Carlyle Group Inc. annual report, FY2021

Carlyle Group Inc. 2021 Form 10-K Summary

Business context and reporting period

The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. Carlyle is a global alternative asset manager operating through Global Private Equity, Global Credit and Global Investment Solutions. Total assets under management reached $301.0 billion and fee-earning AUM reached $193.4 billion at year-end. The company had nearly 1,850 employees, including more than 690 investment professionals, across 26 offices.

Carlyle completed its conversion from a Delaware limited partnership to a Delaware corporation on January 1, 2020. Accordingly, post-conversion results are subject to corporate income taxes and are not fully comparable with pre-conversion results.

Financial performance and key metrics

Metric	2021	2020	Change
Total revenue	$8,782.1 million	$2,934.6 million	+199%
Fund management fees	$1,667.5 million	$1,486.0 million	+12%
Performance allocations	$6,084.6 million	$1,635.9 million	+272%
Income before taxes	$4,027.5 million	$580.0 million	+594%
Net income attributable to common stockholders	$2,974.7 million	$348.2 million	+754%
Diluted EPS	$8.20	$0.97	+746%
Distributable Earnings	$2,243.7 million	$762.1 million	+194%
Fee Related Earnings	$598.1 million	$519.7 million	+15%
Net cash provided by operating activities	$1,791.0 million	$(169.2) million	Improved

GAAP income before tax margin was approximately 45.9% and net income margin was approximately 34.7%, compared with approximately 19.8% and 13.0%, respectively, in 2020. The sharp improvement was primarily driven by portfolio appreciation and realizations, particularly in Global Private Equity. Performance allocations included $2,956.7 million of realized and $3,127.9 million of unrealized amounts.

Global Private Equity distributable earnings were $2,021.9 million, versus $604.5 million in 2020.
Global Credit distributable earnings were $119.7 million, versus $116.2 million.
Global Investment Solutions distributable earnings were $102.1 million, versus $41.4 million.
Carry funds invested a record $33.8 billion and generated $44.3 billion of realized proceeds for investors.
Carlyle raised $51.3 billion of new commitments, up 86% from 2020.
Carry fund appreciation was 41% overall, including 41% for corporate private equity, 39% for real estate, 34% for natural resources, 22% for Global Credit carry funds and 48% for Global Investment Solutions.

Liquidity, cash flow and debt

Cash and cash equivalents were $2.5 billion at December 31, 2021, of which approximately $2.2 billion remained after amounts allocated for performance-related distributions, regulatory capital and other specified purposes. Operating cash flow excluding Consolidated Funds was $2.1 billion. Total assets were $21.3 billion and total liabilities were $15.5 billion.

The $775.0 million senior revolving credit facility had no borrowings outstanding and matures in February 2024.
The $250.0 million Global Credit revolving facility had no borrowings outstanding and matures in September 2024.
Debt obligations had a carrying value of $2.1 billion, including $1.4 billion of senior notes, $500 million of 4.625% subordinated notes due 2061 and $219.0 million of CLO borrowings.
Carlyle issued $500 million of subordinated notes in May and June 2021 and redeemed the remaining $250 million of 3.875% senior notes, recognizing $10.1 million of debt-extinguishment costs.
Standard & Poor’s and Fitch maintained BBB+ ratings and revised their outlooks to positive during 2021.
The company reported compliance with its debt covenants at year-end and stated that existing liquidity sources should cover needs for at least the next twelve months.

Material changes versus the prior comparable period

Fee-earning AUM increased 14% to $193.4 billion, while total AUM increased 22% to $301.0 billion.
Global Private Equity benefited from new fund launches, including CP VIII, CP Growth and CRP IX, and from strong realizations and appreciation.
Global Credit AUM increased 31% to $73.4 billion, supported by CLO issuance, credit fundraising and growth in direct lending and other credit strategies.
Global Investment Solutions AUM increased 13% to $65.5 billion, despite distributions, foreign-exchange headwinds and the sale of Metropolitan Real Estate.
The sale of Metropolitan Real Estate on April 1, 2021 generated a $5.0 million gain; Carlyle retained investments and accrued performance allocations in existing MRE funds.
The company sold its Brazilian management entity in August 2021, recording a $4.7 million loss and a $14.7 million foreign-currency translation loss.
Compensation and benefits increased to $4.0 billion from $1.7 billion, primarily because of performance-allocation-related compensation. Carlyle granted 7.1 million long-term strategic restricted stock units during 2021.
The company incurred a $26.8 million right-of-use asset impairment charge related to office space following the MRE sale.
Common stock repurchases totaled $161.8 million for approximately 3.2 million shares. The board authorized a new $400 million repurchase program effective January 1, 2022.

Guidance, outlook, commentary and risks

The filing does not provide formal numerical earnings guidance. Management expects to continue deploying capital in 2022, but noted that fundraising is becoming more competitive as limited partners face allocation constraints and an increasing number of alternative investment offerings.

Management described financing markets as favorable at the filing date but highlighted rising inflation, expected monetary-policy tightening, equity-market volatility, supply-chain constraints, labor shortages and geopolitical tensions. Carlyle stated that market conditions in early 2022 had already produced higher interest-rate volatility and weaker equity-market performance.

Performance allocations and cash flow are highly variable and depend on realizations, fund appreciation, preferred-return hurdles and fund life cycles.
Approximately 95% of fee-earning AUM was in long-term fee structures not subject to quarterly redemption, supporting recurring management-fee visibility.
Accrued performance allocations were $8.1 billion, while net accrued performance revenues attributable to Carlyle were $3.9 billion. These amounts depend heavily on illiquid and Level III valuations.
The company had $30.2 million of accrued giveback obligations at year-end, including $16.1 million attributable to Carlyle. Potential giveback obligations could be approximately $1.5 billion if all fund investments were deemed worthless, although management considers that scenario remote.
COVID-19, higher interest rates, tighter credit, leverage at portfolio companies, energy-price volatility, foreign-exchange movements and weaker exit markets could reduce fund values, realizations, fundraising and carried interest.
Regulatory, tax, litigation, cybersecurity, data-privacy, ESG, Brexit, sanctions and conflicts-of-interest risks remain material. The SEC’s proposed private-fund rules and the transition away from LIBOR could increase compliance costs or affect fee structures and financing.
Carlyle’s relationship with Fortitude creates insurance-regulatory and conflict-of-interest risks. Fortitude and AIG had committed approximately $7.0 billion to Carlyle strategies as of year-end.
The company expects higher corporate taxes than under its former partnership structure. The 2021 effective tax rate was 24.4%, compared with 34.0% in 2020 and 4.0% in 2019.

After year-end, Global Credit agreed to acquire a diversified triple-net-lease portfolio for a $3.0 billion enterprise value through an affiliated fund. The transaction is expected to be funded with $2.0 billion of debt and $1.0 billion of equity, with up to $200 million of Carlyle balance-sheet investment and non-recourse debt.

Most important facts for investors to verify

Whether 2021’s unusually high performance allocations and realized proceeds can be sustained as market conditions normalize.
The proportion of future earnings derived from recurring management fees versus volatile realized and unrealized performance revenues.
Current valuation marks for the company’s substantial Level III and illiquid exposures, and the sensitivity of performance allocations to portfolio declines.
The timing and amount of future giveback obligations, unfunded fund commitments of $4.1 billion and other contingent payments.
Progress on fundraising, fee activation and fee-earning AUM growth in each segment, including the impact of fund fee step-downs and foreign exchange.
Liquidity after restricted or purpose-specific cash, corporate taxes, dividends, share repurchases, debt service and fund commitments.
The effect of rising interest rates, LIBOR replacement, credit-market conditions and leverage on CLOs and portfolio companies.
Potential costs or business restrictions from SEC regulation, tax-law changes, litigation, cybersecurity events and insurance-regulatory developments involving Fortitude.
The planned $1.30 annualized dividend and $400 million repurchase authorization, both of which remain subject to board discretion and applicable restrictions.