Carlyle’s Lee: ‘Challenging’ environment could affect 2019 deployment

The firm expects to raise $20bn across all asset classes this year, CFO Curtis Buser said on a Q4 earnings call Wednesday.

The Carlyle Group could deploy capital more slowly this year as dry powder and public market volatility cap a difficult investing environment.

The Washington, DC-headquartered firm deployed a record $11.3 billion of corporate private equity capital in 2018, up marginally from $11.1 billion the previous year, according to its Q4 earnings. Realisations fell to $8.8 billion for the year, compared with $11.2 billion in 2017.

“High levels of dry powder in our industry, combined with slowing global growth and volatile markets, could affect both investment pace and realisations in 2019,” co-chief executive Kewsong Lee said on an earnings call Wednesday.

“That’s why we continue to be very cautious in light of the current environment and want to make sure we’re avoiding complacency because the investment environment is challenging […] although in some segments and markets, particularly international, there are indications that valuation models may have peaked last year.”

The median entry price hit a record 10.54x enterprise value to EBITDA in 2017, higher than the 8.85x recorded in 2007, according to a January report from tech platform Cobalt.

Carlyle has seen valuations trending down in East Asia and, to a lesser degree, Europe, Lee added. He said the firm’s $75 billion of available capital meant it was well positioned to take advantage of “recalibration of valuations” that could occur across private equity, credit and real assets over the next several years if current volatility persists.

Carlyle raised $17 billion for corporate private equity in 2018, down from $20.5 billion the previous year, bringing its private equity assets under management to $80.8 billion as of 31 December. Total AUM reached $216.5 billion, up 11 percent from Q4 2017.

“Most of our major funds are reloaded and we feel good about some of the opportunities that we’re starting to see, whether it’s very large businesses that we think are going to be resilient through the cycle […] or businesses that can grow because they’re disruptive,” Lee said.

The firm expects to raise $20 billion across all asset classes this year, chief financial officer Curtis Buser said on the call. This will include its second long-dated private equity fund, Carlyle Global Partners II; its fourth Japan fund; and a final close on its fifth European buyout fund, which had raised €5.9 billion as of 31 December.