Third Quarter 2013 Earnings Call Transcript

corrected transcript (Corporate Private Equity) Private (Corporate &Head Director Managing Daniel Harris, Participants Other Participants Corporate MANAGEMENT DISCUSSION SECTION MANAGEMENT DISCUSSION PARTICIPANTS release. earnings our in GAAP have reconciliat provided principles. We accounting accepted generally with in preparedaccordance measures a oras substitute for from isolation in considered not be wilWe website. our on be available will replay a and webcast, is being call This questions. additional you have if in queue the back get but feel to free timeframe, reasonable allow going to We’re holders. unit institutional and analysts for session answer and a question wewill hold remarks our Following website. our of portion relations investor the on is available which of aresults, copy t our with release press a we issued morning Earlier this Adena Friedman. Officer, Financial our Chief Co our onare the today call me wel and morning, you, Good Mercy. Thank begin. may You relations. i to like now I would instructions] [Operator time. that at given will be instructions and session answer and listen a in all are participants time At this call. earnings welco and and gentlemen, ladies day, Good Operator: S. Irizarry Marc Brennan Hawken A. G Warren Kelley Matt Lee Robert S. Kim Michael H.Chen Howard B.Worthington Kenneth Group Friedman T. Adena Conway E. William Rubenstein M. David Equity) Private (Corporate Daniel Harris

l refer to certain non tocertain l refer www.CallStreet.com • • www.CallStreet.com TheCarlyle Group LP

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Analyst, Keefe, Bruyette & Woods, Inc. & Bruyette Woods, Keefe, Analyst, Analyst, Morgan Stanley & Co. LLC & Co. Stanley Morgan Analyst, –

Managing Director & Head & Director Managing – –

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Analyst, Sandler O’Neill & Partners LP & Partners O’Neill Sandler Analyst, Analyst, Goldman Sachs & Co. Sachs Goldman Analyst, –

ntroduce your host for today’s conference, Daniel Harris, head of investor of head Harris, Daniel conference, today’s your for host ntroduce

Analyst, Credit Suisse Securities (USA) LLC (Broker) (USA) Securities Suisse Credit Analyst,

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Analyst, UBS Securities LLC Securities UBS Analyst, each person to one question to allow everyone on the line to participate in a in participate to line the on everyone allow to question one person to each – –

Chief Financial Officer, Managing Director Washington, DC, The Carlyle Carlyle The DC, Director Managing Washington, Financial Officer, Chief – Analyst, Evercore Partners (Securities) Partners Evercore Analyst,

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Chief Executive Officer, Co Officer, Executive Chief

– - GAAP financial measures during today’s call. These measures should should measures These call. duringtoday’s measures financial GAAP -

Chief Executive Officer & Director, The Carlyle Gro Carlyle & The Director, Officer Executive Chief Analyst, JPMor Analyst,

Company▲ - Chief Executive Officers, Bill Conway and David Rubenstein; and and Rubenstein; David and Bill Conway ExecutiveOfficers, Chief 1 - - 877 Public Investor Relations, The Carlyle Group LP LP Carlyle Group The Relations, Investor Public come to Carlyle’s third quarter 2013 earnings call. With call. earnings With 2013 quarter third to Carlyle’s come

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me to the Carlyle Group third quarter 2013 2013 quarter third to theGroup Carlyle me only mode. Later we’ll conduct a question a question we’ll conduct Later only mode. hird quarter 2000 (sic) [2013] 00:43) 00:43) [2013] (sic) 2000 quarter hird

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1 corrected transcript David M. Rubenstein, Co Rubenstein, M. David ourf for our investments of harvesting increased in result ultimately will and to strengthen continue our business of underpinnings show,the metrics ourAs key billion. $185 record a at stands now total AUM 12 months last the over billion $17.8 and the quarter for $3 billion at approximately strong to be continues also proceeds realized of production Our Four: history. firm’s the in level highest the actually and our IPO since level highest the billion, exceeded position carry accrued net our the quarter of the end of As funds. buyout largest our across carry accrued in gains substantial driving months, 12 past the over 25% a robust and our larg in funds carry Notably, 12 months. past the over 17% and quarter the in 4% by appreciated portfolio carry Our fund Three: quarter. over second the Two: team. our fundraising of and scale quality and the our firm, of reach the brand, global years, our 26 over record is dueour track to success fundraising our we believe but course, of themselves Investo needs. investment alternative their of more address to to Carlyle looking are increasingly world the of all types from and types all of believeinvestors that months. We 12 past the over raised billion $22.9 of total a us giving tot quarter a third with in fundraising pace our strong continued One: points. We key Four the quarter. for highlights now review the me let mind, in message level this high With the future. for in metrics our key performance strong for well positioned wea believe we and the prior quarter, upwas from funds carry in our activity investing investors, our fund to amounts significant distributing quitewell,we are perform to continues portfolio an position current summarize our To 11. on November York New in investorday our at into Carlyle dive deep a taking will be we for call, earnings normal our than be briefer to today going are remarks prepared you much very Thank Dan. you much, very Thank Co to our it over turn letthat, me With the release. of five page on error a minor addresses we our to release earnings this morning’s of a copy we reposted have In addition, call. this following to out me reach please question, you further have If you there. developm positive the many to discuss opportunity the have to are excited managers. We and fund leaders business senior Carlyle’s many of from hear to opportunity the you’ll have the day of course Eastern tim 8:00am at beginning Monday next investor day first our hosting we’ll be that us follow that analysts the well as as in Carlyle investors to remind a moment take I want to quarterlyremarks, our on to we move Before anytime. update any forward to no obligation assumes Carlyle those indicated. from 10 Form on report our annual section of factors involv and expectations management on current arebased statements These them. on placed be not should reliance Any forward

We invested $1.9 billion across our carry funds in the quarter, slightly up from the third quarter from up slightly quarter, the in funds our carry across invested billion $1.9 We www.CallStreet.com • • www.CallStreet.com

ents at Carlyle over the past 18 months since our IPO and look forward to seeing many of of to many seeing forward look and our since IPO months 18 past the over ents at Carlyle TheCarlyle Group LP - looking statements made today do not guarantee future performance and undue undue and performance future guarantee not do today made statements looking - Chief Executive Officer & Director & Officer Executive Chief e inherent risks and uncertainties, including those identified in the risk risk the in identified those including and uncertainties, risks e inherent

est segment, corporate private equity, appreciated 5% in the quarter quarter the 5% in appreciated equity, private corporate segment, est Company▲ e in New York, and will be simultaneously webcast. Over the Overwebcast. the simultaneously will and be York, e in New rs come in many types and sizes, and they can speak for for speak they can and and in sizes, many types come rs d perspectives, fundraising remains exceptionally strong. Our strong. exceptionally remains fundraising perspectives, d - 1 Chief Executive Officer, DavidRubenstein. Officer, Executive Chief - 877

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corrected transcript holders. ourunit for earnings distributable in growth and investors ourfund for returns strong that delivers firm diversified more and better, stronger, on weare focused performance investment strong with continued Together business. solutions expanding but nascent our still and strategies business, market our global capabilities, resources natural to sc continue acquisitions and launches new fund recent our and traction gain products our as new time over upside more also see continuously. We grow to us enabled backdrop have macroeconomic improving an and strategies, the diversi performance, investment Carlyle’s allocations, with arestill cautious investors While firm. the grow to strategy our continueto execute We the firm. for earnings of source growing a as solid, view solutions business. We to hel excited we’re and team management strong a has Metropolitan clients. institutional to services allocation asset of range complete a more provide to us enable better of equity fund private with along segment in our solutions we offer strategy funds of fund significant the second will be Metropolitan month. earlier this closed that transaction funds. of fund estate We real global bu to our intention weannounced September In late assets. in CLO billion $17 over now manage year. the for We CLOs issue new in billion than $3 more to close weexpect total In States. United the in CLO another close now to year the of second our CLOfund, million €335 a we closed Finally commitments. external newin million $750 with over billion, $4.2 to program secondaries AlpInvest’s in commitments capital the total bringing fund, secondaries October In company. development our business and fund, services Sub our funds, buyout Japan and Asia, Europe, our including funds, other of a number on progress to alsomake continue We week inthe coming fund the of close formal the and will announce work legal and allocations finalizing billion. $12.9 We’re than less no will be size final The It is oversubscribed. weeks. few next the in process fundraising year distributab future of source major a will be we believe which and new fund largest is Carlyle’s which fund, buyout U.S. vintage latest Our interest. investors’ attractive very have14 history. We our firm’s in best theand second crisis year financial the since fundraising best by our willyearbe far This on fundraising. comments of a couple now make Let me million. $926 15% to increased basis 12a lastmonths on income net Economic quarter. the $195for of million net income economic to led in carry, funds in especially performance, fund Strong key in funds. our theinvestments key of performance strong optimism That holders. our unit and investors fund our for earnings cash future generate to our inability confident continueto be We terms. attractive on future distant not too in the transactions of portfoli carry our importantly, Most milestones. toquarter quarter by driven one not and term long is inherently business our said, always have we As 2014. of quarter first the into slip also could but they December, in mayclose exits these innear the fees ter performance healthy to produce likely which exits are of number a working on will develop. We’re quarter fourth our how precisely notwe know do course year. Of the in rate activity Our million. $627 been have earnings distributable Carlyle’s 12 months, past the Over million. $105 were earnings distributable quarter, the For third time. over holders unit for earnings distributable

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funds in the market and we remain active in launching new strategies that will satisfy our our will satisfy that new strategies launching in active we remain and in market the funds TheCarlyle Group LP

funds through AlpInvest. The addition of Metropolitan to our solutions segment will segment our solutions to Metropolitan of addition The AlpInvest. through funds fourth quarter is developing along the lines we anticipated throughout the the throughout we anticipated lines the along is developing quarter fourth s.

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corrected transcript William E. Conway, Co Conway, E. William quarter in current the $3 billion with approximately months 12 last the over proceeds in realized billion $17.8 produced have we to realizations, Turning billion. $1.6 mill $400 over by grown has balance carry accrued netyear, thisour far so million $320 over of fees performance net despite realizing business, our entire year. the Over is net funds these of None fees. performance producing and hurdles returned preferred their exceeding toward movement their 7% continued IRR of netwith five realty Carlyle 7%,and of with IRR IIInet Partners Europe Carlyle including funds, our key of A number 2013. quarter fourth the in carry cash produce it to positioning and carry accrued into further it taking quarter, the 11% in and 10% appreciating well, perform to continue funds buyout U.S. fifth and fourth Our 10%. increased public portfolio whileour quarter, in the 2% appreciated portfolio private Our months. 12 past the over up 17% fund carry Our to strengthen. continues portfolio Our growth. significant experiencing a in market well positioned is company that a in group buyout our U.S. by investment a minority was This audio accessories. manufa a leading Electronics, Beats in million $500 approximately of 31 on October investment an recently closed We energy. and infrastructure in balance the with States, United on the focus a particular with estate real in invested was than more Slightly segment. assets real our in million $640 also invested We company. beverage and food packaged a International, two growth inef fuel Maritime with Interlink an investment made investors. We other fund buyout Asia our by private taken was group, hotel budget a Chinese Group, Days In 7 Asia, wood of products. manufacturer an in also made generators. We and industrial motors of manufacturer Italian an Motori, Marelli and company; packaging British investments buyout European inve Notable in region. the investments good on finding record, are focused and track successful long and a Europe, investors in of team have great a We plan. our original than or better with accordance in performing is st it while and value, good we see Europe of recovery slow generally the Despite funds. distressed and growth our buyout across in Europe investments new nine completed wehave 12 months last Europe. the Over from away areturning investors whe time the at precisely companies, size European mid in particularly opportunities excellent been have there that believe and Europe in active particularly have been We 2012. of quarter fourth the in invested term long our with line in funds our carry in billion $9.1 invested wehave months 12 last Over the the quarter. second from $1.3 billion from up billion, $1.9 Th Bill?

ank you, David. Carlyle’s investment pace picked up modestly in the third quarter to a total of total of toa quarter third the in modestly up picked pace investment you, Carlyle’s ank David.

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oriented investments in China including a cornerstone investment in the IPO of Tenwow Tenwow of IPO the in investment cornerstone a including in China investments oriented accrued carry. Our largest hedge funds remain well above their high water marks for water marks high their well above remain funds hedge largest Our carry. accrued

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vestment by our distressed fund in Klenk Holz, a German German a Holz, Klenk in fund byour distressed vestment Alloheim, a German skilled nursing firm; Chesapeake Limited, a Limited, Chesapeake firm; skilled nursing a German Alloheim,

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CallStreet Nov. 6, 2013 6,Nov. Date▲

corrected transcript Adena T. Friedman, Chief Financial Officer, Managing Director Washington, DC Washington, Director Managing Officer, Financial Chief Friedman, T. Adena period. Wit fee our 12 months, last Over the 1. August of as AlpInvest in interest 40% remaining year strong of the impact reflects Fee results. a true through accomplished will be which holders, 85% and 75% between distribute to will expect we policy, our distribution to And reiterate $0.16. at is targeted distribution fixed quarter fourth Our 2013. of quarters three the first for unit per$0.48 common sam the Over earnings. distributable of unit per$1.33 Year $0.32. of per unit earnings distributable pre mentioned David As acqu recent of impact the highlight finally and position, carry on our accrued time some spend results, financial the quarter’s discuss to want I Specifically, position. financial overall and results our about few points will I days, five just in our investorday you, Bill. With Thank Adena. to now turn Let me work. to powder dry our put ability to pro investment of bench deep our and funds recent most the in experience on our and based returns absolute attractive is to generate our job perfect, from we arefar risks. While downside our limiting upon is built model business investment Our ap doing be we should what doing we are prices, right the at assets right the finding of challenges present the Notwithstanding our carr is in which of billion $31 powder, dry in billion $51 efforts. With raising fund 2013 our mentioned already has David is right. price the and arises opportunity the when sell posit liquid large such With our quarter to value in market billion $2 than more added has CommScope, which, of one 2013, of quarter in fourth the public companies two taken already we have portfolio traded publicly the quarter, the of end At the quarter. high a China (13:20) Hotels, Chi [ph] Wan of IPO the through proceeds we realized company; formu infant Yashili, Chinese the a of sale the we closed properties; residential multifamily numerous as Citywell as York New in property a marquee Madison, 650 of sale the we closed s block executed we also SS&C; and Private Boston in our positions of exit were:the final quarter this Notable realizations proceeds. quarter realized the third of 20% contributed i were proceeds these

propriate. - - related earnings for the quarter were $40 million, up 52% compared to the second quarter, and quarter, second to the compared up 52% million, $40 were quarter the for earnings related end hotel chain; and as usual a number of our portfolio companies issued dividends in the dividends issued companies our portfolio of a number usual as and hotel chain; end

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TheCarlyle Group LP h fundraising still running at a robust level, we expect to see ramping management fees fees management see ramping to we expect level, at a robust running still h fundraising

n our corporate private equity business, while real estate and energy each each energy and estate while real business, equity private corporate n our - tax distributable earnings were $105 million, which led to after tax tax after which led to million, $105 were earnings distributable tax ales in a number of companies including Wesco and Allison Transmission; and Transmission; Allison including Wesco companies of alesa number in –

ions, we believe we will be ready to take advantage of opportunities to opportunities of advantage take to bewe ready will webelieve ions, building value across our portfolio and exiting when possible and when possible exiting and our portfolio across value building y funds, we’ve been in the process of reloading our capital. our reloading capital. of process the in ywe’ve been funds, Company▲ - - related earnings are now up 20% compared to the prior 12 month month 12 prior to the compared 20% now up are earnings related to - date fund raising as well as the impact of acquiring of the impact the well as as raising fund date

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keep my comments brief and make a and make brief comments my keep

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corrected transcript David M. Rubenstein, Co Rubenstein, M. David questions. a few take to now pleased we are certainly However, activities pl and firm’s our about information detailed more provide to than call this forum a better will provide occasion reach. That well as global our as firm the of depth and breadth the of sense a fuller with attend believe program that professionals. We investment leading the firm’s of along with many the firm of leadership senior entire the there will and have York New 11 in on November week next day investor our hold wewill you’veheard, you, As Adena. Thank concluding remarks. some for to David over back itwill turn I that with And day. investor at our inYork New week next our business of state color onthe more much providing look to forward We next strategy solution the about Youhear more will segment. solution our out build to wecontinue as beneficial extremely will be we acquired capabilities believe strategic the commitments. We in capital billion $2.6 had 30, Metropolitan September results. with financial alongthe our metrics inAUM its include wewill quarter fourth the in but quarter, this results our financial impact not did Metropolitan end, quarter after occurred acquisi also closed the We investment. our original from not change did carry in interest while our at 100% stands now fees management AlpInvest in interest Our quarter. this our results to earnings related a in resulting AlpInvest, in interest 40% remaining the of acquisition the we completed 1 August on this quarter, investments our strategic to Turning carry. and funds in continue exits profitable as holders unit will benefit which of all2012, sinc 34% up which is now position, carry accrued net resulting the and our portfolio of health the about good very we feel but science, exact isan exits never of timing The periods. future rev cash future robust produce that to is likely firm to asset the is a tremendous balance carry accrued our before, we’ve noted As carry. on accrued pressure downward put otherwise als but carry funds our in appreciation 4% the of because only not grew balance Our quarter. prior the over increase 11% an quarter, this billion $1.6 reached balance carry accrued net our carry, accrued to Moving levels. compensation to ou a slight adjustment wellas as quarter last own we not did AlpInvest 40% of the of addition the reflecting quarter, this million $157 to up moved compensation equity Base and where possible. expenses high sustained the reflecting level, quarter the second below slightly was quarter this in G&A $80 million The position. ownership AlpInvest increased our and Management Energy Capital NGP with partnership past the over raised newin funds billion $23 by driven year’s quarter, last third to compared 20% is up 2013 in quarter third the in million $281 the fees, at wemanagement look If funds. buyout Europe and Asia our as latest such catch short In the capital. raise that to expenses associated with coupled

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ans and will enable us to better respond in detail to your questions. to detail in torespond us better will enable and ans - Chief Executive Officer & Dire & Officer Executive Chief

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corrected transcript QUESTION ANDANSWER SECTION QUESTION managed large get people that Some fairly appropriate. 20% seems view that a general there’s the c of In terms fund. buyout the U.S. big common, what’s of neighborhood that in be will probably our fund years. AndIthink in recent or 50/50 way other the 0/100 days old the in opposed as 80/20 or 100/0 either of dealfee a have to now standard so years the on in recent pressure more has been There on that. pressure less been So there’s respects. some an interest effect in it’s So repaid. or less more are fees those because expe might one as great as been hasn’t that on pressure the fee, theOn management so fee deal is the third the and interest, carried is the a fee, second management is the On the ques second of In terms money. the invest wecould think didn’t we just because cap the increasing without away money turned wehave cases In some them. increase weshould think peri fundraising investment youngerin their arerelatively them of now, many market the in have wecurrently the funds Of it. we did how of kind that’s So invest. we thatto have time of year period five the over this invest can I thi time of period the over but bit, a that above be billion. $11 about We’ll for capital, internal of billion $1 to million $900 about and capital external of billion $10 have we’d kind internal of $1 billion to million $900 but billion, $10 around of initially a target we had VI, Partner Carlyle of case In the invest. wecan we think whatand the market for realistic tha everybody showing them, increase to hope and targets verylow with don’t go out an art. of bit aWe it’s science, it’sa So not beginning. the at expect you might than fund particular Ob money. more invest we can we think if orso 10% by it increase we might a target we set when words other In ultimately. be to going we’re where of or15% 10% say would within I we are generally But decrease. year atwo or take period fundraising the during points At some time. of aperiod over invest we can that is it what carefully very through to go do tend it. invest to We how later out we’ll figure and raise can whatever we’ll raise well to say, tend we don’t words In other time. of period that over to invest our ability weexpect what on is based that is, to raise like we’d level the what of target an internal

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David Rubenstein Rubenstein David Ken Worthington Worthington Ken www.CallStreet.com • • www.CallStreet.com TheCarlyle Group LP

o increase the target size of a fund? You mentioned CP V will be at least $12.9 billion billion $12.9 least at will be V CP mentioned You a fund? of size target the o increase arried interest, there really hasn’t been much pressure on carried interest, but I but interest, on carried pressure much been hasn’t really there arried interest, –

our ability to invest more invest to ability our viously some investors are always interested in putting more into a into in more putting interested always are investors viously some

– of money and we will have that. We’ll have about about have that. will have we andWe’ll money of –

Securities LLC>: JPMorgan od so it’s hard for us to say whether we will need to increase them orwe them increase to need wewill whether to say us for it’s hard od so The Carlyle Gr The tion. There are three types of fees that I think people should focus on. focus should people that I think fees of types are three tion. There t we have such demand. We actually set targets that we think are wethink that actually set targets We demand. such we have t Company▲

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