(Bloomberg) -- Carlyle Group Inc. took home a smaller profit from cashing out of bets in a muted stretch for its buyout dealmakers.
Second-quarter distributable earnings – profits available to shareholders – fell 11.7% from a year earlier to $343.2 million, or 78 cents a share, Washington-based Carlyle said Monday in a statement. Analysts polled by Bloomberg predicted 83 cents a share.
The decline was driven by the private equity arm collecting lower profits from deal exits. The business, which is Carlyle’s biggest engine of distributable gains and what the firm is best known for, reported a 38% decline in that category.
It’s a reminder of the challenges Chief Executive Officer Harvey Schwartz faces in a multiyear push to supercharge growth and lift Carlyle’s stock after a leadership change and lukewarm performance at key funds.
Shares opened down 9.4% at 9:40 a.m. ET. as the broader stock markets plunged Monday.
Investors are watching to see what Schwartz is doing to broaden the $425 billion company into a bigger investment superstore — and if a rate cut will lure buyers from the sidelines and grease some exits.
Schwartz signalled Monday that he expects dealmaking and sales to pick up with the Federal Reserve expected to cut rates this year.
“The underlying fundamentals support improving activity,” he said.
But he acknowledged during a call with analysts that “there’s a lot of red on the screens” and urged caution. “All of us have to be a little bit careful not to overreact to a market adjustment, which at the moment feels very, very liquidity-driven and very risk sentiment-driven,” Schwartz said.
The dynamic environment could encourage the Fed to take action, he added.
There are signs that Schwartz, 60, is on course to meet some goals he laid out at the start of the year.
Fee-related earnings – the steady cash streams that shareholders covet — surged 32% to $273 million, topping analysts’ expectations of $268 million by Bloomberg’s latest tally. Fueling that increase: Carlyle’s credit arm, as well as a business that buys second-hand private equity stakes, each notched record fund-management fees.
Credit pocketed 71% more in fee-related earnings, while Carlyle’s investment solutions arm nearly quadrupled those profits.
The firm has raised $18 billion in new money this year, nearly halfway to its goal of gathering roughly $40 billion in 2024. Separately, it announced a deal to sell power producer Congentrix Energy to Texas private equity firm Quantum Capital Group for about $3 billion.
Schwartz’s focus to cut fat has rippled through the firm. He has asked division heads to scrutinize costs and tie investment professionals’ pay more closely to performance. Margins on fee-related earnings rose to 46% from 34% a year earlier. The firm has set targets of 40% to 50% in 2024.
Shares have climbed 8.7% this year as of Friday, trailing the 12% advance of the S&P 500 Index.
--With assistance from Erin Fuchs.
(Updates with context from analysts call starting in seventh paragraph)
©2024 Bloomberg L.P.
