Carlyle’s Lee: ‘Fundraising is most challenging in the corporate PE segment’

Areas that represent continued growth for the firm include credit, investment solutions and infrastructure, chief executive Kewsong Lee said on the firm's second quarter earnings call.

Carlyle Group’s chief executive has warned that market conditions will make private equity fundraising tougher.

“No doubt the fundraising environment is challenging right now, and this could persist for a bit as LPs adjust to the market dynamics. It’s most challenging in [the] corporate private equity segment of the market,” Kewsong Lee, the firm’s chief executive, said in reply to a question about the firm’s outlook on the fundraising market during Carlyle’s second quarter earnings results on Thursday.

Lee warned of longer fundraising timelines during the firm’s first-quarter results call in April. The outlook has not brightened since then.

Carlyle CFO Curt Buser noted during the call that “the world has changed, in particular around some of the more traditional private equity strategies”. He said this would result in some fundraises taking longer and missing their targets. It was unclear whether Buser was referring to Carlyle’s funds.

This echoes the sentiment shared by Blackstone chief operating officer Jon Gray a week ago. “It is getting harder out there… It’s particularly tough in North American private equity with institutions,” he said on the firm’s latest earnings call.

Preliminary figures from PEI‘s latest quarterly fundraising data show a substantial drop in fundraising volume in the first half of the year. Private equity funds raised $337 billion from January to June, down from $459 billion in the same period last year. The number of funds closed, meanwhile, hit its lowest level since 2017, at just 622. There were 1,033 funds that held a final close in the first half of 2021.

Carlyle raised $9.8 billion across strategies for the quarter and $19 billion from January to June this year. Those figures are roughly in line with inflows last year, when the firm gathered $10.4 billion in Q2 and $18.2 billion in the H1, according to 2021 earnings materials.

Private equity funds made up about half of the capital raised by Carlyle in the latest quarter, driven by closings of Carlyle Partners VIII and Carlyle Europe Technology Partners V, as well closings in its collateralised loan obligation funds, according to earnings materials. CP VIII has gathered $2.2 billion during the quarter, bringing total capital raised thus far to $13.6 billion – a little over half of its reported $22 billion target. It has raised €2.4 billion out of an undisclosed target for its latest Europe tech offering.

More than half of Carlyle’s fundraising now comes from global credit, infrastructure, renewables and solutions.

In fact, global credit, with AUM increasing 57 percent year-on-year to $143 billion, is now the firm’s largest segment. This was driven by its acquisition of Fortitude, as well as fundraising for credit strategies and several managed accounts.

The firm’s global private equity business, which includes corporate private equity, infrastructure and natural resources and real estate, saw its AUM decrease 1 percent to $167 billion, due to asset sales.

Carlyle’s AUM reached $376 billion as of end-June, up 16 percent from the previous quarter and 25 percent from the fourth quarter of 2021. Dry powder stood at $81 billion.

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