Kewsong Lee: Volatility bodes well for Carlyle dealflow

The firm reported record profits and investment activity over the past year as assets under management hit a new record.

Carlyle Group is bracing for an inflationary, higher-rate environment and expects a fall in asset values to create more buying opportunities, the firm’s top boss said on Thursday.

“If we think about some of the corrections we are seeing especially with respect to valuations, quite frankly on the buy-side of the equation, we are meeting great companies and the entry points are now more attractive,” chief executive Kewsong Lee said during a call accompanying the firm’s fourth quarter and full-year 2021 results.

He added: “I think longer term, this bodes well… a healthy correction is not necessarily a bad thing with respect to our investment activity.”

That said, Lee also pointed out that only 11 percent of the firm’s PE holdings are public names. “Our long-term orientation – where we don’t have liquidity pressure because of marks – gives me comfort that over the long term our portfolio will be quite resilient as we enter a period of volatility.”

Lee’s comments come as Carlyle reported $34 billion-worth of investments and $44 billion of exit proceeds across strategies in 2021, an all-time high buoyed by favourable economic conditions, according to the firm’s earnings materials.

Total invested capital for Carlyle’s global private equity business – which also includes real estate and natural resources – grew to a record $21.9 billion in 2021, from $18.3 billion the year before. Notable Q4 2021 investments included healthcare supplies company Medline, IT company Hexaware and medical device manufacturer Resonetics.

Proceeds from exits reached $10.6 billion in the quarter and $29.9 billion for the year. That compares with $3.7 billion in Q4 2020 and $12.1 billion in FY 2020.

Fundraising in the quarter totalled $3.2 billion for global private equity and $27.2 billion for the year, a more than seven-fold increase on the $3.5 billion raised in FY 2020. This includes $11.5 billion for Carlyle Partners VIII and about half of Carlyle Partners Growth Fund, according to earnings materials. CP VIII and CP Growth are seeking $22 billion and $2 billion, respectively, according to Private Equity International data.

Carlyle amassed $51 billion in new capital commitments across strategies in the past year, almost double the amount it raised in 2020, bringing the firm’s total AUM to $301 billion, up 22 percent year-over-year.

Carlyle expects to have 20 different products in the market over the coming year, with high-net-worth investors, retail, open-ended fund and insurance as a bigger source of fundraising dollars, chief financial officer Curt Buser said on the call.

Buser also said the firm is focused on building a big balance sheet and growing fee-related earnings via growth areas such as private credit and its investment solutions business.

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