Carlyle’s Q3 earnings drop 12% on slower asset divestments

By Chibuike Oguh

NEW YORK (Reuters) -Carlyle Group Inc said on Tuesday its third quarter distributable earnings fell 12% year-on-year owing to a drop in income from asset sales primarily from its private equity division.

This is the first quarter Carlyle is reporting its earnings since Kewsong Lee abruptly stepped down in August as chief executive of the Washington, D.C.-based firm.

Lee resigned after the board, controlled by the group’s founders, unexpectedly declined to renew his contract, which was due to expire at the year’s end. William Conway, a Carlyle co-founder and board member, was named as the firm’s interim CEO following Lee’s departure.

During an analyst call on Tuesday, Conway said Carlyle was still searching for a permanent CEO.

“The Board and search committee are making good progress, finding the right leader, and we do not have any additional information to provide at this time,” he said.

Carlyle’s shares were down 6.4% at $26.27 per share, underperforming the broader market, which was trading higher.

Distributable earnings, which represents the cash used to pay dividends to shareholders, fell to $644.4 million in the third quarter, from $730.6 million in the same period a year earlier.

This translates to after-tax distributable earnings of $1.42 per share, which was above the average analyst estimate of $1.06, according to Refinitiv data.

Unfavorable market conditions marked by rising interest rates and volatility from geopolitical tensions such as the Russia-Ukraine war have prevented private equity firms, including Carlyle, from cashing out investments for top dollar.

Carlyle said its realized performance revenues fell 24% to $764.8 million, down from $1 billion a year ago, driven by a slow down in asset sales from its private equity portfolio.

Its peers Blackstone Inc, KKR & Co Inc, and Apollo Global Management Inc also reported a drop in earnings owing to a decline in asset divestments and slower capital markets activity.

“The markets are more difficult so it is harder to sell in today’s market but relative to what you’re seeing elsewhere we have done very well with strong realizations,” Carlyle Chief Financial Officer Curt Burser said in an interview.

During the quarter, Carlyle said its corporate private equity funds appreciated by 1%, real estate funds rose 2%, infrastructure and natural resources funds were up 8%, while funds managed under global credit were flat. By contrast, the private equity funds of Blackstone, KKR, and Apollo depreciated by 0.3%, 4%, and 0.3%, respectively.

Under generally accepted accounting principles, Carlyle said its net income fell 47% to $280.8 million, from $532.8 million a year ago, driven by a 63% drop investment income and an uptick in cash-based compensation expenses.

Carlyle invested $10.5 billion during the quarter, raised $6 billion of new capital, generated $213 million of fee-related earnings, and retained $74 billion of unspent capital. Its assets under management fell 2% from the prior quarter to $369 billion owing to asset sales and the impact of foreign exchange transactions that was offset by fundraising. The firm declared a dividend of 32.5 cents per share.

(Reporting by Chibuike Oguh in New YorkEditing by Raissa Kasolowsky)