion reinsurance agreement with Lincoln National Corp., announced this week, will turn Carlyle’s credit arm into the firm’s biggest business by assets.
Global credit is poised to take market share from banks as many of them retrench from lending and get saddled with more regulatory scrutiny, Schwartz added.
In a sign that buyout fundraising remains challenging, the firm said its buyout funds in aggregate will raise less money than prior versions.
Carlyle’s private equity flagship fund raised $200 million in new cash in the quarter. The fund has hovered around the $14 billion mark in recent quarters and the firm asked investors for more time to collect money. That business lost a prominent executive when Pete Clare, the chief investment officer for corporate private equity, resigned this year after he didn’t get the CEO job.
The investment solutions unit that assembles portfolios and buys secondhand stakes had the best-performing funds among Carlyle’s lineup of traditional funds. Still, its bottom line suffered because more money went to paying executives, while fee revenues were flat.
Schwartz didn’t say which areas he was prioritizing while he reviews the businesses.
“I don’t have any favorite children,” Schwartz said. “I believe in growth for growth’s sake.”
