Carlyle profit falls as credit, real estate funds underperform

Wed Apr 30, 2014 3:08pm EDT

Passersby walk in front of video monitors announcing the Carlyle Group's listing on the NASDAQ market site in New York's Times Square after the opening bell for trading, May 3, 2012. REUTERS/Keith Bedford

Passersby walk in front of video monitors announcing the Carlyle Group's listing on the NASDAQ market site in New York's Times Square after the opening bell for trading, May 3, 2012.

Credit: Reuters/Keith Bedford

(Reuters) - Private equity firm Carlyle Group LP (CG.O) reported an 18 percent drop in quarterly profit on Wednesday as strength in its main business of corporate buyouts was offset by weaker performances in its credit and real-estate funds.

First-quarter economic net income (ENI), a measure of profitability that takes into account the market value of assets, fell to $321.9 million from $393.9 million in the same period a year earlier.

ENI was 85 cents per adjusted unit after taxes, below the average analyst estimate of $1.01, according to Thomson Reuters I/B/E/S.

Meanwhile, distributable earnings, which includes both management fees and performance fees and shows cash available to pay dividends, rose 7.2 percent to $183.3 million before taxes.

Carlyle's quarterly distribution was 52 cents per unit after taxes versus 48 cents in the first quarter of 2013.

The company's results varied significantly across its three main business units. Carlyle's corporate buyout arm performed well in the quarter, increasing its profit by 8 percent to $258 million.

Meanwhile, its global markets strategies group, which includes its credit funds, reported that profits had fallen by nearly half to $56 million. The company's real assets unit, which includes real-estate investments, recorded a $17 million loss due to unrealized investment losses on Latin American and European real estate, down from a $42 million profit a year earlier.

"I think we will see improvements (in the international real estate portfolio) in the not-too-distant future but nothing immediately," co-chief executive officer David Rubenstein said on a conference call with analysts. Carlyle hired Adam Metz from TPG Capital to lead that turnaround in September.

Carlyle's shares fell 5 percent to $32.50 in afternoon trading on the Nasdaq on Tuesday. They have fallen 4 percent so far this year, underperforming the broader S&P 500 Index .INX, which has risen 1.6 percent.

CARVING OUT GROWTH

Executives said that over the next three months the company might take more of its portfolio companies public to boost gains from asset sales. The company generated $3.1 billion from selling assets in its portfolio during the quarter, or about 25 percent less than the $4.1 billion recorded a year earlier.

"Last year we did 15 IPOs and so far this year in the first quarter we didn't do anything," co-chief executive officer Bill Conway said on the call with analysts. "I think that will change in the second quarter."

In the first three months of 2014, Carlyle sold stakes in a number of companies it had already taken public, including manufacturer Allison Transmission Holdings Inc (ALSN.N), information and measurement company Nielsen Holdings NV (NLSN.N), telecommunication equipment maker CommScope Holding Company Inc (COMM.O), and consulting group Booz Allen Hamilton Holding Corp (BAH.N). The company also sold its remaining stake in BankUnited Inc (BKU.N).

There were signs that the company was looking to deploy some of its $56.3 billion in dry powder. Carlyle invested or committed to invest $4.2 billion in the quarter, or just over half of the $8.2 billion it invested in all of 2013.

Carlyle identified the industrial and healthcare sectors as places where it is focusing on, with an emphasis on buying out certain divisions of large corporate conglomerates as it did with its $4.15 billion deal in January for the ortho clinical diagnostics unit of Johnson & Johnson (JNJ.N).

"It is a tough, dirty job to take a big division out of a giant big company and set it off on its own," Conway said. "We are looking for opportunities in that space. It is a lot of hard work but hopefully we can do it and earn attractive returns."

At quarter end, total assets under management rose 13 percent to $198.9 billion from $176.3 billion a year earlier. That was helped by $5.5 billion in new fundraising, up 12 percent from the $4.9 billion in new capital a year earlier.

Total costs related to compensation and benefits were up 14 percent at $609.1 million. Much of the increase was tied to compensation at AlpInvest Partners and Metropolitan Real Estate Equity Management. Carlyle completed its acquisition of the two firms between the first quarter of 2013 and the first quarter of 2014.

Blackstone Group LP (BX.N) had a stronger quarter, with its ENI up 30 percent on solid gains in its private equity arm, which more than offset small declines in its real estate unit.

(Reporting by Peter Rudegeair in New York and Tanya Agrawal in Bangalore; Editing by Sriraj Kalluvila, Jeffrey Benkoe and Bernard Orr)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.