Three things to note about Carlyle’s 2021-24 strategic plan

The alternatives giant has a $130bn multi-year fundraising goal as well as near-term plans to expand its private credit and insurance businesses.

Carlyle Group last week laid out its multi-year strategic plan in which it plans to raise at least $130 billion of capital by 2024.

Chief executive Kewsong Lee is “driving Carlyle to think bigger, perform better and move faster”, he noted on the firm’s Investor Day, the first Carlyle has hosted since 2013.

Carlyle’s 2016-20 fundraising cycle was a $100 billion campaign, that it surpassed by $8 billion. The 2021-24 cycle is more than 20 percent larger with the goal to “raise larger funds and do bigger deals”, said CFO Curt Buser.

The Washington, DC-based firm outlined three priorities as part of its near-term strategic plan: to accelerate scope and scale of investment platforms; to capitalise on opportunities by expanding into adjacencies; and to further institutionalise the firm.

Here are three things to highlight about Carlyle’s ambitious four-year initiative.

$130bn is just the baseline number for its multi-year fundraising cycle 

That $130 billion fundraising target is a critical component underlying its strategic plan and is expected to set the stage for Carlyle’s investment activity and earnings growth in the years to come.

What is in the $130 billion? Roughly 50 percent of fundraising will come from its global private equity business, which also includes real estate and infrastructure. Carlyle expects its flagship corporate PE funds to drive much of this growth across the US, Europe and Asia, with fund sizes growing 20 percent or more for these vehicles.

What is not included in the $130 billion? Further acquisitions, the growth of reinsurance business Fortitude Holdings Group, which Carlyle acquired in late 2019 and amounted to a total of nearly $2.2 billion in sale proceeds, new strategies and further upside in its larger strategies, Buser said.

Its credit and secondaries businesses are set to form a bigger part of capital generation for Carlyle in the years ahead. Lee noted that two secular trends – the credit function moving out of traditional sources and the growing outperformance of the asset class – enable private credit to grow regardless of the rate environment. He added that he expects more activity in the collateralised loan obligations space and longer-term growth in direct lending.

Private credit and secondaries added significant inflows to Carlyle’s fundraising efforts last year. Global credit beat its previous record by nearly 50 percent with $10.1 billion of capital raised in 2020, and investment solutions raised twice as much as any prior year with $13.9 billion.

M&A is an area of focus

The firm is also eyeing external growth. To deliver on its strategic plan, Carlyle is also exploring ways to use its balance sheet to pick up investment strategies or vehicles that have permanent capital-like characteristics.

Lee noted that Carlyle is not “going to be trying to acquire things in private equity”.

“That’s an asset class that we think we’ve really fully developed out. And we think we are strong and a global leader in it,” he said.

Near-term M&A could be seen much more in credit and in the insurance solutions space. He also noted that Fortitude will be more aggressive in insurance transactions and in growing itself through organic acquisitions.

Investments in growth equity, China and India will ramp up

“In our PE platform, as big as we are and as successful as we have been, I think we have just tapped the beginnings of growth private equity,” said Lee.

Carlyle is plotting a growth equity vehicle dedicated to mid-size private equity deals in North America and is seeking to raise as much as $2 billion, according to a report by Bloomberg.

Lee did not provide details on fundraising for the strategy during the presentation. He noted that “opportunities to fund new business models for fast-growing and disruptive businesses, particularly in technology and healthcare, are increasing every day”.

Along with the impact of the pandemic, Lee noted that “tremendous growth and huge growth in many parts of the world” are creating opportunities for the firm. China, India and Japan have been singled out as new and growing investment regions for the firm.

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