By Echo Wang
NEW YORK (Reuters) – A private equity firm The Carlyle Group General Electric Co. (NASDAQ:GE) reported a larger-than-expected 11.7% year-over-year decline in distributable profit in the second quarter on Monday, as record revenue from management and transaction fees failed to offset a big drop in performance fees.
The reason for the decline was that Carlyle was able to generate less cash from selling assets. This led to lower profits because Carlyle gets a share of the cash generated as performance fees. The fees it receives for managing investors’ money jumped, but they weren’t enough to make up the difference.
Distributable earnings, which measure cash that can be returned to shareholders, fell to $343 million from $389 million a year earlier. That translates to after-tax distributable earnings of 78 cents a share, below the average Wall Street analyst estimate of 83 cents, according to LSEG data.
The Washington, D.C.-based company reported fee-related earnings of $273 million, its highest ever and up 32% from a year earlier. Its fee-related profit margin was 46%, up from 34% in the same quarter last year.
Carlyle’s assets under management rose 13% from the previous quarter to $435 billion.
The company’s shares fell 11.08% to $39.33 early Monday morning, valuing the group at about $14.15 billion. Wall Street’s main indexes also fell sharply as weak economic data stoked recession fears in the United States, roiling global markets.
“Obviously, we’ve all seen over the past few trading days, and this morning, that the market remains very volatile,” said Carlyle CEO Harvey Schwartz. “The trajectory of GDP, the expected rate cuts by the Fed this year, all of the dynamics continue to tell us that the underlying fundamentals support improved activity across our platform for the rest of the year.”
Carlyle’s private equity funds rose 2% during the quarter, its real estate funds rose 1%, its infrastructure and natural resources funds rose 3%, and its global credit funds rose 3%. Last month, larger rival Blackstone (NYSE: ) reported that its core private equity funds rose 2% and its opportunistic real estate funds rose 0.3%.
Carlyle raised $12.4 billion from investors during the quarter, driven primarily by real estate commitments and the closing of four new secured loan commitments.
The alternative asset manager raised $2.8 billion for its fifth Japan buyout fund during the quarter, marking the largest Japan-focused buyout fund ever.
Carlyle has spent $4 billion on new acquisitions and has $83 billion of unspent capital. In partnership with private equity firm KKR, it won an auction for a $10 billion student-loan book from Discover Financial Services (NYSE:) in June.
Carlyle also said Monday it was selling Cogentrix Energy, one of the largest portfolios of power plants in the United States, for $3 billion amid growing investor interest in the energy sector driven by rising demand for electricity from digital grids.
“We are seeing increased investment activity across the business as buyer and seller confidence improves, despite recent volatility,” said John Reddit, Carlyle’s chief financial officer.
“In terms of exit activity, we are now seeing more intense competition, with IPOs being a real exit route and gaining interest from strategic buyers. We expect activity to increase in the second half of 2024.”