Krause Fund Research Spring 2020 The Carlyle Group (CG) April 14, 2020 Stock Rating HOLD Financial Services – Alternative Asset Management Analyst Target Price $25 - 27 Justin Koress Krause Fund DCF Model $27 [email protected] Relative P/E Ratio (EPS20) $21 Relative P/B Ratio $25 Investment Thesis Price Data

Current Stock Price $22.68 We recommend a HOLD rating for The Carlyle Group because of its diversified 52Wk Range $15.21 - $34.98 investments within key drivers in the Asset Management industry, such as Key Statistics corporate private equity, with an emphasis to capitalize on the ESG investment Market Cap (B) $7.90 trend. However, CG’s use of leverage will expose them to extreme risks associated Shares Outstanding (M) 348.23 with COVID-19. Five Year Beta 1.77

Current Dividend Yield 4.17% Drivers of Thesis Price/Earnings (TTM) 8.04x Price/Earnings (FY1) 13.98x • With private capital dry powder at a record $2.3 trillion dollars, Profitability alternative managers will be able to create high-quality investments at Profit Margin 35.07% distressed valuations in response to COVID-19. Return on Equity (TTM) 39.88% Return on Assets (TTM) 17.15% • CGs management team has a proven track record in locating Debt to Equity Ratio 365.01% companies that weather economic downturns, providing tremendous investment opportunities in a destabilized market.

25.00 • The alternative asset management business is intensely competitive, with competition based on a variety of factors, including investment 20.00 performance, a record number of private investment funds, and lack of 19.00 20.28 investor liquidity due to COVID-19. 15.00 14.57 10.00 Earnings Estimates 8.01 Year 2017 2018 2019 2020E 2021E 2022E 5.00

EPS $2.58 $0.89 $3.05 $1.62 $1.94 $2.09 0.00 Analyst P/E ROE Estimates — — — $1.55 $1.98 $2.21 Source: Factset

12 Month Performance Company Description Source: Factset The Carlyle Group is a leading global alternative asset management firm that specializes in Corporate Private Equity, Real Assets, Global Credit, and Investment Solutions, and advises on a broad array of specialized investment funds and other investment vehicles that invest in a wide range of industries, geographies, asset classes, and investment strategies1.

1 Industry Analysis be the leading source of revenues among alternatives by that time. Passives/ETFs has taken over $1.3trn of inflows since 2008 in Domestic US equities, while active has seen outflows of Alternative fund managers anticipate a move from 2 over $1trn . This trend is a challenge for active managers CLOs/Loans, Distressed Debt and Private Real Estate into trying to compete for assets. The Asset manager space is as ESG/Impact Investing and (private market) Infrastructure. competitive as ever, causing declines in fee margins and Millennials are the driving force for this sustainable capital to flow towards the largest fund managers. Some movement. The increasing importance of ESG investments managers have responded by restructuring fee schedules, that these individuals as a group are driving this strong shutting down underperforming funds, and launching new momentum. ESG investments are those that meet certain 5 products . Over the past 15 years, the popularity of active ethical and sustainability standards. According to a recent core assets has declined significantly. Although a lot of the Morgan Stanley survey, 84% of Millennials cite investing money has flowed out of active assets into passive assets, with a focus on ESG impact as a central goal3. Millennial this has benefited only a handful of asset managers. growth will drive innovation in the industry and be a Companies with deep industry expertise and diversified significant factor in future AUM growth. Figure 1 depicts management teams are better prepared for the future in increasing inflows from into ESG assets aiming to create a today’s environment. From an AUM perspective, solutions positive impact without impacting returns. ESG inflows are and passive investments have been the fastest growing on pace for upwards of $16 Billion even with investor product category over the past 10 years. Growth in assets uncertainty due to COVID-19. under management is a primary driver of revenue gains for the asset management industry. The asset management industry includes Traditional Asset Managers, Alternative Asset Managers and Discount Brokers.

Key Industry Drivers

China is becoming very important for asset management firms, ahead of Europe, attracting more flows than the US over the next decade.

Asset managers increasing targeting towards millennials with ESG/SRI (Socially Responsible Investing), communicating the importance of stewardship and governance, including the positive impact this has on society. Millennials are twice as likely to purchase from a Figure 1: Source 3 brand because of the company’s social and/or Amid a slowing global economy and geopolitical environmental impact millennials are showing strong uncertainty, the alternative assets industry has continued to interest in sustainable investing with 84% of Millennial 2 grow. Figure 2 shows private asset class AUM increasing to investors are interested in sustainable investing . record highs of $6.7tn in the six major alternative asset classes as investors poured capital into alternatives Active management must continue to make its case against searching for yield. Even with uncomfortably high asset passive solutions and alternative investments (especially prices at this time last year, investors are maintaining their private assets). faith with alternatives.

We see two key revenue pools driving AUM growth in the future: (1) Asia, specifically EM/China and (2) alternatives

We believe alternative asset managers are better positioned for the future because of alpha opportunities in private markets. With Private Capital dry powder at a record $2.3 trillion dollars4, managers will be able to create highly- structured investments at distressed valuations in response to COVID-19. We believe overall AUM for alternatives will accelerate and keep its title as the fastest growing segment. We expect that strong performance to continue, with the result that alternatives will widen their lead as the largest source of the industry’s revenue by 2023. Private equity, already a major and fast-growing investment vehicle, will Figure 2: Source 4

2 The global economic shockwaves caused by the COVID- 19 pandemic will cause disruptions on alternative asset management firms who rely on excessive leverage. FY 2020 will be a very difficult year for alternative investments, but managers will be able to invest heavily into distressed areas of the economy at low valuations. Institutional investors have increased allocations to alternatives in lieu of lower correlations to other asset classes. Over 12,000 institutional investors allocate funds into at least one private capital asset class4.

Current Private Market Landscape Figure 4: Source 4 Early Signs of Contraction Dry Powder Early signs of contraction were shown in Asia already. Everybody is looking to China’s recovery efforts because it The record $2.3 trillion dollars of dry powder is causing was the first country to get hit with the virus. The rest of the deal volumes to drop. Managers have $2.6 trillion globally world is on its hind foot and psychological scars of the in cash or other marketable securities willing to invest in crisis will make a quick recovery difficult. The effects distressed assets at extremely low valuations following COVID-19 had on Asia will be indicative of what is to COVID-19. This will allow companies to come to market come in North America. Private markets have seen the and strike deals at a rapid pace. fewest number of funds closed since Q1 2012 and the worst quarter of Asia-focused fundraising in 7 years4.

Declines in Fundraising

The start of 2020 was met with headwinds for the global economy as it faced the fallout from the COVID-19 pandemic. Both the number of funds and amount of capital raised fell compared with Q4 2019 by 32% and 29% respectively. Total capital inflows in the private equity space is consistent with the overall market.

Figure 5: Source 4

Real Asset Illiquidity Concerns

The real assets industry is showing weakness as global recession fears continue to grow. Real estate fundraising levels declined over the first quarter of 2020 drastically. Deal activity has also declined across all property sectors and regions. Private real estate fundraising declined even further in the first quarter of 2020. Total capital raised was just $18 billion, while these figures should rise as more data becomes available, the totals are far from Q1 2019, when capital raised totaled $51billion. Deal activity fell below the recent quarterly average. In total, 1,797 deals Figure 3: Source 6 were completed globally for a total value of $73 billion.

This compares with 2,417 deals for a combined value of Increased Fund Competition $101bn in Q1 20197. Global real estate’s recent run of underwhelming performance is likely to continue in 2020 The number of private equity funds in the market stands at on lower deal volume and fundraising. Deal activity has 3,620 globally with so many firms in search of capital. This declined significantly because of the increasing need for makes it an increasingly competitive fundraising liquidity. Liquid investments are at a premium in this environment. There is a record number of total funds in the current marketplace, forcing extreme outflows in real estate market, standing at 5,300 funds targeting $1.6 trillion in funds. Illiquid investments are taking the most beating as 6 assets . investors flock to safer, liquid assets.

3 2019 Total AUM by Segment

45.2 B 20.16% 86.4 B 38.54%

49.1 B 21.90%

43.4 B 19.36%

Corporate Private Equity Real Assets

Figure 6: Source 7 Global Credit Investment Solutions Private Debt Figure 7: Source 10: Carlyle 12.31 Supplement

Private debt fundraising was also lackluster during the first Corporate Private Equity is a multi-fund, industry and quarter of 2020. The market is more crowded than before geographic platform with $86 billion in assets under 8 with 457 private debt funds, up from 261 in 2015 . The management. CG’s CPE segment invests in a diverse group of massive liquidity freeze is causing discomfort in the debt active funds that invest in transactions that focus either on a markets for managers. Private debt investors are geography or an industry. Carlyle’s Real Assets segment rebalancing their portfolios to maintain allocation targets consists of global real estate, infrastructure, and energy and and adequate liquidity. Private debt funds are also facing natural resources with $43 billion in AUM. The Global Credit extreme competition with 457 funds globally seeking a segment is a source of creative financing solutions to combined $201 billion. borrowers to meet their capital needs with approximately $49 billion in AUM. Investment Solutions include primary, Energy Investments secondary and co-investments, and separately managed accounts with $45 billion in AUM. An interesting dynamic in energy is the investment opportunity. There are a lot of strong traditional energy, The Carlyle Group Fundraising Efforts and oil and gas companies with low entry prices and high cash flow. With crude oil below $20 a barrel, private The Carlyle Group’s fundraising efforts begin with companies are looking to invest in distressed energy marketing an investment opportunity and acquiring companies. Private funds with investments in energy and qualified investors. Institutional and retail investors provide oilfield services will see extreme depreciation in fund capital for CG and other alternative asset management performance. firms to allocate capital to new and existing funds. Fundraising increases committed capital, which leads to an Company Analysis increase in total AUM and Fee Earning AUM. It is a The Carlyle Group operates its businesses across four worrying sign to a see decrease in fundraising the past three fiscal years in a healthy fundraising environment. segments: Corporate Private Equity, Real Assets, Global Credit, and Investment Solutions. Total assets under management of $224 billion on December 31, 2019, were spread across 374 The chart shown below shows CG’s fundraising efforts for different investment vehicles5. CG’s goal is to invest wisely FY 2015-2019: Source 10 and create value for investors by generating superior Cumulative Fundraising (Billions) investment returns throughout an investment lifecycle. They advise on an array of specialized investment funds and other 50 43.3 investment vehicles that invest across the spectrum of private 40 33.1 capital asset classes, including private equity, credit, energy 30 19.3 and power, real estate, and infrastructure. 20 16.4 10 8.2 CG’s investment platform is divided into four business 0 segments: 2015 2016 2017 2018 2019 • Corporate Private Equity • Real Assets Corporate Private Equity Real Assets • Global Credit Global Credit Investment Solutions • Investment Solutions 4 We are forecasting CG’s fundraising to increase slightly to allocation to ESG investment vehicles. Following the end of $20 billion in 2020. Looking midterm, CG is expecting 2020, we see investors looking for distressed sectors like multi-year fundraising campaign taking place in late 2021 energy to invest in. We also are seeing investors nibbling that will likely uplift fundraising 20-25%. capital into sustainable investing like never before, leading to an increase in AUM of 4% per year starting in 2021E.

AUM Growth Real Assets Total AUM (Thousands)

Fundraising and fund appreciation are the two main 60,000 variables that affect the change in AUM from year-to-year. 50,163 50,000 Fundraising supports growth in the business by increasing 40,000 committed capital to funds, which leads to an increase in 41,230 total AUM. Fundraising has fallen from $43.3 Billion in 30,000 2017 all the way to $19.3 in 2019. It is a worrying sign to a see decrease in fundraising the past three fiscal years. With 20,000 fund managers holding record amounts of dry powder, 10,000 fundraising will likely fall for a third straight year. We are 0 assuming that The Market volatility in 2020 will adversely affect fundraising efforts.

We predict a depreciation in Corporate Private Equity (CPE) Figure 9: Source 10: 12.31 Financial Supplement funds in 2020. The COVID-19 induced recession will depreciate the fair value of investments leading to a Thanks to the low interest rates and abundant liquidity, we believe global credit funds will see a slight increase in decrease in AUM of 5% in 2020. We also predict strong investor demand to continue within the Private Equity AUM because investors are searching for yield. Today’s liquidity freeze in the public debt market will likely offer space leading to an increase in AUM of 7% for every year after 2020. inflows to distressed credit managers. Providing liquidity to managers to purchase distressed debt and restructure, has Corporate Private Equity Total AUM (Millions) historically offered investors equity-like returns within the fixed-income credit space. Spreads on collateralized loan 120,000 109,842 obligations trading in the secondary market gapped out this 100,000 March and new issues linger as coronavirus jitters rattled the CLO market. Loans and structured credit totals more 80,000 82,080 than $27 billion in AUM comprised in the Global Credit 60,000 segment. With limited liquidity in the CLO market, CG’s 40,000 CLO funds will likely depreciate. CLO secondary spreads 20,000 widened by as much as 50 to 75 basis points in single-A to BB tranches7. We see an increase in AUM of 2% in 2020, 0 (Falling from 11% in FY 2019) and then an increase of 5% each year after that because of the lack of yield in the bond market. Figure 8: Source 10: Carlyle 12.31 Supplement Global Credit Total AUM (Thousands)

Additionally, we are forecasting a decrease in AUM of 5% 70,000 63,919 this year because investors are currently searching for 60,000 liquidity and real assets are currently incurring a 50,000 50,082 depreciation in value. Deal activity declining dramatically 40,000 across all property sectors and regions has a drastic effect 30,000 on CG’s Real Asset Segment. The energy section focuses on buyouts, growth capital investments and strategic joint 20,000 ventures in the midstream, upstream, energy and oilfield 10,000 services sectors around the world. Energy investments 0 make up 25% of Real Asset AUM and with energy taking a beating this year, we see these investments decreasing significantly. The new renewable and sustainable energy strategy launched in 2019 will provide a steady increase in Figure 10: Source 10: Carlyle 12.31 Financial Supplement AUM for the years to come because of investors increasing

5 We see a great opportunity to provide liquidity to investors associated funds’ underlying investments measured at their looking to get out of illiquid assets. These investments are then current fair values relative to the fair values as of the trading at a high premium for today’s investors that are end of the prior period1. Our model is pricing in a decrease willing to pay for liquidity. Historically, secondary and co- in performance allocations of 25% caused by a investment private equity strategies have done a good job depreciation in carry fund performance and a steady of outpacing US large caps in normal times. We suspect increase of 8% after FY 2020. This increase in carried that at current market levels the alpha opportunity will interest is in unison with the increase in total investments entice new investors more than average. We are predicting managed by The Carlyle Group. We are also assuming that a decrease of 1% in AUM in FY 2020 mostly caused by the Company is entitled to a 20% allocation of the net fund depreciation, and an increase of 2.5% every year after realized income or gain as a carried interest on 2020E. performance-based allocations from limited partners. Finally, “All other Revenues” is interest income that is Investment Solutions Total AUM (Thousands) recognized when earned. We are forecasting interest 60,000 income to stay constant at 97.3 Million per year. 50,628

40,000 44,748

20,000

0

Figure 11: Source 10: Carlyle 12.31 Financial Supplement

Revenue Analysis Figure 12: Source 10: Carlyle 12.31 Financial Supplement

Figure 12 shows sources of revenue as a percent of total Peer Comparisons revenue. Fund management fees include management fees and transaction and portfolio advisory fees. CG earns management fees for advisory services provided to funds Alternative Asset Management and these fees are generated as a percentage of total AUM. We are projecting the fund management fees expense ratio The top 4 Alternative Asset Management firms by global to be 0.653% of total AUM in 2020E. Total expense ratio AUM are depicted in the following table: will steadily increase by 0.02% every year because we are *As of Q4 2019 forecasting CPE AUM growth to be the strongest of the four segments from 2021E - 2025E. CPE has the highest expense 2019 Total AUM ratio of 0.83% of AUM driving an overall increase in fund Company Name Ticker (Billion) management fees. Incentive fees consist of performance- based incentive arrangements pursuant to management contracts, primarily from certain Global Credit funds, when Blackstone Group BX $571.1 the return on assets under management exceeds certain 1 benchmark returns or other performance targets . We Apollo Global forecast Incentive fees to stay at an average of 6.5% of Management APO $331.1 Global Credit AUM. ≈ Investment Income is realized and unrealized gains and losses resulting from equity method investments and other principal investments. We are The Carlyle Group CG $224.1 forecasting investment income to decrease to 7% of total investments in 2020E and increase to 10% year-over-year. KKR & Co. KKR $218 Performance Allocations, also known as “carried interest” consist of the performance-based capital allocation from Table 1(Source 13,14,16) fund limited partners from certain of CG’s investment Blackstone Inc. (BX) engages in the provision of investment funds, referred to as the “carry funds11.” The amount of and fund management services. It operates through the carried interest recognized as performance allocations following segments: Private Equity, Real Estate, Hedge reflects CG’s share of the fair value gains and losses of the Fund Solutions, and Credit1.

6 The chart below shows the 5 year CAGR of AUM growth Apollo Global Management (APO) engages in the provision between CG and its competitors. Growth in assets under of alternative investment management services. It operates management, coupled with the mix of those assets is a through the following segments: Credit, Private Equity, and primary driver of revenue gains for the asset management Real Assets1. industry2. AUM growth shows the ability to fundraise capital and measures fund appreciation. Fund performance KKR & Co. (KKR) provides investment and private equity represents an important and sustainable competitive asset management services. It manages investments across advantage for industry participants. AUM growth relative to multiple asset classes includes private equity, energy, its peers is an important valuation driver. infrastructure, real estate, credit and hedge funds1.

These firms have similar investment philosophies as The 5 Year AUM Growth (CAGR) Carlyle Group. They all manage investments across multiple asset classes including private equity, energy, 20% 17.50% infrastructure, real estate, and credit. 14.72% 15% 13.20% These firms earn advisory or management fees for investing and managing the assets of their clients; the fees are typically calculated based on average AUM on a monthly 10% or a quarterly basis. 5.26% 5% The composition of AUM can indicate a company’s asset diversification and potential earnings volatility. Table 2 0% shown below depicts the composition AUM composition CG BX KKR APO of CG and its three major competitors. Figure 13 (Source 10,13,14,16) AUM Composition (Billions)

Private Real Apollo Global Management has shown the strongest AUM Equity Assets Credit Investment Solutions growth the past five fiscal years. They have been able to grow their AUM at a strong pace, mainly focused on credit BX 182.89 163.16 144.34 80.74 markets. Apollo has benefited from strong investment performance and organic growth in funds. It is a worrying APO 76.79 38.79 215.53 N/A sign that CG has shown lackluster growth in comparison. CG’s lack of fundraising the past three years has had a CG 86.4 43.4 49.1 45.2 negative effect on AUM growth.

KKR 111.6 25.73 38.13 42.54 Table 2 (Source 13,14,15) Revenue to AUM is an important valuation metric for asset managers. This ratio looks at total revenue divided by its Blackstone Inc. (BX) offers the most efficient diversification AUM. The ratio of revenue to AUM is a good metric to by business segment in the space. The three largest assess the profitability of a firm compared to the broader segments among the alternative asset management space industry. Investors should be aware that AUM ratios are a are equally diversified than their competitors. Apollo benchmarking tool for firms that collect fee-generating Global Management (APO) is overweight credit and with AUM. structures across most asset classes have continued global liquidity concerns, APO is potentially heading to come under pressure. While passive investment fees towards extreme earnings volatility depending on how have decreased quicker, actively managed fund fees are at credit markets are affected by COVID-19. With investors a standstill with record competition in the space. Figure 14 searching for yield, APO will most likely become more shown on the following page shows the comparison of overweight credit in the next two fiscal years. CG is the Revenue/AUM ratios for CG. second most diversified company amongst its competitors, only showing an overweight to the largest private investment vehicle, Private Equity. CG’s efficient diversification in real assets, credit, and investment solutions will diminish potential earnings volatility.

7 Economic Outlook Revenue/AUM Ratio Federal Funds Rate 2.0% 1.9%

1.6% 1.5% The federal funds rate refers to the interest rate that 1.3% depository institutions charge each other for lending them 1.2% money from their reserve balances on an overnight basis1. 0.9% The rate is the benchmark for all short-term interest rates. 0.8% The federal reserve meets eight times a year to set the federal funds rate based on key economic indicators. 2019 0.4% was an adventurous year for the federal reserve. We saw the FOMC cut interest rates three times; bringing the target 0.0% APO BX CG KKR rate to 1.50-1.75. The first FOMC meeting of the year was held on January 29th and there was a unanimous vote to Figure 14: FactSet hold the federal funds rate between 1.5 and 1.75. After the first meeting of the year, the economy came to a sudden KKR Inc. is able to efficiently use its total AUM to extract stop. The spread of the Coronavirus has caused the Fed to the most revenue. With fee competition emerging in the stabilize financial markets. However, the coronavirus alternative space, KKR has allocated its AUM most posed evolving risks to economic activity. The FOMC effectively to maximize revenue. APO carries the lowest decided on March 3rd, 2020 to lower the target range for ratio because of its overweight allocation to lower expense the federal funds rate by 1/2 percentage point, to 1.00 to ratio segments like credit. 1.25 percent20. The virus spread around the world and finally caused the United States economy to halt. Then, on The ratio of price to earnings in the Asset Management March 15th, The Federal Reserve announced it was cutting industry is worth evaluating to see future growth interest rates by a full percentage point to near zero, and expectations in the eyes of investors. Alternative Asset relaunched its bond-buyback program to battle market Management companies tend to carry lower than industry uncertainty in the wake of the global coronavirus average P/E ratios because future earnings are unknown pandemic21. and variable. Investors dislike uncertainty and are not willing to pay high multiples. Figure 15 below depicts current P/E ratios of the four main alternative managers.

P/E Ratio (TTM)

18 16.5 15

12 10.5

9 8.04 6.8 6 Figure 16, Source 19: (10 Year Treasury YTM, Source: Fred 3 Low bond yields have investors yield-hungry. Passive 0 investment firms are dealing with extremely low yields and KKR CG APO BX have decisions to make on if bond funds are worth the investment at these levels. With the inflation rate above the Figure 15: Source 1 10 Year Treasury Yield, bonds are trading at negative real interest rates. Private debt markets provide yield unlike the The benchmark P/E ratio in the asset management industry current public debt market. Bond yields will have a hard currently stands at 14.57x. Blackstone Inc. is the only time going much lower, placing pressure on Traditional company that holds a P/E ratio above the industry average. Asset Management firms to hunt for yield. Low yields Investors are pricing in BX’s growth to outperform the benefit alternatives because alternative strategies offer industry in the future. CG’s P/E ratio is undervalued investors highly-structured debt investments. compared to industry expectations. This figure is showing us that the current stock price of CG is low relative to With the U.S. economy entering a recession, we are earnings. expecting the federal funds rate to stay steady around 0- 0.25 Bsp in the next two years.

8 Gross Domestic Product (GDP) Investment Positives

Gross Domestic Product (GDP) is the total monetary or • The Private capital industry is stronger than ever market value of all the finished goods and services with $6.7 trillion AUM globally, while continuously produced within a country's borders in a specific time outperforming public markets since 2000. period22. It is based on several factors, including: consumer spending, government spending, investments, and net exports. Consumer spending is the biggest contributor, • With capital flowing towards the largest managers, representing more than two-thirds of the U.S. GDP. In The Carlyle Group is set to receive sustainable 2019, the GDP growth was 2.3%, down from a 2.9% amounts of capital to keep growing AUM. growth rate in 2018. 2020 was off to a quiet start and GDP growth was looking steady. Suddenly, the spread of the COVID-19 outbreak placed the economy into a sudden • CG has had a track record of being able to find stop. Goldman Sachs dramatically cut its US economic companies that weather economic downturns well forecast and is now expecting gross domestic product to as the economy is bound to deteriorate due to decline by 24% in the second quarter of 2020 because of COVID-19 providing tremendous investment the coronavirus pandemic. A drop of that size would be a opportunities. record, nearly 2 1/2 times the 10% drop seen in 195823. The spread of the Coronavirus has eliminated face-to face service industries and major contraction in manufacturing. • Strong Infrastructure platform committed to Figure 17 shown below is done by the St. Louis Fed’s sustainability with the launch of a new renewable Economic News Index and uses economic content from energy strategy with an emphasis to capitalize on key monthly economic data releases to forecast the growth trends in ESG investments that will drive future of real GDP during the current quarter. growth. Investment Negatives

• CG’s income taxes in periods following the conversion that took place on January 1, 2020 will be greater than in periods prior to the Conversion because all income before the provision for income taxes will be subject to U.S. federal (and state and local) corporate income taxes.

• CG’s use of leverage will expose them to extreme risks associated with COVID-19. CG uses debt to Figure 17, Source 25: (St. Louis Fed Economic News Index: finance business operations, which exposes CG to Real GDP, Source: Fred) the risks associated with using leverage. CG is dependent on financial institutions extending credit This GDP contraction will have deep affects among general on reasonable terms to finance their business. commercial activity and the and financial markets of many countries. The current financial condition has an immense impact on the investments made by Asset Management • The alternative asset management space is intensely firms. These factors may affect the level and volatility of competitive, with competition based on investment securities prices and the liquidity of investments in performance, business relationships, quality of manager portfolios. The Alternative Asset Management service provided to investors, and increasing industry is increasingly exposed to risks because portfolio number of funds in the market. companies that they own will be operationally challenged and they have limited control over the day-to-day operations. • Revenue, earnings and cash flow are variable. Cash flow fluctuates because CG receives carried interest We are expecting U.S GDP growth in 2020 to fall by 5% from their carry funds only when investments are after declining 15% YOY in Q2. After the end of the fiscal realized and achieve a certain preferred return. This year, the US economy will start its recovery and increase causes a lot of uncertainty around future earnings towards its historical average growth. In our model, we are and cash flow. forecasting GDP growth closer to its historical average at 3.05% starting in 2025.

9 Valuation controlling holders, lowering the effective tax rate. Following the conversion, there are no non-controlling Value Drivers interest holders in the company.

The valuation model for this analysis considers a six-year As discussed above, we forecasted revenue based on time horizon from 2020 through 2025. historical AUM growth. Fund management fees were directly tied to total AUM as an average historical expense Assumptions ratio. Since each business segment charges a different expense ratio, we had to multiply each segment’s expense ratio by the percentage of total AUM and add them up to Risk-Free Rate get a total expense ratio for each year. Since these segments grow at different rates, we used historical growth The risk-free rate was based on the yield-to-maturity of 10- rates to forecast each segment’s change in AUM based on year treasury bond. As of 4/14/20 the risk-free rate was assumptions discussed above on page 5 and 6 of the 0.70%. report. We decided “revenue from consolidated entities” should not be considered “operating” because these Equity-Risk Premium investments mostly contain loans. We assume debt to be non-operating, therefore we did not include this revenue as The model also assumes an equity-risk premium of 6.16% “operating”. We subtracted this line item from total which is based on NYU Professor Damodoran’s implied revenue and adjusted the taxes on our NOPLAT risk premium as of 4/1/20. calculation. The rest of the revenue decomposition analysis is shown on page 6 of the report. Cost of Debt

The cost of debt of 4.25% is the yield-to-maturity on Over time, operating expenses did not show consistency as Carlyle Group’s 2029 corporate bond on 4/14/20. a percentage of total revenue. Cash-based compensation and benefits include salaries to employees, so we forecasted a growth rate in headcount at 3% annually. Beta Equity-based compensation is an expense relating to the issuance of equity-based awards to Carlyle employees and CG’s beta estimate of 1.77 was determined by using 2,3,4, we forecasted this to be historically lower because Carlyle and 5-year weekly data from Damodaran.com. plans to grant fewer equity awards to employees than they had previously. In the performance allocations and Marginal Tax Rate incentive fee related compensation account we used the total performance allocation number from our revenue The marginal tax rate of 26% used in the model was based decomposition and took a historical average of 51.84% of on historical tax rates incurred by The Carlyle Group in the compensation expense. General, administrative and other past. expenses we forecasted as a historical percentage of revenue because it was showing consistency. Depreciation Net Fixed Assets and amortization was included in the G&A expense account, so we had to calculate the value and subtract it We forecasted net fixed assets by forecasting depreciation from the account. Expenses from consolidated funds are expenses and gross fixed assets first. In our model, we interest expenses related to investments in consolidated depreciated CG’s gross PPE by a historical average funds and showed consistency as a percentage of “revenue depreciation rate of 36.36 %. As for capital expenditures, from consolidated entities” Finally, “Interest and other non- we assumed a historical average of 27.8 million. operating expenses” are treated as non-operating expenses on the final NOPLAT calculation. Our provision for income taxes was based on a historical marginal tax rate because Dividend Payment after CG’s conversion to a corporation on 1/1/20, there is no income passed through to common unitholders and We forecasted a fixed dividend of 1$ per share of common non-controlling interest holders. The limited partners of the stock on the Income Statement because CG adapted a new Carlyle Holdings partnerships exchanged their Carlyle fixed dividend policy in connection with the conversion. partnership units for an equivalent number of shares of common stock of The Carlyle Group Inc. as part of the Common Stock Outstanding Conversion. Before the conversion, CG’s effective tax rate was much lower than it will be after the conversion. We Additionally, we forecast a constant amount of common are assuming the effective tax rate to be 25% in our stock outstanding because CG does not have a ESOP plan. models. Before the conversion, the effective tax rate CG provides an equity incentive plan for its employees, but averaged 7% because income was passed through to non- they use restricted stock units which is an actual grant of

10 shares to the employees. At the time the shares were 2020E Change in Performance Allocations Vs. granted, they already show up on the balance sheet and Total Investment Income income statement as shares outstanding. Common units have increased in past years from acquisitions and the As discussed on page 6 of the report, the model is pricing vesting of unvested common units, which is implausible to in a 25% decrease in performance allocations for the 2020 forecast. fiscal year caused by a depreciation in carry fund performance. CG We sensitivity tested the change in Sensitivity Analysis performance allocations due to COVID-19 Vs. total investment income. Performance allocations historically The models were sensitivity tested and the results are represent roughly 30% of total revenue and 2020 carry shown on pages 13 and 14 of the report. fund performance will have a drastic effect on CG’s future stock price. CV ROIC Vs. WACC Beta Vs. CV Growth Rate The weighted average cost of capital (WACC) of CG has a major effect on the final stock price. A 1% decrease in the The CV growth rate is an important assumption in our WACC increases the stock price by roughly 40%. The model. We chose to sensitivity test the assumption that real WACC is a very sensitive variable that is a measure of a GDP growth will sustain 3.05% in our CV year company’s capital structure. CG’s capital structure is calculations. The results were expected, showing us a slight 52.40% equity and 47.60% debt as of 4/14/20. The return increase in final stock price with a higher growth rate. on invested capital (ROIC) had a less effect on the final Additionally, we tested a .10 fluctuation in the beta. As price, but was adjusted by 2% to test the different expected, the closer CG becomes correlated to the market, fluctuations. the model calculated a higher final stock price.

CV ROE Vs. CV Cost of Equity Pre-tax Cost of Debt Vs. Risk-Free Rate

The return on equity and cost of equity are two important The pre-tax cost of debt and the risk-free rate are tested to variables that create fluctuations in the CV P/E ratio for the see the models sensitivity to after-tax of debt. We dividend discount model calculation. The cost of equity fluctuated the risk-free rate by 0.10% and the pre-tax cost had more of an effect on the final price because it is very of debt by 1%. The sensitivity of both these variables were sensitive to changes in the equity risk premium. Cost of similar because they are both used to calculate after-tax equity is calculated by using an ERP and risk-free rate cost of debt. If the risk-free rate were to fall closer to 0, assumption while using the company’s beta. CG has a high CG’s stock price would benefit. CG’s high debt levels used cost of equity at 11.60% due to its weekly beta of 1.77 and to finance the business is an important assumption in the the current environments ERP of 6.16%. The cost of equity model and it was beneficial to see how the stock price is adjusted by 1% to show how the final stock price would would be effected by these fluctuations. react.

Total AUM Growth Vs. Total Expense Ratio

Total AUM growth Vs. total expense ratio measures the models sensitivity to changes in key revenue drivers. As discussed throughout the report, AUM is used to calculate fund management fees and performance allocations. Fund management fees is calculated by multiplying total AUM and total expense ratio. As expected, higher AUM growth and a higher expense ratio leads to more revenue, driving the stock price higher. Total AUM growth is more sensitive because it is tied directly to key revenue accounts. Total AUM growth is adjusted by 1% and total expense ratio is adjusted by 0.02% to show fluctuations in the final stock price.

11 References Important Disclaimer 1. FactSet Research Systems 2. Morgan Stanley Financials Primer May 2019 This report was created by a student enrolled in the 3. Bloomberg Asset Management Outlook to 2025 Applied Equity Evaluation (Fin:4250) class at the (March 20, 2019) University of Iowa. The report was originally created to 4. PREQIN Investor Outlook: Alternative Assets H1 offer an internal investment recommendation for the 2020 (April 15, 2020) University of Iowa Krause Fund and its advisory board. 5. BCG, Global Asset Management 2019 (April The report also provides potential employers and other 16,2020) interested parties an example of the students’ skills, 6. PREQIN Quarterly Update: Private Equity and knowledge and abilities. Members of the Krause Fund are Venture Capital Q1 2020 (April 16, 2020) not registered investment advisors, brokers or officially 7. PREQIN Quarterly Update: Real Estate Q1 2020 licensed financial professionals. The investment advice (April 16, 2020) contained in this report does not represent an offer or 8. PREQIN Quarterly Update: Private Debt Q1 2020 solicitation to buy or sell any of the securities mentioned. (April 16, 2020) Unless otherwise noted, facts and figures included in this 9. Carlyle Group 10-Q3 2019 report are from publicly available sources. This report is 10. Carlyle Group 12.31 Financial Supplement not a complete compilation of data, and its accuracy is 11. Carlyle Group 10-K 2015-2019 not guaranteed. From time to time, the University of Iowa, 12. Bloomberg.com (April 4, 2020) (CLO Returns its faculty, staff, students, or the Krause Fund may hold a Drop Below Zero, New Deals Dry Up as financial interest in the companies mentioned in this Buyers Rattled) report.

13. Blackstone Financial Supplement 2019 (March 12- April 15,2020) 14. Apollo Global Management 10k 2016-2019 15. Apollo Global Management Financial Supplement 2019 (April 8,2020) 16. KKR & Co. Inc. 10k 2015-2019 17. Blackstone Inc. 10k 2015-2019 18. KKR & CO Inc. Financial Supplement 2019 (April 11,2020) 19. ‘Fred’ Figure 16 (April 2,2020) (https://fred.stlouisfed.org/series/DFF#0) 20. Federal Reserve FOMC Statement (March 3, 2020) (https://www.federalreserve.gov/newsevents/pressrel eases/monetary20200303a.htm) 21. Fed Announces Second Emergency Rate Cut (March 16,2020) (https://news.yahoo.com/fed-announces- unprecedented-second-emergency- 112538693.html) 22. Investopedia (April 14,2020) (https://www.investopedia.com/terms/g/gdp.asp) 23. Goldman Sachs US GDP shrinkage (March 20,2020) (https://markets.businessinsider.com/news/stocks/us- gdp-drop-record-2q-amid-coronavirus-recession- goldman-sachs-2020-3-1029018308) 24. Damodaran Online (http://pages.stern.nyu.edu/~adamodar/) 25. ‘Fred’ Figure 17 (April 10,2020) (https://fred.stlouisfed.org/series/STLENI)

12 11 Sensitivity Tables The Carlyle Group Key Assumptions of Valuation Model

CV ROIC (DCF) $27.47 5.00% 7.50% 10.00% 13.62% 15.00% 17.00% 19.00% 6.00% $22.69 $35.28 $41.57 $46.59 $47.87 $49.35 $50.52 6.50% $18.66 $29.17 $34.43 $38.62 $39.69 $40.93 $41.90 7.00% $15.65 $24.62 $29.11 $32.68 $33.59 $34.65 $35.48 WACC 7.58% $13.01 $20.62 $24.43 $27.47 $28.24 $29.14 $29.85 8.00% $11.46 $18.29 $21.71 $24.43 $25.13 $25.93 $26.56 9.00% $8.68 $14.11 $16.82 $18.98 $19.53 $20.17 $20.68 9.50% $7.61 $12.50 $14.95 $16.90 $17.40 $17.97 $18.43

CV ROE (DDM) $18.34 10.00% 12.00% 14.00% 17.79% 18.50% 21.00% 24.00% 8.00% $28.77 $30.58 $31.87 $33.52 $33.75 $34.45 $35.10 9.00% $23.64 $25.09 $26.12 $27.43 $27.62 $28.17 $28.69 10.00% $20.01 $21.19 $22.04 $23.12 $23.27 $23.73 $24.15 CV Cost of 11.60% $15.98 $16.88 $17.52 $18.34 $18.46 $18.80 $19.12 Equity 12.50% $14.34 $15.12 $15.68 $16.39 $16.49 $16.79 $17.07 13.50% $12.84 $13.52 $14.00 $14.62 $14.71 $14.97 $15.22 14.50% $11.61 $12.21 $12.63 $13.17 $13.25 $13.48 $13.69

Total AUM Growth (6 Year CAGR: 2020E-2025E) $27.47 0.00% 1.50% 2.50% 3.44% 4.50% 5.50% 6.50% 0.59% $17.62 $19.81 $21.36 $22.91 $24.73 $26.49 $28.41 0.61% $18.55 $20.82 $22.42 $24.02 $25.91 $27.77 $29.72 Total 0.63% $19.47 $21.82 $23.48 $25.13 $27.08 $29.01 $31.02 Expense 0.659% $20.83 $23.29 $25.03 $27.47 $28.80 $30.81 $32.92 Ratio 0.68% $21.79 $24.33 $26.12 $27.91 $30.02 $32.10 $34.28 0.70% $22.72 $25.34 $27.18 $29.02 $31.20 $33.34 $35.58 0.72% $23.65 $26.34 $28.24 $30.14 $32.37 $34.57 $36.88

13 12 2020E Change in Performance Allocations (Due to COVID-19) $27.47 -40.00% -35.00% -30.00% -25.00% -15.00% -5.00% 5.00% 1.00% $15.66 $15.64 $17.02 $18.43 $21.17 $23.94 $26.70 3.00% $16.63 $18.01 $19.39 $20.80 $23.54 $26.31 $29.07 5.00% $19.00 $20.38 $21.76 $23.17 $25.91 $28.68 $31.44 Investment 7.00% $22.34 $23.73 $25.11 $27.47 $29.26 $32.02 $34.79 Income 10.00% $24.92 $26.30 $27.69 $29.09 $31.83 $34.60 $37.36 12.00% $27.29 $28.67 $30.05 $31.46 $34.20 $36.97 $39.73 14.00% $29.66 $31.04 $32.42 $33.83 $36.57 $39.34 $42.10

Beta $27.47 1.40 1.50 1.60 1.77 1.85 1.95 2.05 2.70% $37.32 $33.68 $30.59 $26.28 $24.57 $22.66 $20.97 2.80% $38.04 $34.25 $31.05 $26.60 $24.85 $22.89 $21.16 2.90% $38.80 $34.86 $31.53 $26.94 $25.13 $23.13 $21.35 CV Growth 3.05% $40.02 $35.82 $32.30 $27.47 $25.59 $23.50 $21.66 Rate 3.20% $41.36 $36.86 $33.13 $28.04 $26.07 $23.89 $21.98 3.40% $43.36 $38.40 $34.33 $28.86 $26.76 $24.45 $22.44 3.60% $45.64 $40.14 $35.68 $29.77 $27.52 $25.07 $22.94

Pre-Tax Cost of Debt $27.47 1.50% 2.50% 3.50% 4.25% 5.50% 6.50% 7.50% 0.00% $41.92 $37.06 $33.09 $30.56 $26.99 $24.60 $22.52 0.30% $39.59 $35.17 $31.52 $29.17 $25.85 $23.61 $21.66 0.50% $38.16 $33.99 $30.53 $28.30 $25.13 $22.99 $21.12 Risk-Free 0.70% $36.81 $32.87 $29.60 $27.47 $24.45 $22.39 $20.59 Rate 1.00% $34.93 $31.31 $28.27 $26.30 $23.47 $21.54 $19.84 2.00% $29.67 $26.87 $24.48 $22.90 $20.60 $19.01 $17.60 2.50% $27.50 $25.02 $22.87 $21.45 $19.36 $17.91 $16.61

14

Revenue Decomposition

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Corporate Private Equity Total AUM 72,600,000,000 80,800,000,000 86,400,000,000 82,080,000,000 87,004,800,000 92,225,088,000 97,758,593,280 103,624,108,877 109,841,555,409 Fund Management Fees $471,000,000 $634,100,000 $767,800,000 681,264,000 722,139,840 765,468,230 811,396,324 860,080,104 911,684,910 Fund Management Fees Expense Ratio 0.65% 0.78% 0.89% 0.83% 0.83% 0.83% 0.83% 0.83% 0.83%

Real Assets Total AUM 42,900,000,000 45,600,000,000 43,400,000,000 41,230,000,000 42,879,200,000 44,594,368,000 46,378,142,720 48,233,268,429 50,162,599,166 Fund Management Fees $263,600,000 $317,900,000 $338,800,000 280,364,000 291,578,560 303,241,702 315,371,370 327,986,225 341,105,674 Fund Management Fees Expense Ratio 0.61% 0.70% 0.78% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68%

Global Credit Total AUM 33,300,000,000 44,400,000,000 49,100,000,000 50,082,000,000 52,586,100,000 55,215,405,000 57,976,175,250 60,874,984,013 63,918,733,213 Fund Management Fees $191,500,000 $243,000,000 $307,200,000 310,508,400 326,033,820 342,335,511 359,452,287 377,424,901 396,296,146 Fund Management Fees Expense Ratio 0.58% 0.55% 0.63% 0.62% 0.62% 0.62% 0.62% 0.62% 0.62%

Investment Solutions Total AUM 46,300,000,000 45,700,000,000 45,200,000,000 44,748,000,000 45,866,700,000 47,013,367,500 48,188,701,688 49,393,419,230 50,628,254,710 Fund Management Fees $154,900,000 $166,800,000 $157,100,000 152,143,200 155,946,780 159,845,450 163,841,586 167,937,625 172,136,066 Fund Management Fees Expense Ratio 0.33% 0.36% 0.35% 0.34% 0.34% 0.34% 0.34% 0.34% 0.34%

1,424,279,600 1,495,699,000 1,570,890,893 1,650,061,567 1,733,428,855 1,821,222,796 218,140,000,000 228,336,800,000 239,048,228,500 250,301,612,938 262,125,780,548 274,551,142,499 0.97 1.05 1.05 1.05 1.05 1.05 Growth in Total AUM 23.72% 10.97% 3.51% -2.66% 4.67% 4.69% 4.71% 4.72% 4.74% Total AUM 195,100,000,000 216,500,000,000 224,100,000,000 218,140,000,000 228,336,800,000 239,048,228,500 250,301,612,938 262,125,780,548 274,551,142,499 Fund Management Fees 1,026,900,000 1,272,000,000 1,476,200,000 1,424,279,600 1,495,699,000 1,570,890,893 1,650,061,567 1,733,428,855 1,821,222,796 Fund Management Fees Expense Ratio 0.53% 0.59% 0.66% 0.653% 0.655% 0.657% 0.659% 0.661% 0.663% Incentive Fees 35,300,000 30,200,000 35,900,000 32,553,300 34,180,965 35,890,013 37,684,514 39,568,740 41,547,177 35.3 30.2 35.9 32.6 34.2 35.9 37.7 39.6 41.5 Investment income, including performance allocations 2,290,600,000 809,200,000 1,568,400,000 816.74 1,036.78 1,121.46 1,177.70 1,275.29 1,353.99 2,290.6 809.2 1,568.4 816,736,800.00 1,036,778,880.00 1,121,456,768.00 1,177,695,160.96 1,275,287,725.45 1,353,987,182.11

Revenue from Consilidated Entities 286,700,000 214,500,000 199,200,000 200,292,000 184,018,275 198,739,737 213,645,217 228,600,382 243,459,407

All other Revenues 36,700,000 101,300,000 97,300,000 97,300,000 97,300,000 97,300,000 97,300,000 97,300,000 97,300,000

Total Revenue 3,676,200,000 2,427,200,000 3,377,000,000 2,571,161,700 2,847,977,120 3,024,277,412 3,176,386,459 3,374,185,703 3,557,516,562

15 The Carlyle Group Income Statement (Millions)

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E REVENUES Fund management fees 1,026.90 1,272.00 1,476.20 1,424.28 1,495.70 1,570.89 1,650.06 1,733.43 1,821.22 Incentive fees 35.30 30.20 35.90 32.6 34.2 35.9 37.7 39.6 41.5 Investment income, including performance allocations 2,290.60 809.20 1,568.40 816.74 1,036.78 1,121.46 1,177.70 1,275.29 1,353.99 Revenue from consolidated entities 286.70 214.50 199.20 200.3 184.0 198.7 213.6 228.6 243.5 All other revenues 36.70 101.30 97.30 97.3 97.3 97.3 97.3 97.3 97.3 Total Revenues 3,676.20 2,427.20 3,377.00 2,571.16 2,847.98 3,024.28 3,176.39 3,374.19 3,557.52 EXPENSES Cash-based compensation and benefits 652.70 746.70 833.40 841.73 866.99 893.00 919.79 947.38 975.80 Equity-based compensation 320.30 239.90 140.00 90.00 142.40 151.21 158.82 168.71 177.88 Performance allocations and incentive fee related compensation 988.30 376.30 436.70 346.82 345.00 370.99 381.54 413.92 430.95 General, administrative and other expenses 235.50 413.80 428.80 354.16 392.29 416.58 437.53 464.77 490.03 Depreciation 31.20 36.90 50.10 39.3 49.4 59.6 69.7 79.8 89.9 Amortization 10.10 10.00 15.50 16.1 11.9 8.9 6.6 4.9 3.6 Expenses from consolidated funds (Interest Expense related to Consolidated Funds) 400.10 164.60 131.80 160.23 173.26 187.12 201.15 215.23 229.22 Interest and other non-operating expenses (income) (5.90) 83.30 83.40 40.46 37.63 40.50 43.97 47.47 51.06 Total Expenses 2,632.30 2,071.50 2,119.70 1,888.84 2,018.94 2,127.81 2,219.03 2,342.13 2,448.43 Net investment gains (losses) of consolidated funds 88.40 4.50 (23.90) 70.71 71.96 74.06 76.19 78.33 80.45 Income (loss) before provision for income taxes 1,132.30 360.20 1,233.40 753.03 900.99 970.54 1,033.55 1,110.39 1,189.54 Provision (benefit) for income taxes 124.90 31.30 49.00 188.26 225.25 242.63 258.39 277.60 297.39 Net income 1,007.40 328.90 1,184.40 564.78 675.75 727.90 775.17 832.79 892.16 Net income attributable to non-controlling interests in consolidated entities 72.50 33.90 36.60 0.00 0.00 0.00 0.00 0.00 0.00 Net income attributable to Carlyle Holdings 934.90 295.00 1,147.80 564.78 675.75 727.90 775.17 832.79 892.16 Net income attributable to non-controlling interests in Carlyle Holdings 690.80 178.50 766.90 0.00 0.00 0.00 0.00 0.00 0.00 Net income attributable to The Carlyle Group L.P. 244.10 116.50 380.90 564.78 675.75 727.90 775.17 832.79 892.16 Net income attributable to Series A Preferred Unitholders 6.00 23.60 19.10 — — — — — — Series A Preferred Units redemption premium — — 16.50 — — — — — — Net income attributable to The Carlyle Group L.P. Common Unitholders 238.10 92.90 345.30 564.78 675.75 727.90 775.17 832.79 892.16

Net income attributable to The Carlyle Group L.P. per common unit Basic 2.58 0.89 3.05 1.62 1.94 2.09 2.23 2.39 2.56 Common Unit Shares Outstanding 92.14 104.20 113.08 348.23 348.23 348.23 348.23 348.23 348.23 Dividends per common share 1.24 1.24 1.36 1.00 1.00 1.00 1.00 1.00 1.00

Dividends Paid to Common Unitholders 118.10 129.80 154.90 348.23 348.23 348.23 348.23 348.23 348.23 Dividends Paid to non-controlling interests in Carlyle Holdings 295.6 288.8 313.3 — — — — — — Net Distributions to non-controlling interest holders 118.00 105.20 62.40 — — — — — — Distributions to Preferred Unitholders 6.00 23.60 17.70 — — — — — — Total Dividends Paid 537.70 547.40 548.30 348.23 348.23 348.23 348.23 348.23 348.23

16 The Carlyle Group Balance Sheet (Millions)

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Assets Cash and cash equivalents $1,377.70 $877.10 $915.80 $772.09 $823.94 $1,067.22 $1,368.91 $1,675.67 $2,068.41 Restricted cash $28.70 $8.70 $34.60 $37.01 $39.88 $42.94 $46.17 $49.64 $53.36 Corporate treasury investments $376.30 $51.70 — — — — — — — Accrued performance fees $3,664.30 $3,480.00 $3,855.60 $2,885.32 $3,195.96 $3,393.80 $3,564.50 $3,786.47 $3,992.20 Investments $1,624.30 $2,217.50 $2,948.80 $3,096.24 $3,467.79 $3,814.57 $4,176.95 $4,552.88 $4,939.87 Investments of Consolidated Funds $4,534.30 $5,286.60 $5,007.30 $5,007.30 $5,257.67 $5,678.28 $6,104.15 $6,531.44 $6,955.98 Due from affiliates and other receivables, net $257.10 $441.10 $273.90 $254.23 $281.60 $299.03 $314.07 $333.63 $351.76 Due from affiliates and other receivables of Consolidated Funds, net $50.80 $135.40 $74.40 $128.56 $142.40 $151.21 $158.82 $168.71 $177.88 Receivables and inventory of a consolidated real estate VIE — — — — — — — — — Fixed assets, net (Net PPE) $100.40 $95.10 $108.20 $136.00 $163.80 $191.60 $219.40 $247.20 $275.00 Accumulated Depreciation 186.00 149.10 99.00 138.34 187.79 247.35 317.02 396.79 486.67 Gross PPE 286.40 244.20 207.20 274.34 351.59 438.95 536.42 643.99 761.67 Deposits and other $54.10 $49.30 $54.00 $49.04 $49.04 $49.04 $49.04 $49.04 $49.04 Other assets of a consolidated real estate VIE — — — — — — — — — Lease right-of-use assets, net — — $203.80 $231.60 $259.40 $287.20 $315.00 $342.80 $370.60 Intangible assets, net $35.90 $77.30 $62.30 $46.22 $34.28 $25.43 $18.87 $13.99 $10.38 Deferred tax assets $170.40 $194.40 $270.10 $292.08 $315.86 $341.57 $369.37 $399.43 $431.95 Total assets $12,280.60 $12,914.20 $13,808.80 $12,935.69 $14,031.61 $15,341.90 $16,705.25 $18,150.90 $19,676.43 Liabilities and partners’ capital Debt obligations $1,573.60 $1,550.40 $1,976.30 $2,173.93 $2,391.32 $2,630.46 $2,893.50 $3,182.85 $3,501.14 Loans payable of Consolidated Funds $4,303.80 $4,840.10 $4,706.70 $4,515.28 $4,741.05 $5,120.33 $5,504.36 $5,889.66 $6,272.49 Loans payable of a consolidated real estate VIE at fair value — — — — — — — — — Accounts payable, accrued expenses and other liabilities $355.10 $442.20 $354.90 $270.21 $299.30 $317.83 $333.82 $354.60 $373.87 Accrued compensation and benefits $2,222.60 $2,222.30 $2,496.50 $1,994.51 $2,234.57 $2,463.31 $2,671.47 $2,870.20 $3,064.59 Due to affiliates $229.90 $174.00 $542.10 $283.10 $283.10 $283.10 $283.10 $283.10 $283.10 Deferred revenue $82.10 $111.30 $71.00 $64.55 $71.50 $75.92 $79.74 $84.71 $89.31 Deferred tax liabilities $75.60 $64.30 $65.20 $58.54 $52.56 $47.20 $42.38 $38.05 $34.17 Other liabilities of Consolidated Funds $422.10 $610.10 $316.10 $316.10 $331.91 $358.46 $385.34 $412.32 $439.12 Lease Liabilities — — $288.20 $327.51 $366.83 $406.14 $445.45 $484.76 $524.08 Other liabilities of a consolidated real estate VIE — — — — — — — — — Accrued giveback obligations $66.80 $63.20 $22.20 $78.25 $78.25 $78.25 $78.25 $78.25 $78.25 Total liabilities $9,331.60 $10,077.90 $10,839.20 $10,081.99 $10,850.39 $11,781.00 $12,717.41 $13,678.51 $14,660.10 Commitments and contingencies Series A preferred units (16,000,000 units issued and outstanding as of December 31, 2017) $387.50 $387.50 — — — — — — — Redeemable non-controlling interests in consolidated entities — — — — — — — — — Partners’ capital $701.80 $673.40 $703.80 $2,938.91 $3,266.42 $3,646.10 $4,073.03 $4,557.60 $5,101.53 Accumulated other comprehensive loss -$72.70 -$83.30 -$85.20 -$85.20 -$85.20 -$85.20 -$85.20 -$85.20 -$85.20 Partners’ capital appropriated for Consolidated Funds — — — — — — — — — Non-controlling interests in consolidated entities $404.70 $324.20 $333.50 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Non-controlling interests in Carlyle Holdings $1,527.70 $1,534.50 $2,017.50 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Total partners’ capital $2,949.00 $2,836.30 $2,969.60 $2,853.71 $3,181.22 $3,560.90 $3,987.83 $4,472.40 $5,016.33 Total liabilities and partners’ capital $12,280.60 $12,914.20 $13,808.80 $12,935.69 $14,031.61 $15,341.90 $16,705.25 $18,150.90 $19,676.43

17 The Carlyle Group Historical Cash Flow Statement (Millions)

Fiscal Years Ending Dec. 31 2015 2016 2017 2018 2019 Cash flows from operating activities Net income $400.10 $15.30 $1,007.40 $328.90 $1,184.40 Depreciation and amortization 322.80 72.00 41.30 46.90 65.60 Equity-based compensation 378.00 334.60 320.30 239.90 140.00 Non-cash performance allocations and incentive fees 477.00 (427.20) (626.80) 25.90 (271.80) Non-cash principal investment income (179.40) (227.10) (227.10) (179.40) (673.10) Other non-cash amounts 12.70 (41.70) (74.60) 3.20 24.80 Realized/unrealized (gain) loss on investments of Consolidated Funds (458.70) (51.70) (27.00) 108.80 18.90 Realized/unrealized (gain) loss from loans payable of Consolidated Funds (436.50) 40.50 (61.40) (113.30) 5.00 Purchases of investments by Consolidated Funds (10,472.10) (2,739.40) (2,875.00) (3,723.80) (2,239.20) Purchase of Invesments (10,564.00) (3,107.60) (3,763.50) (4,591.20) (2,551.60) Proceeds from sale and settlements of investments by Consolidated Funds 11,653.60 1,282.90 2,649.30 2,662.90 2,112.70 Non-cash interest income, net 3.30 (5.50) (5.30) (4.00) (3.80) Change in cash and cash equivalents held at Consolidated Funds 1,281.80 513.70 383.90 399.40 50.90 Change in other receivables held at Consolidated Funds 534.60 1.10 (16.70) (95.10) 61.80 Change in other liabilities held at Consolidated Funds 48.00 268.90 (266.10) (59.10) (229.20) Other non-cash amounts of Consolidated Funds — (17.50) — — (0.10) Investment (income) loss (0.50) (154.60) — — — Proceeds from the sale of investments 313.00 299.50 467.50 893.40 389.20 Payments of contingent consideration (17.80) (82.60) (22.60) (37.50) — Deconsolidation of Claren Road — — (23.30) — — Deconsolidation of Urbplan — 14.00 14.00 — — Changes in deferred taxes, net (31.40) (4.40) 93.40 (19.80) 13.90 Change in due from affiliates and other receivables (1.40) (10.90) 0.30 (74.20) 49.20 Change in receivables and inventory of a real estate VIE (57.50) 29.00 (14.50) — — Change in deposits and other (10.80) 5.10 (2.00) (4.00) (6.00) Change in other assets of a real estate VIE (17.40) 41.20 1.60 — — Deconsolidation of ESG — (34.50) — — — Change in accounts payable, accrued expenses and other liabilities 62.50 66.60 50.50 78.20 (43.70) Change in accrued compensation and benefits (35.30) 6.50 (13.70) 60.80 51.60 Change in due to affiliates 21.00 (19.30) 35.70 (35.60) 24.70 Change in lease right-of-use assets and lease liabilities — — — — (16.90) Change in other liabilities of a real estate VIE 101.60 34.30 47.90 — — Change in deferred revenue (50.00) 18.90 24.40 21.40 (37.90) Net cash provided by (used in) operating activities 3,902.80 (300.60) (7.10) (343.50) 358.60 Cash flows from investing activities Purchases of fixed assets, net (62.30) (25.40) (34.00) (31.30) (27.80) Acquisitions, net of cash acquired — — — (67.80) — Net cash used in investing activities (21.50) (20.10) (34.00) (99.10) (27.80) Cash flows from financing activities Proceeds from issuance of preferred units, net of offering costs and expenses — — 387.50 — — Net proceeds from issuance of common units, net of offering costs 209.90 — — — — Redemption of Preferred Units — — — — (405.40) Net Change under credit facilities — — 0.00 — 35.80 Issuance of senior notes, net of financing costs — — — 345.70 420.60 Repurchase of 3.875% senior notes due 2023 — — — (255.10) — Repayment of term loan — — — — (25.00) Proceeds from debt obligations, net of financing costs 4.00 — 265.60 40.80 41.00 Excess tax benefits related to equity-based compensation — 20.60 — — — Payments on debt obligations — (9.00) (21.70) (156.70) (45.20) Net payments on loans payable of a real estate VIE (65.30) (34.50) (14.30) — — Net borrowings on loans payable of Consolidated Funds 734.30 594.20 147.20 818.00 224.80 Payments of contingent consideration (8.10) (3.30) (0.60) — (0.20) Net Distributions (6,390.10) (678.90) (537.70) (547.40) (548.30) Acquisition of non-controlling interests in Carlyle Holdings (209.90) — — — — Contributions from non-controlling interest holders 2,376.60 113.00 119.20 31.30 57.80 Distributions to non-controlling interest holders (5,267.00) (109.40) (118.00) (105.20) (62.40) Common units repurchased — (58.90) (0.20) (107.50) (34.50) Change in due to/from affiliates financing activities (686.20) 66.10 (26.40) (97.10) 129.40 Net cash (used in) provided by financing activities (4,011.20) 15.30 318.60 72.00 (149.20) Effect of foreign exchange rate changes (120.60) (15.20) 67.30 (19.90) 8.10 Increase (Decrease) in cash, cash equivalents and restricted cash (250.50) (320.60) 344.80 (390.50) 189.70 Cash, cash equivalents and restricted cash, beginning of period $1,242.00 $991.50 $684.00 $1,028.80 $638.30 Cash, cash equivalents and restricted cash, end of period $991.50 $670.90 $1,028.80 $638.30 $828.00 Supplemental cash disclosures Cash paid for interest $56.00 $59.00 $59.50 $60.70 $63.40 Cash paid for income taxes $41.60 $35.10 $24.80 $46.80 $30.50 Supplemental non-cash disclosures Net change in partners’ capital and accumulated other comprehensive income related ownership interest in Carlyle Holdings $21.90 $13.60 $24.80 $18.50 -$192.60 Initial consolidation of Consolidated Funds $63.80 — — — — Net asset impact of deconsolidation of Consolidated Funds — -$7,170.20 — — -$24.30 Non-cash distributions to non-controlling interest holders — $6.30 — -$13.40 -$22.40 Tax effect from acquisition of Carlyle Holdings partnership units: Deferred tax asset $57.00 $3.00 $38.70 $12.30 $6.40 Tax receivable agreement liability 51.50 2.60 30.70 10.60 5.40 Total partners’ capital $5.50 $0.40 $8.00 $1.70 $1.00 Reconciliation of cash, cash equivalents and restricted cash, end of period: Cash and cash equivalents $950.70 $665.60 $1,000.10 $629.60 $793.40 Restricted cash $40.80 $5.30 $28.70 $8.70 $34.60 Total cash, cash equivalents and restricted cash, end of period $991.50 $670.90 $1,028.80 $638.30 $828.00 Cash and cash equivalents held at Consolidated Funds $1,612.70 $761.50 $377.60 $247.50 $122.40

18

The Carlyle Group Forecasted Cash Flow Statement (Millions)

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E 2025E Net income 564.78 675.75 727.90 775.17 832.79 892.16 Depreciation 39.34 49.45 59.56 69.67 79.77 89.88 Amortization 16.08 11.93 8.85 6.57 4.87 3.61 Change in Deferred Taxes (28.64) (29.75) (31.08) (32.62) (34.39) (36.40) Change in Accrued Performance Fees 970.28 (310.64) (197.84) (170.69) (221.97) (205.73) Change in Investments (147.44) (621.91) (767.39) (788.25) (803.22) (811.54) Change in Due from Affiliates and other Recievables (34.49) (41.21) (26.25) (22.65) (29.45) (27.29) Change in Due to Affiliates (259.00) 0.00 0.00 0.00 0.00 0.00 Change in Deferred Revenue (6.45) 6.95 4.43 3.82 4.97 4.60 Change in Accounts Payable (84.69) 29.09 18.53 15.99 20.79 19.27 Change in Accrued Compensation and Benefits (501.99) 240.06 228.74 208.16 198.73 194.38 Change in Deposits and other 4.96 0.00 0.00 0.00 0.00 0.00 Change in Lease Liabilities 39.31 39.31 39.31 39.31 39.31 39.31 Change in lease right-of-use assets (27.80) (27.80) (27.80) (27.80) (27.80) (27.80) Net Cash Provided by Operating Activities 544.25 21.23 36.96 76.66 64.41 134.46 Change in Fixed Assets (Gross) (67.14) (77.25) (87.36) (97.47) (107.57) (117.68) Change in Restricted Cash (2.41) (2.87) (3.06) (3.24) (3.47) (3.72) Change in Intangible Assets (Gross) 0.00 0.00 0.00 0.00 0.00 0.00 Net Cash Provided by Investing Activites (69.55) (80.12) (90.42) (100.70) (111.04) (121.41) Change in Debt Obligations 197.63 217.39 239.13 263.05 289.35 318.29 Change in Other liabilities of Consolidated Funds 0.00 15.81 26.55 26.88 26.97 26.80 Change in Loans Payable (191.42) 225.76 379.28 384.02 385.31 382.83 Change in Accrued giveback obligations 56.05 0.00 0.00 0.00 0.00 0.00 Change in Common Units 230.39 0.00 0.00 0.00 0.00 0.00 Change in Partnership Units (229.33) 0.00 0.00 0.00 0.00 0.00 Change in Non-controlling interests in consolidated entities (333.50) 0.00 0.00 0.00 0.00 0.00 Payment of Dividends (348.23) (348.23) (348.23) (348.23) (348.23) (348.23) Net Cash Provided by Financing Activities (618.40) 110.73 296.74 325.73 353.40 379.68

Net Increase (Decrease) in Cash (143.71) 51.85 243.29 301.68 306.76 392.74 Total Cash, Beginning of Year 915.80 772.09 823.94 1,067.22 1,368.91 1,675.67 Total Cash, End of Year 772.09 823.94 1,067.22 1,368.91 1,675.67 2,068.41

19 The Carlyle Group Common Size Income Statement (% of Total Revenue)

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E REVENUES Fund management fees 27.93% 52.41% 43.71% 55.39% 52.52% 51.94% 51.95% Incentive fees 0.96% 1.24% 1.06% 1.27% 1.20% 1.19% 1.19% Investment income, including performance allocations 62.31% 33.34% 46.44% 31.77% 36.40% 37.08% 37.08% Revenue from consolidated entities 7.80% 8.84% 5.90% 7.79% 6.46% 6.57% 6.73% All other revenues 1.00% 4.17% 2.88% 3.78% 3.42% 3.22% 3.06% Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% EXPENSES Cash-based compensation and benefits 17.75% 30.76% 24.68% 32.74% 30.44% 29.53% 28.96% Equity-based compensation 8.71% 9.88% 4.15% 3.50% 5.00% 5.00% 5.00% Performance allocations and incentive fee related compensation 26.88% 15.50% 12.93% 13.49% 12.11% 12.27% 12.01% General, administrative and other expenses 6.41% 17.05% 12.70% 13.77% 13.77% 13.77% 13.77% Depreciation 1.04% 1.23% 1.67% 1.31% 1.64% 1.98% 2.32% Amortization 0.27% 0.41% 0.46% 0.63% 0.42% 0.29% 0.21% Expenses from consolidated funds 10.88% 6.78% 3.90% 6.23% 6.08% 6.19% 6.33% Interest and other non-operating expenses (income) -0.07% 0.89% 0.83% 0.37% 0.37% 0.37% 0.37% Total Expenses 71.60% 85.35% 62.77% 73.46% 70.89% 70.36% 69.86%

Net investment gains (losses) of consolidated funds 2.40% 0.19% -0.71% 2.75% 2.53% 2.45% 2.40% Income (loss) before provision for income taxes 30.80% 14.84% 36.52% 29.29% 31.64% 32.09% 32.54% Provision (benefit) for income taxes 3.40% 1.29% 1.45% 7.32% 7.91% 8.02% 8.13% Net income 27.40% 13.55% 35.07% 21.97% 23.73% 24.07% 24.40% Net income attributable to non-controlling interests in consolidated entities 1.97% 1.40% 1.08% 0.00% 0.00% 0.00% 0.00% Net income attributable to Carlyle Holdings 25.43% 12.15% 33.99% 21.97% 23.73% 24.07% 24.40% Net income attributable to non-controlling interests in Carlyle Holdings 18.79% 7.35% 22.71% 0.00% 0.00% 0.00% 0.00% Net income attributable to The Carlyle Group L.P. 6.64% 4.80% 11.28% 21.97% 23.73% 24.07% 24.40% Net income attributable to Series A Preferred Unitholders 0.16% 0.97% 0.57% 0.00% 0.00% 0.00% 0.00% Series A Preferred Units redemption premium 0.00% 0.00% 0.49% 0.00% 0.00% 0.00% 0.00% Net income attributable to The Carlyle Group L.P. Common Unitholders 6.48% 3.83% 10.23% 21.97% 23.73% 24.07% 24.40%

20 The Carlyle Group Common Size Balance Sheet (% of Total Assets)

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Assets Cash and cash equivalents 11.22% 6.79% 6.63% 5.97% 5.87% 6.96% 8.19% 9.23% 10.51% Restricted cash 0.23% 0.07% 0.25% 0.29% 0.28% 0.28% 0.28% 0.27% 0.27% Restricted cash and securities of Consolidated Funds 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Corporate treasury investments 3.06% 0.40% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accrued performance fees 29.84% 26.95% 27.92% 22.31% 22.78% 22.12% 21.34% 20.86% 20.29% Investments 13.23% 17.17% 21.35% 23.94% 24.71% 24.86% 25.00% 25.08% 25.11% Investments of Consolidated Funds 36.92% 40.94% 36.26% 38.71% 37.47% 37.01% 36.54% 35.98% 35.35% Due from affiliates and other receivables, net 0.00% 3.42% 1.98% 1.97% 2.01% 1.95% 1.88% 1.84% 1.79% Due from affiliates and other receivables of Consolidated Funds, net 0.41% 1.05% 0.54% 0.99% 1.01% 0.99% 0.95% 0.93% 0.90% Receivables and inventory of a consolidated real estate VIE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Fixed assets, net 0.82% 0.74% 0.78% 1.05% 1.17% 1.25% 1.31% 1.36% 1.40% Accumulated Depreciation 1.51% 1.15% 0.72% 1.07% 1.34% 1.61% 1.90% 2.19% 2.47% Gross PPE 2.33% 1.89% 1.50% 2.12% 2.51% 2.86% 3.21% 3.55% 3.87% Deposits and other 0.44% 0.38% 0.39% 0.38% 0.35% 0.32% 0.29% 0.27% 0.25% Other assets of a consolidated real estate VIE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Lease right-of-use assets, net 0.00% 0.00% 1.48% 1.79% 1.85% 1.87% 1.89% 1.89% 1.88% Intangible assets, net 0.29% 0.60% 0.45% 0.36% 0.24% 0.17% 0.11% 0.08% 0.05% Deferred tax assets 1.39% 1.51% 1.96% 2.26% 2.25% 2.23% 2.21% 2.20% 2.20% Total assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Liabilities and partners’ capital Debt obligations 12.81% 12.01% 14.31% 16.81% 17.04% 17.15% 17.32% 17.54% 17.79% Loans payable of Consolidated Funds 35.05% 37.48% 34.08% 34.91% 33.79% 33.37% 32.95% 32.45% 31.88% Loans payable of a consolidated real estate VIE at fair value 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accounts payable, accrued expenses and other liabilities 2.89% 3.42% 2.57% 2.09% 2.13% 2.07% 2.00% 1.95% 1.90% Accrued compensation and benefits 18.10% 17.21% 18.08% 15.42% 15.93% 16.06% 15.99% 15.81% 15.57% Due to affiliates 1.87% 1.35% 3.93% 2.19% 2.02% 1.85% 1.69% 1.56% 1.44% Deferred revenue 0.67% 0.86% 0.51% 0.50% 0.51% 0.49% 0.48% 0.47% 0.45% Deferred tax liabilities 0.62% 0.50% 0.47% 0.45% 0.37% 0.31% 0.25% 0.21% 0.17% Other liabilities of Consolidated Funds 3.44% 4.72% 2.29% 2.44% 2.37% 2.34% 2.31% 2.27% 2.23% Other liabilities of a consolidated real estate VIE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accrued giveback obligations 0.54% 0.49% 0.16% 0.60% 0.56% 0.51% 0.47% 0.43% 0.40% Total liabilities 75.99% 78.04% 78.49% 77.94% 77.33% 76.79% 76.13% 75.36% 74.51% Commitments and contingencies Series A preferred units (16,000,000 units issued and outstanding as of December 31, 2017) 3.16% 3.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Redeemable non-controlling interests in consolidated entities 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Partners’ capital (common units, 80,408,702 and 67,761,012 issued and outstanding as of December 31, 2015 and 2014) 5.71% 5.21% 5.10% 22.72% 23.28% 23.77% 24.38% 25.11% 25.93% Accumulated other comprehensive loss -0.59% -0.65% -0.62% -0.66% -0.61% -0.56% -0.51% -0.47% -0.43% Partners’ capital appropriated for Consolidated Funds 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Non-controlling interests in consolidated entities 3.30% 2.51% 2.42% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Non-controlling interests in Carlyle Holdings 12.44% 11.88% 14.61% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total partners’ capital 24.01% 21.96% 21.51% 22.06% 22.67% 23.21% 23.87% 24.64% 25.49% Total liabilities and partners’ capital 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

21 The Carlyle Group Common Size Balance Sheet (% of Total Revenue)

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Assets Cash and cash equivalents 37.48% 36.14% 27.12% 30.03% 28.93% 35.29% 43.10% 49.66% 58.14% Restricted cash 0.78% 0.36% 1.02% 1.44% 1.40% 1.42% 1.45% 1.47% 1.50% Restricted cash and securities of Consolidated Funds 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Corporate treasury investments 10.24% 2.13% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accrued performance fees 99.68% 143.38% 114.17% 112.22% 112.22% 112.22% 112.22% 112.22% 112.22% Investments 44.18% 91.36% 87.32% 120.42% 121.76% 126.13% 131.50% 134.93% 138.86% Investments of Consolidated Funds 123.34% 217.81% 148.28% 194.75% 184.61% 187.76% 192.17% 193.57% 195.53% Due from affiliates and other receivables, net 6.99% 18.17% 8.11% 9.89% 9.89% 9.89% 9.89% 9.89% 9.89% Due from affiliates and other receivables of Consolidated Funds, net 1.38% 5.58% 2.20% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Receivables and inventory of a consolidated real estate VIE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Fixed assets, net (Net PPE) 2.73% 3.92% 3.20% 5.29% 5.75% 6.34% 6.91% 7.33% 7.73% Accumulated Depreciation 5.06% 6.14% 2.93% 5.38% 6.59% 8.18% 9.98% 11.76% 13.68% Gross PPE 7.79% 10.06% 6.14% 10.67% 12.35% 14.51% 16.89% 19.09% 21.41% Deposits and other 1.47% 2.03% 1.60% 1.91% 1.72% 1.62% 1.54% 1.45% 1.38% Other assets of a consolidated real estate VIE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Lease right-of-use assets, net 0.00% 0.00% 0.00% 9.01% 9.11% 9.50% 9.92% 10.16% 10.42% Intangible assets, net 0.98% 3.18% 1.84% 1.80% 1.20% 0.84% 0.59% 0.41% 0.29% Deferred tax assets 4.64% 8.01% 8.00% 11.36% 11.09% 11.29% 11.63% 11.84% 12.14% Total assets 334.06% 532.06% 408.91% 503.11% 492.69% 507.29% 525.92% 537.93% 553.09% Liabilities and partners’ capital Debt obligations 42.81% 63.88% 58.52% 84.55% 83.97% 86.98% 91.09% 94.33% 98.42% Loans payable of Consolidated Funds 117.07% 199.41% 139.38% 175.61% 166.47% 169.31% 173.29% 174.55% 176.32% Loans payable of a consolidated real estate VIE at fair value 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accounts payable, accrued expenses and other liabilities 9.66% 18.22% 10.51% 10.51% 10.51% 10.51% 10.51% 10.51% 10.51% Accrued compensation and benefits 60.46% 91.56% 73.93% 77.57% 78.46% 81.45% 84.10% 85.06% 86.14% Due to affiliates 6.25% 7.17% 16.05% 11.01% 9.94% 9.36% 8.91% 8.39% 7.96% Deferred revenue 2.23% 4.59% 2.10% 2.51% 2.51% 2.51% 2.51% 2.51% 2.51% Deferred tax liabilities 2.06% 2.65% 1.93% 2.28% 1.85% 1.56% 1.33% 1.13% 0.96% Other liabilities of Consolidated Funds 11.48% 25.14% 9.36% 12.29% 11.65% 11.85% 12.13% 12.22% 12.34% Lease Liabilities 0.00% 0.00% 8.53% 12.74% 12.88% 13.43% 14.02% 14.37% 14.73% Other liabilities of a consolidated real estate VIE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accrued giveback obligations 1.82% 2.60% 0.66% 3.04% 2.75% 2.59% 2.46% 2.32% 2.20% Total liabilities 253.84% 415.21% 320.97% 392.12% 380.99% 389.55% 400.37% 405.39% 412.09% Commitments and contingencies Series A preferred units (16,000,000 units issued and outstanding as of December 31, 2017) 10.54% 15.96% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Redeemable non-controlling interests in consolidated entities 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Partners’ capital 19.09% 27.74% 20.84% 114.30% 114.69% 120.56% 128.23% 135.07% 143.40% Accumulated other comprehensive loss -1.98% -3.43% -2.52% -3.31% -2.99% -2.82% -2.68% -2.53% -2.39% Partners’ capital appropriated for Consolidated Funds 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Non-controlling interests in consolidated entities 11.01% 13.36% 9.88% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Non-controlling interests in Carlyle Holdings 41.56% 63.22% 59.74% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total partners’ capital 80.22% 116.85% 87.94% 110.99% 111.70% 117.74% 125.55% 132.55% 141.01% Total liabilities and partners’ capital 334.06% 532.06% 408.91% 503.11% 492.69% 507.29% 525.92% 537.93% 553.09%

22 The Carlyle Group Value Driver Estimation (Millions)

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Total Operating Revenues $3,389.50 $2,212.70 $3,177.80 $2,370.87 $2,663.96 $2,825.54 $2,962.74 $3,145.59 $3,314.06 Cash-based compensation and benefits (652.70) (746.70) (833.40) (841.73) (866.99) (893.00) (919.79) (947.38) (975.80) Equity-based compensation (320.30) (239.90) (140.00) (90.00) (142.40) (151.21) (158.82) (168.71) (177.88) Performance allocations and incentive fee related compensation (988.30) (376.30) (436.70) (346.82) (345.00) (370.99) (381.54) (413.92) (430.95) General, administrative and other expenses (276.80) (460.70) (494.40) (354.16) (392.29) (416.58) (437.53) (464.77) (490.03) Depreciation and Amortization (31.20) (36.90) (50.10) (55.43) (61.38) (68.41) (76.23) (84.65) (93.50) Implied Interest on Operating Leases 18.9 17.3 26.7 8.7 9.8 11.0 12.2 13.4 14.6 EBITA 1,139.15 369.52 1,249.92 691.39 865.75 936.37 1,001.05 1,079.55 1,160.48 Provision for income taxes 124.90 31.30 49.00 188.26 225.25 242.63 258.39 277.60 297.39 Tax Adjustments Tax Shield on Interest and other non-operating expenses (income) (2.06) 23.84 19.77 10.52 9.78 10.53 11.43 12.34 13.27 Tax on Revenue from consolidated entities (100.14) (61.39) (47.21) (52.08) (47.84) (51.67) (55.55) (59.44) (63.30) Tax on net investment gains (losses) of consolidated funds (30.88) (1.29) 5.66 (18.38) (18.71) (19.26) (19.81) (20.37) (20.92) Tax Shield on Expenses from consolidated funds 139.75 47.11 31.24 41.66 45.05 48.65 52.30 55.96 59.60 Tax Shield on Lease Interest 6.62 4.96 6.33 2.25 2.56 2.87 3.17 3.48 3.79 Total Adjusted Taxes 138.19 44.53 64.79 172.23 216.08 233.75 249.94 269.58 289.83

Change in Net deferred taxes $63.00 -$35.30 -$74.80 -$28.64 -$29.75 -$31.08 -$32.62 -$34.39 -$36.40

NOPLAT 1,063.96 289.69 1,110.33 490.52 619.91 671.55 718.49 775.58 834.25

Normal Cash: (6.63%) 243.73 160.92 223.90 170.47 188.82 200.51 210.59 223.71 235.86 Accrued performance fees 3670.60 3480.00 3855.60 2,885.32 3,195.96 3,393.80 3,564.50 3,786.47 3,992.20 Due from affiliates and other receivables, net 257.10 441.10 273.90 254.23 281.60 299.03 314.07 333.63 351.76 Due from affiliates and other receivables of Consolidated Funds, net 50.80 135.40 74.40 128.56 142.40 151.21 158.82 168.71 177.88 Receivables and inventory of a consolidated real estate VIE — — — — — — — — —

Total Operating Current Assets 4,222.23 4,217.42 4,427.80 3,438.58 3,808.78 4,044.56 4,247.98 4,512.51 4,757.69

Accrued compensation and benefits 2222.60 2222.30 2496.50 1,994.51 2,234.57 2,463.31 2,671.47 2,870.20 3,064.59 Accounts payable, accrued expenses and other liabilities 355.10 442.20 354.90 270.21 299.30 317.83 333.82 354.60 373.87 Due to affiliates 229.90 174.00 542.10 283.10 283.10 283.10 283.10 283.10 283.10 Deferred revenue 82.10 111.30 71.00 64.55 71.50 75.92 79.74 84.71 89.31

Total Operating Current Liabilites 2,889.70 2,949.80 3,464.50 2,612.37 2,888.47 3,140.17 3,368.13 3,592.61 3,810.87

Net Operating Working Capital 1,332.53 1,267.62 963.30 826.21 920.31 904.39 879.85 919.90 946.83

Fixed Assets (Net PPE) $100.40 $95.10 $108.20 $136.00 $163.80 $191.60 $219.40 $247.20 $275.00

Long Term Operating Assets Investments 1,624.30 2,217.50 2,948.80 3,096.24 3,467.79 3,814.57 4,176.95 4,552.88 4,939.87 Deposits and other 54.10 49.30 54.00 49.04 49.04 49.04 49.04 49.04 49.04 Intangible assets, net 35.90 77.30 62.30 46.22 34.28 25.43 18.87 13.99 10.38

Total Long Term Operating Assets 1,714.30 2,344.10 3,065.10 3,191.50 3,551.11 3,889.04 4,244.86 4,615.91 4,999.29

Total Long Term Operating Liabilites 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

PV of operating leases 407.4 628.5 203.8 231.60 259.40 287.20 315.00 342.80 370.60

Invested Capital 3,554.67 4,335.31 4,340.40 4,385.31 4,894.62 5,272.23 5,659.11 6,125.81 6,591.72

Free Cash Flow (FCF): NOPLAT 1,063.96 289.69 1,110.33 490.52 619.91 671.55 718.49 775.58 834.25 Beg. IC 2,454.99 3,554.67 4,335.31 4,340.40 4,385.31 4,894.62 5,272.23 5,659.11 6,125.81 Ending IC 3,554.67 4,335.31 4,340.40 4,385.31 4,894.62 5,272.23 5,659.11 6,125.81 6,591.72 Change in IC 1,099.68 780.65 5.08 44.91 509.32 377.61 386.88 466.70 465.91 FCF -35.72 -490.95 1,105.25 445.60 110.60 293.94 331.61 308.87 368.35

Return on Invested Capital (ROIC): NOPLAT 1,063.96 289.69 1,110.33 490.52 619.91 671.55 718.49 775.58 834.25 Beg. IC 2,454.99 3,554.67 4,335.31 4,340.40 4,385.31 4,894.62 5,272.23 5,659.11 6,125.81 ROIC 43.34% 8.15% 25.61% 11.30% 14.14% 13.72% 13.63% 13.70% 13.62%

Economic Profit (EP): Beg. IC 2,454.99 3,554.67 4,335.31 4,340.40 4,385.31 4,894.62 5,272.23 5,659.11 6,125.81 x (ROIC - WACC) 36.20% 1.01% 18.47% 3.72% 6.56% 6.14% 6.05% 6.13% 6.04% EP 888.67 35.89 800.79 161.63 287.62 300.67 319.00 346.77 370.09

23

The Carlyle Group Present Value of Operating Lease Obligations

Fiscal Years Ending Dec. 31 2014 2015 2016 2017 2018 Year 1 53.3 54.7 52.4 47.9 60.5 Year 2 52.2 52.0 48.3 48.9 54.2 Year 3 48.3 47.8 47.4 48.4 56.3 Year 4 44.2 41.4 47.9 44.1 66.4 Year 5 38.7 39.6 45.3 41.0 62.2 Thereafter 230.0 294.3 339.3 295.7 546.8 Total Minimum Payments 466.7 529.8 580.6 526.0 846.4 Less: Cumulative Interest 94.0 118.8 134.9 118.6 217.9 PV of Minimum Payments 372.7 411.0 445.7 407.4 628.5

24 The Carlyle Group Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity: ASSUMPTIONS: Risk-Free Rate 0.70% 10-year Treasury bond Beta 1.77 Average of 2, 3, 4, and 5-year weekly beta Equity Risk Premium 6.16% Professor Aswath Damodoran ERP on April 1, 2020 Cost of Equity 11.60%

Cost of Debt: Risk-Free Rate 0.70% 10-year Treasury bond Implied Default Premium 8.49% 1928-2019 Geometric Average of S&P 500 v. 10-year T-bond Pre-Tax Cost of Debt 4.25% YTM on CG 2029 corporate bond Marginal Tax Rate 26% After-Tax Cost of Debt 3.15%

Market Value of Common Equity: MV Weights Total Shares Outstanding 348,229,168 Current Stock Price $22.68 MV of Equity 7,897,837,530.24 52.40%

Market Value of Debt: Loans Payable 4,706,700,000 Long-Term Debt (Debt Obligations) 1,976,300,000 PV of Operating Leases 203,800,000 Lease Liabilities 288,200,000 MV of Total Debt 7,175,000,000 47.60%

Market Value of the Firm 15,072,837,530 100.00%

Estimated WACC 7.58%

25 The Carlyle Group Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 3.05% CV Year ROIC 13.62% WACC 7.58% Cost of Equity 11.60%

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E 2025E

DCF Model: Free Cash Flow (FCF) 445.60 110.60 293.94 331.61 308.87 368.35 Continuing Value (CV) 14,300.40 PV of FCF 414.22 95.56 236.10 247.60 214.38 CV 9,925.35 Value of Operating Assets: 11,133.20 Excess Cash 691.90 Investments of Consolidated Funds 5,007.30 Restricted Cash 34.60 Value of Non-Operating Assets 5,733.80 Value of Equity 16,867.01 Value of Debt 6,683.00 PV of Operating Leases 203.80 Other liabilities of Consolidated Funds 316.10 Lease Liabilities 288.20

Enterprise Value: $9,375.91 Shares Outstanding 348.23 Intrinsic Value of Last FYE $26.92 Implied Price as of Today $27.47

EP Model: Economic Profit (EP) 161.63 287.62 300.67 319.00 346.77 370.09 Continuing Value (CV) 8,174.59 PV of EP 150.25 248.53 241.50 238.18 240.68 CV 5,673.66 Total PV of EP 6,792.81 Invested Capital (last FYE) 4,340.40 Value of Operating Assets: 11,133.20 Excess Cash 691.90 Investments of Consolidated Funds 5,007.30 Restricted Cash 34.60 Value of Non-Operating Assets 5,733.80 Value of Equity 16,867.01 Value of Debt 6,683.00 PV of Operating Leases 203.80 Other liabilities of Consolidated Funds 316.10 Lease Liabilities 288.2

Enterprise Value: $9,375.91 Shares Outstanding 348.23 Intrinsic Value of Last FYE $26.92 Implied Price as of Today $27.47

26

The Carlyle Group Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E 2025E

EPS $ 1.62 $ 1.94 $ 2.09 $ 2.23 $ 2.39 $ 2.56

Key Assumptions CV growth of EPS 3.05% CV Year ROE 17.79% Cost of Equity 11.60%

Future Cash Flows P/E Multiple (CV Year) 9.69 EPS (CV Year) $2.56 Future Stock Price $24.82 Dividends Per Share $1.00 $1.00 $1.00 $1.00 $1.00 $24.82 Discounted Cash Flows $0.90 $0.80 $0.72 $0.64 $0.58 $14.33

Intrinsic Value as of Last FYE $ 17.97 Implied Price as of Today $ 18.34

27 The Carlyle Group Relative Valuation Models

EPS EPS BV Ticker Company Price 2020E 2021E P/E 20 P/E 21 Equity P/B BX The Blackstone Group $41.00 $2.53 $3.03 16.21 13.53 11.55 3.55 APO Apollo Global Management $30.00 $2.27 $2.64 13.22 11.36 6.69 4.48 KKR KKR & Co. $22.00 $1.65 $1.63 13.33 13.50 18.85 1.17 ARES Ares Management $28.85 $1.80 $2.16 16.03 13.36 5.50 5.25 BEN Franklin Resources $15.60 $2.37 $2.26 6.58 6.90 19.50 0.80 Average 13.07 11.73 3.05

CG The Carlyle Group $22.68 $1.62 $1.94 13.98 11.69 8.19 2.77

Implied Relative Value: P/E (EPS20) $ 21.20 P/E (EPS21) $ 22.76 P/B $ 24.99

*Source Factset

28 The Carlyle Group Key Management Ratios

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

Liquidity Ratios: Cash Ratio (Cash and Cash Equivalents/Current Liabilities) 0.48 0.30 0.26 0.30 0.29 0.34 0.41 0.47 0.54 Current Ratio (Current Assets/Current Liabilities) 1.85 1.67 1.48 1.55 1.54 1.56 1.61 1.66 1.73 Quick Ratio (Cash and Recievables/Current Liabilities) 0.72 0.51 0.37 0.46 0.45 0.50 0.56 0.62 0.70

Asset-Management Ratios: Asset Turnover Ratio (Total Revenue/Total Average Assets) 0.33 0.19 0.25 0.19 0.21 0.21 0.20 0.19 0.19 Fixed assets turnover Ratio (Total Revenue/Average Net Fixed Assets) 35.60 24.83 33.22 21.06 19.00 17.02 15.46 14.46 13.63 Current Ratio (Current Assets/Current Liabilities) 0.60 0.51 0.37 0.45 0.44 0.50 0.56 0.62 0.70

Financial Leverage Ratios: Debt Ratio (Total Liabilities/Total Assets) 75.99% 78.04% 78.49% 77.94% 77.33% 76.79% 76.13% 75.36% 74.51% Debt-to-equity Ratio (Total Liabilites/Total Equity) 316.43% 355.32% 365.01% 353.29% 341.08% 330.84% 318.91% 305.84% 292.25% Equity Ratio (Total Equity/Total Assets) 24.01% 21.96% 21.51% 22.06% 22.67% 23.21% 23.87% 24.64% 25.49%

Profitability Ratios: Return on Assets (Net Income/Average Total Assets) 16.41% 5.09% 17.15% 4.22% 5.01% 4.96% 4.84% 4.78% 4.72% Return on Equity (Net Income/Total Equity) 34.16% 11.60% 39.88% 19.79% 21.24% 20.44% 19.44% 18.62% 17.79% Net Margin (Net Income/Total Revenue) 27.40% 13.55% 35.07% 21.97% 23.73% 24.07% 24.40% 24.68% 25.08% Pretax Margin (Pre-Tax Income/Total Revenue) 30.80% 14.84% 36.52% 29.29% 31.64% 32.09% 32.54% 32.91% 33.44%

Payout Policy Ratios: Dividend Payout Ratio (Dividend/EPS) 47.98% 139.08% 44.54% 61.66% 51.53% 47.84% 44.92% 41.81% 39.03% Total Payout Ratio ((Divs. + Repurchases)/NI) 57.51% 185.56% 47.77% 61.66% 51.53% 47.84% 44.92% 41.81% 39.03% Dividend Coverage (Net income/Dividends Paid) 1.87 0.60 2.16 1.62 1.94 2.09 2.23 2.39 2.56

t

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