October 29, 2014 / 12:30 PM / 5 years ago

UPDATE 2-Carlyle's 3rd-qtr profit drops amid slower fund appreciation

* Q3 post-tax ENI of 55 cents/share vs estimated 54 cents

* Q3 distributable earnings of $159 mln vs $105 mln yr-ago

* Assets under management of $202.6 bln at end-September (Adds co-CEO comment, shares)

By Greg Roumeliotis

Oct 29 (Reuters) - Carlyle Group LP reported a 15 percent drop in third-quarter pre-tax profit on Wednesday, as a halt to a stock market rally led to its private equity funds appreciating at a slower pace than a year ago.

While cash generated in its buyout arm more than doubled thanks to asset sales, the value of Carlyle’s private equity funds rose by 3 percent in the quarter, less than the 5 percent appreciation a year ago. Its hedge funds and secondary funds businesses also showed weakness.

Peer KKR & Co LP reported a 17 percent decline in third-quarter pre-tax profit earlier this month, while Blackstone Group LP reported an 18 percent rise.

Washington, D.C.-based Carlyle said economic net income (ENI), a metric that factors in the mark-to-market value of its portfolio, was $166 million in the third quarter versus $195 million a year earlier.

This translated into post-tax ENI of 55 cents per adjusted unit in the third quarter of 2014, slightly ahead of the average analyst estimate of 54 cents in a Thomson Reuters poll.

Carlyle shares were trading down 2.5 percent at $29.09 in late morning activity in New York.

Distributable earnings rose to $159 million from $105 million a year earlier, as Carlyle continued to cash out on its investments.

Asset sales included Beats Electronics LLC to Apple Inc for $3 billion, and hotel amenities supplier ADA Cosmetics International GmbH to Ardian, as well as share divestments in hospital operator Healthscope Ltd, defense contractor Booz Allen Hamilton Inc and industrial distribution company HD Supply Holdings Inc.

William Conway, Carlyle’s co-founder and co-chief executive, told analysts on a conference call that the fair value of Carlyle’s investments rose by $4 billion in the last two years despite it selling $38 billion worth of assets in that period.

“With respect to the question of whether we are at the later stage of our harvesting cycle, the answer is unequivocally no,” Conway said.

Carlyle’s assets under management were $202.6 billion at the end of September, nearly the same level as at the end of June.

Asked about the impact of a $115 million payment to settle a leveraged buyout collusion lawsuit against Carlyle, Conway said the company picked up 25 percent of the cost. The impact of that payment on the $7.8 billion buyout fund involved was to push down its returns to 1.96 times its investors’ money from 1.98 times, he added.

“We thought the case was without merit.... The investors in the fund were not happy but they generally understood what happened,” Conway said.

Carlyle declared a third-quarter distribution of 16 cents per common unit. (Reporting by Greg Roumeliotis in New York; Editing by Alan Crosby)

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