* Conway cites low U.S. interest rates, improving housing
* Rubenstein sees comprehensive tax reform at least 2 years
* Carlyle reports after-tax ENI 66 cents vs Street view 64
* Carlyle profit reflects rising asset values as stocks
By Greg Roumeliotis
Nov 8 Private equity firm Carlyle Group LP
on Thursday said the United States remained the world's
best place to invest, citing low interest rates and the
recovering housing market, as it reported a return to
profitability in the third quarter.
The strong comments by Carlyle co-chief executive William
Conway of faith in U.S. investment opportunities came after
Wednesday's massive sell-off on Wall Street as many investors
gave a wary reception to President Barack Obama's re-election
Carlyle said it invested $1.6 billion in equity in 86 new or
follow-on investments in the third quarter. It has committed to
invest more than $4 billion in equity in 10 transactions in four
countries that were announced in the third quarter but are
expected to close in upcoming quarters.
"More than half of these investments, and virtually all of
the larger ones, were made in the United States, with 62 percent
of the equity for the committed transactions in the U.S.
industrial and manufacturing sectors." Conway told investors and
analysts on a conference call.
"There is a reason for this. To put it bluntly, we believe
that the best place in the world to invest today is the United
States," Conway said, citing a "revolution" in energy markets as
well low interest rates and the strengthening housing market as
some of the country's appeals.
Carlyle's third-quarter profit reflected rising asset
values, largely due to its public holdings, which benefited from
the stock market rally, and the cash it pocketed from exiting
Blackstone Group LP and KKR & Co LP, rival
alternative assets managers, have also reported their funds
appreciated in the third quarter amid a buoyant stock market and
profitable exits from the sale of assets.
Carlyle's private equity portfolio rose 5 percent in value
in the third quarter versus a 7.1 percent rise in Blackstone's
private equity funds and a 6 percent increase in the private
equity holdings of KKR.
Washington, D.C.-based Carlyle, which was founded in 1987 by
David Rubenstein and Daniel D'Aniello as well as Conway, has
been very active in leveraged buyouts this year.
Carlyle reported third-quarter economic net income (ENI), a
measure of profitability that takes into account the market
valuation of its assets, of $219 million, compared with a loss
of $191 million a year before.
This translated into after-tax ENI of 66 cents per common
unit, in line with the average estimate of analysts in a Reuters
poll of 64 cents.
Carlyle shares were 0.2 percent higher at $25.65 in
afternoon trading. Through Wednesday the shares were up about 16
percent since the firm went public in May, compared with a 7
percent rise for KKR, a 14 percent gain for Apollo Global
Management LLC, and a 12 percent rise for Blackstone
Pre-tax distributable earnings, which included realized
investment gains and accounted for cash available to pay
dividends, came in at $206 million compared with $244 million in
the third quarter of 2011.
CARRIED INTEREST TAX
As Congress prepares to grapple with $600 billion in
spending cuts and higher taxes scheduled to start in January
unless lawmakers come up with a plan to address the budget
deficit, Rubenstein on Thursday said he expected that any
comprehensive tax reform would take at least two years.
Rubenstein, a Democrat, said he did not expect carried
interest -- the slice of private equity fund profits that is
paid out to managers -- to be targeted disproportionately in the
The tax treatment of carried interest became an issue during
the presidential campaign as many Democrats focused on the money
earned by Republican challenger Mitt Romney from his years at
private equity firm Bain Capital LLC, which he co-founded.
Carried interest is now taxed as a capital gain at a rate of
15 percent. Many Democrats say it should be taxed as ordinary
income, meaning that high-earning private equity managers would
pay as much as 35 percent in tax on those earnings.
"Our best judgment and information on what will happen on
carried interest taxation does not yet enable us to say how this
or any other issue of interest to firms like ours will
ultimately be resolved," Rubenstein, who served as a domestic
policy adviser to President Jimmy Carter, said on the same
Carlyle has been expanding beyond private equity into other
alternative assets such as corporate credit, real estate, hedge
funds, and most recently commodities. Its assets under
management were $157.4 billion at the end of September, up 0.8
percent from the end of June, while fee-earning assets under
management were $115.1 billion.
Carlyle said its latest North American buyout fund, Carlyle
Partners VI, has attracted $3.7 billion in commitments and is on
track to reach its $10 billion fundraising target on schedule.
Carlyle is also raising a fourth $3.5 billion Asian buyout
fund and said it expected to have some investor commitments
finalized before the end of the year. Its energy mezzanine fund
has raised about $1.1 billion and is expected to conclude
fundraising by the end of the year, exceeding its target,
Fee-related earnings increased 24 percent year-on-year to
$46 million as cash compensation to employees declined and the
company increased its compensation in Carlyle shares. Carlyle's
so-called dry powder, or capital available to invest in deals,
was $39.4 billion at the end of September, $15.6 billion of
which was available for private equity.
The firm's funds that generate carried interest realized
$5.1 billion in proceeds in the quarter from the sale of assets
and on dividends from investments.
This included a stock sale in pipeline company Kinder Morgan
Inc for slightly over $1 billion, a $721 million sale of
shares in China Pacific Insurance Group Co Ltd, and
a $367 million sale of a final ownership stake in Dunkin' Brands
Group Inc, Conway said.
Carlyle declared a third-quarter distribution of 16 cents
per common unit.