Carlyle Group LP (CG.O) posted an 11 percent drop in third-quarter profit on Wednesday as asset sales generated less cash for shareholders than in any other quarter since the alternative asset manager went public.
While Carlyle's fund portfolio appreciated 4 percent in the quarter, compared with 3 percent a year earlier, it did not take advantage of favorable capital markets to exit investments to the extent some of its peers such as Blackstone Group LP (BX.N) did.
"We have a public portfolio of about $16 billion. This is a pretty good time to be exiting. That does not mean that we will do secondary sales in any of those companies this quarter, but if the time and price is right I think we will," Carlyle co-Chief Executive William Conway told analysts on a conference call.
Economic net income (ENI), an earnings measure comprising cash and paper profits or losses based on how funds have been marked to market, declined to $195 million in the third quarter from $219 million a year earlier.
This translated into post-tax ENI per adjusted share of 51 cents, well below the average forecast of analysts in a Thomson Reuters poll of 60 cents.
Carlyle shares were up 1.1 percent at $30.47 in morning trading in New York. They are up 15.8 percent for the year to date, versus a 23.6 percent rise in the S&P 500 Index .INX, a 75.2 percent rise for Blackstone, and a 51 percent rise for KKR & Co LP (KKR.N).
Carlyle's pre-tax distributable earnings, which show how much cash is available to pay dividends, were $105 million, the lowest total for any quarter since the company went public in May 2012, as Carlyle monetized less of its assets. The year-earlier figure was $207 million.
Carlyle said it had additional portfolio companies in the pipeline which it expects to go public over the next two quarters, generating more performance fees for itself.
Carlyle is also waiting for its $1.39 billion sale of aerospace communications company Arinc Inc to Rockwell Collins Inc (COL.N) to be completed either this quarter or early next year, which will boost its profits.
In addition, three more funds - Carlyle Europe Partners III, Carlyle Asia Partners III and Carlyle Realty Partners V - are close to exceeding the returns hurdle agreed with their investors and being able to accrue carried interest, the firm's 20 percent slice of investment profits, Conway said.
Among Carlyle's asset sales in the third quarter were its remaining stakes in wealth manager Boston Private Financial Holdings Inc (BPFH.O) and financial software company SS&C Technologies Holdings Inc (SSNC.O), as well as secondary share sales at Allison Transmission Holdings Inc (ALSN.N) and Wesco Aircraft Holdings Inc (WAIR.N).
Carlyle said it was on track for what will be by far its strongest fundraising year since 2007 and the second-best fundraising year in its history.
Total assets under management were $185 billion at the end of September, up from $180.4 billion at the end of June. Carlyle said it raised $6.5 billion in new capital from investors during the third quarter.
It said its latest flagship U.S. buyout fund, Carlyle Partners VI, was oversubscribed and would reach at least $12.9 billion when it completes fundraising in the next few weeks, exceeding its $10 billion target.
Private equity firms have found it more difficult to source deals in the United States this year due to a rally in the capital markets fueling high price expectations in the minds of many sellers of companies.
"I'm not worried about investing over the period of the U.S. fund. Finding the right assets at the right prices is tough, but this business is always tough," said Conway, who founded Carlyle in 1987 together with David Rubenstein and Daniel D'Aniello.
Fee-related earnings were $40 million in the third quarter, down $6 million from a year earlier due to higher fundraising costs and other expenses, Carlyle said.
The firm said it had $51.1 billion of available capital for deals, or so-called "dry powder," at the end of the quarter, including $22.8 billion in private equity and $9.1 billion in energy and real estate
Carlyle declared a third-quarter dividend of 16 cents per share, in line with its dividend policy, which calls for 75 percent to 85 percent of its annual post-tax distributable earnings to be passed on to unitholders as true-up dividend at the end of the year.
(Reporting by Greg Roumeliotis in New York; Editing by Gerald E. McCormick and John Wallace)