Carlyle attributed the 2023 fundraising results to its $188 billion global credit business, its largest, with that segment's AUM increasing 28% last year, mainly from the growth of its reinsurer, Fortitude Re. Carlyle and T&D Holdings purchased a 76.6% interest in Fortitude from American International Group for about $1.8 billion in 2020. The growth in AUM in the year also came from a 21% increase in Carlyle's secondary alternative investment markets business — its global investment solutions unit — as a result of fundraising by AlpInvest secondaries and co-investment funds, Schwartz said.
"You know, I showed up a year ago, literally almost to the day, and I was the lucky recipient of some amazing franchise businesses and some great talent," Schwartz said during the call. "One of those things is our secondary business. And over the course of the year … we're expecting a doubling of FRE (fee-related earnings)."
Carlyle's second-largest business, its $161 billion global private equity business, saw its AUM dip by 1% during the year ended Dec. 31. Carlyle's private equity business includes real estate, infrastructure and natural resources, as well as corporate private equity.
"I think in private equity, like the rest of the industry, specifically … corporate private equity, I think we'll still be seeing headwinds in the industry," Schwartz said.
Carlyle set a target of inflows to exceed $40 billion in 2024 and despite those headwinds in corporate private equity, Schwartz added that Carlyle executives "feel good about the $40 billion number."
When asked by an analyst about the private equity business on the same call, John C. Redett, Carlyle's chief financial officer and head of corporate strategy, said Carlyle has "great demand for our (fifth) Japan buyout fund. We will soon be in the market with our real estate product, which has fantastic returns."
Carlyle reported its $20 billion in real estate funds depreciated 2% in the fourth quarter and depreciated 1% in all of 2023. Carlyle reported a net internal rate of return for its real estate funds of 8%, compared with a net IRR of 17% for corporate private equity and a net 8% IRR for infrastructure and natural resources as of Dec. 31.
Carlyle reported a U.S. GAAP net loss of $692 million in the fourth quarter and $608 million loss for the year. By comparison, Carlyle reported U.S. GAAP net income of $200 million in the prior quarter and U.S. GAAP net income of $127 million in the fourth quarter of 2022.
Part of the reason for the income loss was that Carlyle had a one-time charge of $1.1 billion, related to a change in its compensation structure in which employees will get a larger share of profits — to a range of 60% to 70% from a range of 45% to 50% — and less of their compensation from fees.
"There will be some variability in compensation for our senior folks," Schwartz said. So, Carlyle granted stock units to the executives that will have some variability in their compensation that will vest upon share price appreciation, he said.
At the same time, Carlyle lifted its capacity to buy back shares by $1 billion for a total of $1.4 billion, Schwartz said.
"Essentially, compensation for our senior people will become more success-based," Redett said.
