Carlyle eyes ‘more than $100bn’ in next fundraising cycle

The firm is making strong progress toward its long-term fundraising goals, but market volatility in Asia took its toll on performance in the third quarter.

Carlyle Group is well on the way to meeting its $100 billion long-term fundraising target and is aiming to raise even more than that amount in the next fundraising cycle.

The Washington, DC-headquartered firm has raised $26 billion so far in 2018 against a target of $30 billion for the year, and a total of $83 billion against the $100 billion goal it set in 2016 and aims to meet in 2019, according to a conference call on Wednesday announcing Carlyle’s third quarter results.

“We not only feel good about reaching the $100 billion goal by next year, but we fully expect that we will exceed it,” co-chief executive Glenn Youngkin said on the call.

Youngkin said the firm would then set a new goal for another full fundraising cycle, and given the additional product lines Carlyle has added and the up-scaling of its existing funds, it would expect the goal to be “more than $100 billion next time”.

“Whatever happens in that next fundraising cycle will of course be dependent on our continued performance at the fund level [and] what’s going on in the overall economic environment during that time period.”

The announcement comes as the firm said market volatility in Asia during the third quarter affected performance, with Carlyle reporting an economic net income of $0.25 per unit – down from $0.56 per unit for the same period last year. Chief financial officer Curt Buser said ENI was “muted”, reflecting “the impact of significant market volatility on our Asia private equity funds”.

Co-chief executive Kewsong Lee said global markets have declined in value and become “increasingly volatile and divergent” over the past few quarters – a stark example of which is a comparison between the US-focused S&P 500, which is down around 1 percent on the year, and the Hong Kong-focused Hang Seng Index, which has declined almost 20 percent in the same period.

“This volatility affects the valuation of our fund portfolios, especially those in Asia with a higher level of public equity and foreign exchange exposure. And should current global market conditions persist, we would expect our fourth quarter appreciation to be affected as well.”

The private equity portfolio “on the whole is currently performing well” with weighted average revenue growth for the past year across the portfolio at 17 percent and EBITDA growth at 10 percent.

“So long as the real economy continues to expand, our portfolio operationally should perform well, even as markets may be less of a tailwind to the appreciation of our marks.”

Lee added that volatility and lower public valuations could lead to more attractive valuation multiples for acquisitions.

Corporate private equity carry funds appreciated 1 percent during the quarter, compared with 4 percent in Q3 2017.

Buser said Carlyle’s private equity team has $40 billion to invest, including its freshly-raised $18.5 billion Carlyle Partners VII. The firm has raised €5 billion for its fifth Europe buyout fund, which is in market, and is gearing up to launch three more vehicles.

“Over the next several quarters, we expect to complete fundraising for Europe buyout and actively raise our next funds for European technology, long-dated private equity and Japan buyout,” Buser said.

The firm invested $1.1 billion into new and follow-on investments in the third quarter, including its significant minority investment of up to $350 million into 1Life Healthcare, the technology and management company behind US primary care practice One Medical. It also announced a further $7 billion in equity commitments, including the acquisition of US insurance claims service provider Sedgwick, a $6.7 billion transaction expected to close “over the next few quarters”.

Overall, profits were down in the quarter, with net income attributable to shareholders at $11.6 million, or $0.10 per share – down from $44.6 million and $0.43 per share a year earlier. Assets under management were up slightly on the previous quarter to $212 billion.