Carlyle Group is betting that its new CEO, Harvey M. Schwartz, whose resume is heavy on investment banking but light on private asset investment expertise, will help restart fundraising, grow the business and boost its stock.
The 36-year-old alternative investment firm has been without a permanent CEO since the abrupt departure of former leader Kewsong Lee in August.
William E. Conway Jr., co-founder and board co-chairman, stepped into the CEO role on an interim basis just as rising interest rates and rocky public markets put a damper on private market fundraising, investments and exits.
During Carlyle's fourth-quarter earnings call on Feb. 7, Mr. Conway said Mr. Schwartz's selection will help move the firm forward. Over two decades, Mr. Schwartz worked his way up the ladder to be president and co-chief operating officer at Goldman Sachs Group Inc. and retired from the firm in 2018.
"Now that Harvey is here, it has also taken away some uncertainty about our path forward as a firm, and we think that will also have a positive impact on fundraising," Mr. Conway said.
To induce him to stay at Carlyle, in addition to millions in annual salary and potential bonuses, he's in line to receive a possible $180 million payout doled out in the form of annual equity award opportunity over his first five years.
Carlyle reported $373 billion in assets under management as of Dec. 31, up 1% from the prior quarter and up 24% year-over-year.
Carlyle raised $29.9 billion in 2022, including $4.9 billion in the fourth quarter, compared to a record $51.3 billion in 2021 and $11.4 billion in the fourth quarter of that year.
Carlyle faced challenges fundraising in 2022. It was among alternative investment firms that delayed closing funds and extended fundraising into 2023, including for its private equity fund Carlyle Partners VIII, which has a $22 billion fundraising target, according to PitchBook Data Inc. The firm started marketing that fund on Sept. 10, 2021, and had raised $14 billion as of Sept. 30, Carlyle reported.
Mr. Schwartz was the firm's top choice, said Mr. Conway, who will step down as interim CEO but remain as co-chairman of the board. Like his predecessors, Mr. Schwartz will report to and also be a member of the board, SEC documents show.
It was "pretty clear to me that we couldn't get anybody any better than Harvey," Mr. Conway said during the earnings call.
"We were looking for somebody who had a really proven track record. We were looking for somebody who had experience building businesses, recruiting and developing talent and for somebody who could relate to people like you in Wall Street and tell our story," Mr. Conway said. "And frankly, there aren't a lot of people who have all those skills."
What Mr. Schwartz lacks is a vast amount of private asset investment experience, industry insiders noted.
Before retiring from Goldman Sachs in April 2018 as president and co-chief operating officer, Mr. Schwartz had a 20-year career at Goldman. But he did not hold positions directly in investment management at Goldman Sachs, according to Mary Athridge, managing director, media relations at Goldman Sachs Group, in an email.
According to a memo announcing his retirement issued by Lloyd C. Blankfein, former Goldman Sachs CEO, Mr. Schwartz was president and co-chief operating officer since January 2017 and chief financial officer for four years before that helping adapt to regulatory changes. From 2008-2013 he was co-head of the securities division, overseeing clearing and settlement services, Mr. Blankfein said.
Following his retirement, until May of 2021, Mr. Schwartz was a senior director at Goldman Sachs, an unpaid position that is common with former management committee members, Ms. Athridge said.
Also in 2021, Mr. Schwartz joined as chairman of The Bank of London, a clearing bank formed that same year by former Barclays Chief Information Officer Anthony Watson; Mr. Schwartz also joined the boards of SoFi Technologies, Inc. and non-profit One Mind.
During Carlyle's earnings call, Mr. Conway sketched out the rough draft of Mr. Schwartz's initial goals.
"Now what's he here to do? I think in some ways, the path that we have is set … First of all, we want to increase the stock price."
Carlyle has a "great investment track record that doesn't show up in our stock price," he said.
"How is he going to do that? Well, we have to grow our business, we have to grow our business, we have to grow our business," Mr. Conway said.
But Mr. Conway appeared loath to provide too many details to give Mr. Schwartz an opportunity to set his own agenda.
"I don't want to confine Harvey in any way," Mr. Conway said when asked about fundraising plans. "I don't want my comments in any way to limit his ability to imagine a different future or a different way that things could be done better. So I'm a little hesitant to get too specific on this."
But Mr. Conway added that he thinks there is investor demand for non-corporate private equity.
Carlyle is making a big bet on Mr. Schwartz's experience running a public company and expertise in mitigating risk and the regulatory environment to help it boost its share price. Mr. Schwartz's annual base salary will be $1 million plus a target annual bonus of $3 million, with a maximum bonus opportunity equal to 200% of target, according to an Feb. 6 SEC filing. In addition, on his Feb. 15 start date, Mr. Schwartz will receive inducement equity awards of $180 million — made up of $108 million of performance-based restricted stock units and $72 million of time-based restricted stock units. These awards are Mr. Schwartz's annual equity award opportunity for his initial five years of employment with Carlyle. Carlyle declined to comment beyond the earnings call.
For their part, investors are expected to take a wait-and-see approach, said Stephen Nesbitt, New York-based CEO of alternatives consultant Cliffwater LLC. What is important is understanding whether Carlyle's strategic direction changes and whether there are any personnel changes down the line, he said.
"Carlyle has strong investment talent and probably desires strong day-to-day management to oversee that talent," Mr. Nesbitt said.
Some analysts think Carlyle should have selected a leader with private asset investment experience and should be articulating a clearer path forward.
"Investment banking and private equity culture are two different things," said Catherine Seifert, vice president in the equity research department of CFRA Research, a Charlottesville, Va.-based research and analytics firm. The leadership teams of publicly traded private equity firms tend to be executives who spend the majority of their careers in merchant banking, Ms. Seifert said.
"The leadership teams have decades of private equity experience. Those chops are things that are important if you're in a business that is based on relationships," Ms. Seifert said.
At Carlyle, there were reportedly a number of internal candidates who were seeking the CEO role who were clearly passed over, she noted. Instead, after a six-month search, Carlyle brought in an executive with a different background and skill set than some of their peers, Ms. Seifert said.
"I don't think the entire process was handled particularly well," she said.
"If you look at what went on at Apollo (Global Management) when there was a controversy around Leon Black ... actions were taken, the founders stepped up. It was a much more buttoned-up process," she said.
Mr. Black stepped down as Apollo's CEO in March 2021 as a result of his professional relationship with the late financier and convicted sex offender Jeffrey Epstein. At the time, co-founder Marc Rowan was named CEO, a role he still holds, and former U.S. Securities and Exchange Commission Chairman Jay Clayton was named non-executive chairman of the board.
Even though Mr. Schwartz has a "sterling resume and wonderful background," asset owners will still need time to see whether Carlyle proves itself and convinces investors that it is going in the right direction, Ms. Seifert said.
The barometer will be how successful it is fundraising, she said.
"Time will tell. It will be a steeper slope because he (Mr. Schwartz) is not a known entity in private equity circles," Ms. Seifert said.
