Downturn worries won't alter Carlyle's fundraising targets

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The Carlyle Group (Nasdaq: CG) has no plans to slow fundraising despite growing concerns about global market volatility and a turn in the credit cycle.

In a third-quarter earnings call with analysts Wednesday, Carlyle executives laid out expectations that the global asset management firm is still on course to exceed its $30 billion fundraising goal for 2018 – and by the first quarter of 2019 to finish up an ambitious $100 billion multiyear capital raise far earlier than originally expected.

Even storm clouds of rising interest rates, corporate leverage levels and stress points on investor protections is not dissuading the flow of private-fund investments, said co-Chief Executive Glenn Youngkin.

“We're at 83% of the $100 billion goal,” he said. “We not only feel good about reaching the $100 billion goal by next year, but we fully expect that we will exceed it.”

A strong component of that fundraising is its Global Credit Investment unit, which includes collateralized loan obligations, distressed credit and opportunity funds as well as a fast-growing direct lending business for small- to medium-size enterprise companies. Assets in global credit were up 17% year-over-year to $37.4 billion, under the umbrella of Carlyle’s overall $212.3 billion in assets under management.

Carlyle raised $2 billion in additional capital by issuing two new CLOs during the quarter and resetting several existing deals (which involved issuing new notes to pay off existing notes with later maturities). Carlyle raised its overall CLO par value by $1.2 billion in the quarter.

Another $508 million in gross new originations were made in Carlyle’s direct lending unit in the third quarter, and $2.1 billion over the prior 12 months.

Even with the speeding pace of fundraising, Carlyle Chief Financial Officer Curtis Buser told analysts, the company's risk profile has not been altered. Rather, it remains “very focused on general conditions and being appropriately cautious, as we are decidedly late cycle here in the states and around the world.”

The firm’s CLO business has a loss ratio “a fraction of [the] industry average,” and its direct-lending activity (mostly to unrated smaller companies) is focused strictly on first-lien originations, Buser said. The portfolio profile “is very much as senior as you can get up into the stack. Seventy percent, 80%-plus of our direct lending portfolio is true first lien,” he said. “It’s not first-lien/last out, it’s not second lien, it’s not unitranche."

“We’re in the best part of the segment of that market, especially if the cycle were to start turning.”

A major boost to the global credit unit’s assets next year is expected to come from the incorporation of nearly $5.6 billion in new assets acquired in Carlyle’s buyout of the commercial aviation management firm Apollo Aviation Group (AA). AAG raises closed-end funds from limited partnership investors to purchase, lease and manage portfolios of commercial aircraft.

AAG was a regular issuer of asset-backed note secured by receivables of its leased passenger and corporate jet fleet of 234 aircraft (as of the time of the Carlyle sale).

Co-CEO Kewsong Lee said the aviation business would add more than $10 million in fee-related earnings in the first year.

The company had distributable net earnings of $210 million.

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