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Carlyle posts second-quarter loss as assets suffer
(Reuters) - Carlyle Group LP (CG.O), the world's No. 2 alternative asset manager, swung to a second-quarter loss as the value of its fund assets dropped, more than offsetting an increase in cash from fees.
Alternative asset managers have seen their portfolios suffer in the wake of market turbulence caused by the European debt crisis and fears over economic growth. Carlyle's loss, driven by a drop in the value of its publicly listed assets, was higher than most analysts expected. As an alternative asset manager, Carlyle's businesses include private equity, corporate credit, real estate and hedge funds.
Carlyle's private equity portfolio depreciated by 2 percent in the second quarter, versus a 4.2 percent drop for peer Blackstone Group LP (BX.N), a 1 percent appreciation for Apollo Global Management LLC (APO.N) and a 5.1 percent rise for KKR & Co LP (KKR.N).
Carlyle reported a second-quarter aftertax loss of $59 million, compared with a profit of $401 million in the first quarter of 2012, in terms of economic net income (ENI), which takes into account the mark-to-market valuation of its assets and after adjusting for the impact of its initial public offering in May.
This translated into a loss of 19 cents per unit, worse than the loss of 4 cents, on average, that analysts targeted in a Reuters poll.
Carlyle's co-chief executive William Conway, who founded the Washington, D.C.-based firm in 1987 with David Rubenstein and Daniel D'Aniello, told analysts on a conference call there were many opportunities for great deals.
"While the short-term outlook is cloudy, I would argue that we have historically made some of our best investments during times like these. Great investments can be made in a bad economy and lousy investments can be made in a vibrant economy," Conway said.
European corporate assets are now selling, on average, at a 30 percent discount to the rest of the world on the basis of operating cash flow, Conway said, citing a Carlyle economic study.
Carlyle invested $1 billion in private equity in the second quarter but has since announced deals, expected to close by the end of the year, for which it will commit at least $1.6 billion, Conway said.
These include the acquisition of the industrial pumps and compressors units of United Technologies Corp (UTX.N); an investment in Sunoco Inc's SUN.N Philadelphia refinery; a majority stake in the owner of Italian women's wear brand Twin Set; an investment in Genesee & Wyoming Inc (GWR.N) to back its takeover of RailAmerica Inc RA.N; the acquisition of Brazil's PBKIDS by its toy retailer Ri Happy; and majority ownership in the largest independent U.S. chain of auto body repair shops, Service King Collision Repair Centers.
Carlyle is also favored to buy Dupont's (DD.N) car paint business for more than $4.5 billion and Societe Generale's (SOGN.PA) asset manager TCW in a $700 million deal, sources have told Reuters.
Carlyle said it generated realized proceeds of $3 billion for its fund investors in the second quarter from 98 investments that it partially or fully exited.
This included $268 million in proceeds from the sale of its remaining interest in aircraft supplier Triumph Group Inc (TGI.N), $834 million from the sale of stock in energy company Kinder Morgan Inc (KMI.N), $345 million from the sale of Brazilian health insurer Qualicorp SA (QUAL3.SA) as well as sales of cable operator Insight Communications Co and eScreen Inc, a developer of employment screening products.
Carlyle shares dropped 2.6 percent to $23.83, versus its IPO price of $22 on May 2. Before the market opened, they were up 11 percent year to date, compared with a 9.4 percent rise for KKR, a 9.2 percent gain for Apollo and a 2.2 percent drop for Blackstone.
Distributable earnings after taxes, which included realized investment gains and accounted for cash available to pay dividends, was down 38 percent from the previous quarter to $117 million. The result also adjusted for the impact of the IPO.
Assets under management decreased 2 percent to $156.2 billion at the end of June compared with the end of March, while fee-earning assets under management were $112 billion.
Fee-related earnings increased 6 percent from the previous quarter to $36 million thanks to higher management fee revenue.
Carlyle's total private equity portfolio was marked at 2.5 times its investment cost at the end of June. Carlyle Partners IV, the buyout fund responsible for much of the declines in the market value of Carlyle's assets, was marked at 1.9 times its cost.
Carlyle raised $3.9 billion from institutional investors in the second quarter, the highest quarterly amount since 2008. Carlyle co-CEO Rubenstein said the firm's latest buyout fund had raised $2 billion while Carlyle saw more than $650 million in net subscriptions in its hedge funds in the last quarter.
Having ended its joint venture with Riverstone Holdings LLC on energy funds, Carlyle was exploring a new initiative for energy investments, Rubenstein said, adding that the firm continued to invest in the sector through its other funds.
Carlyle's so-called dry powder, or capital available to invest in deals, was $40 billion at the end of June, $15.3 billion of which was available for private equity.
It declared a second-quarter distribution of 11 cents per common unit.
(Reporting by Greg Roumeliotis in New York; editing by Jeffrey Benkoe)
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