Carlyle Group Inc. — FY 2023 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2023. Carlyle is a global alternative investment manager operating through Global Private Equity, Global Credit, and Global Investment Solutions. The company reported $426.0 billion of assets under management (AUM), $307.4 billion of fee-earning AUM, more than 2,200 employees, and operations in 28 offices.
Key financial metrics
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Total revenue | $2,963.9 million | $4,438.7 million | Down 33% |
| Fund management fees | $2,043.2 million | $2,030.1 million | Up 1% |
| Incentive fees | $93.7 million | $63.7 million | Up 47% |
| Performance allocations | $(88.6) million | $1,327.5 million | Significant reversal |
| Net income attributable to Carlyle | $(608.4) million | $1,225.0 million | Turned to loss |
| Basic EPS | $(1.68) | $3.39 | Turned to loss |
| Distributable Earnings | $1,430.5 million | $1,909.0 million | Down 25% |
| Fee Related Earnings | $859.4 million | $834.4 million | Up 3% |
| Net cash from operating activities | $204.9 million | $(379.3) million | Improved |
| Cash flow from operating activities excluding Consolidated Funds | $955.7 million | $860.7 million | Up 11% |
Reported GAAP results were heavily affected by unrealized performance allocation volatility and a one-time $1.1 billion charge for increased performance allocation and incentive fee compensation. The charge increased accrued compensation and benefits to $4.9 billion at year-end.
Carry fund portfolios appreciated 7% in 2023, compared with 11% in 2022. Global Private Equity appreciated 5%, Global Credit 12%, and Global Investment Solutions 10%; real estate declined 1% because of higher capitalization rates.
Assets, fundraising, and segment trends
- Total AUM increased 14% to $426.0 billion, driven by $63.5 billion of inflows, including $26 billion related to closed reinsurance transactions at Fortitude, positive market activity, and foreign-exchange effects.
- Fee-earning AUM increased 15% to $307.4 billion. Perpetual Capital represented $89.1 billion of fee-earning AUM, or 29%.
- Carlyle raised $37.1 billion of new capital, invested $19.8 billion in carry funds, and generated $20.6 billion of realized proceeds for carry fund investors.
- Global Private Equity AUM declined 1% to $161.3 billion and Distributable Earnings declined 29% to $1,071.8 million. Fee Related Earnings increased 4% to $564.8 million.
- Global Credit AUM increased 28% to $187.8 billion, assisted by Fortitude-related inflows. Distributable Earnings declined 13% to $274.4 million, while Fee Related Earnings were essentially flat at $224.4 million.
- Global Investment Solutions AUM increased 21% to $76.9 billion. Distributable Earnings declined 4% to $84.3 million and Fee Related Earnings increased 1% to $70.2 million.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $1.4 billion, with approximately $1.3 billion described as available after amounts allocated to specific business purposes and regulatory capital.
- The company had a fully available $1.0 billion senior revolving credit facility maturing April 2027 and no borrowings under it at year-end. The facility requires fee-earning assets of at least $126.6 billion and a total leverage ratio below 4.0 to 1.0.
- Total Carlyle debt obligations were $2.3 billion, consisting primarily of $1.375 billion of senior notes, $500 million of subordinated notes due 2061, and $431.7 million of CLO borrowings.
- Contractual obligations of Carlyle operating entities totaled approximately $6.1 billion, including $3.7 billion of capital commitments to Carlyle funds. Approximately $3.1 billion of those commitments were subscribed individually by senior professionals and other personnel.
- The annualized common-stock dividend is $1.40 per share, or $0.35 per quarter. The company paid $497.7 million of dividends in 2023.
- The company repurchased 6.5 million shares for $203.5 million in 2023. The board reset total repurchase authorization to $1.4 billion effective February 6, 2024.
Material changes versus the prior comparable period
- GAAP revenue and earnings deteriorated primarily because 2022 included substantially higher performance allocations, while 2023 included a negative $88.6 million performance allocation result.
- Performance allocation revenue declined $1.4 billion, principally because Global Private Equity accrued carry reversals as fund appreciation did not keep pace with preferred return hurdles.
- Principal investment income declined $437.1 million to $133.4 million. The 2023 result included a $104.0 million loss from dilution of Carlyle’s indirect Fortitude ownership from 13.5% to 10.5%.
- Fee-related earnings improved modestly despite lower transaction and advisory activity, reflecting growth in recurring management fees and expense discipline.
- The compensation program was changed effective December 31, 2023. Carlyle expects to allocate approximately 60% to 70% of performance allocations and incentive fees to employees, compared with generally 45% to 50% previously.
Guidance, outlook, risks, contingencies, and unusual items
The filing does not provide formal quarterly or annual earnings guidance. Management expects the revised compensation structure to increase Fee Related Earnings beginning in 2024, while reducing the portion of realized performance revenues retained by Carlyle. Management also expects higher equity-based compensation in 2024 because of 18.1 million restricted stock units granted in February 2024.
- Management expects potential deployment opportunities in Global Credit, particularly opportunistic credit, as companies face refinancing needs and higher debt costs.
- Fundraising and exit activity remain exposed to muted distributions, elevated interest rates, difficult debt markets, slower M&A activity, valuation pressure, and geopolitical uncertainty.
- Accrued giveback obligations were $44.0 million at year-end, of which approximately $23.7 million was attributable to Carlyle. If all fund investments were deemed worthless, realized and distributed carried interest subject to potential giveback would be approximately $1.6 billion, although management considers that scenario remote.
- The company accrued approximately $35 million for litigation-related contingencies, regulatory examinations, inquiries, and other matters. The filing states that the ultimate loss from certain matters cannot be estimated.
- Carlyle is cooperating with an SEC inquiry concerning preservation of electronic business communications. The filing does not provide a clear estimate of potential loss.
- The Authentix litigation went to trial in early 2024, with a decision expected later in 2024. The company expects to contest the claims and states that insurance and indemnification may apply.
- Carlyle reported no material cybersecurity incidents in 2023 and received unqualified audit opinions on its financial statements and internal control over financial reporting.
- Principal risks include market and valuation volatility, leverage and refinancing risk, fundraising and retention of key personnel, regulatory and litigation exposure, cybersecurity and data privacy, conflicts of interest, tax-law changes, ESG scrutiny, foreign-exchange risk, and risks associated with illiquid and highly leveraged portfolio investments.
Most important facts for investors to verify
- Reconcile GAAP net loss of $608.4 million with Distributable Earnings of $1.43 billion and assess the sustainability of the non-GAAP measures.
- Evaluate the impact of the new 60% to 70% employee participation in performance allocations on future Fee Related Earnings, realized performance revenue, cash compensation, and shareholder distributions.
- Monitor realization activity, carry-fund performance, accrued performance allocations of $6.2 billion, and the potential $44.0 million giveback liability.
- Review the quality and durability of the $37.1 billion of 2023 fundraising and the extent to which new commitments have activated fee revenue.
- Assess Fortitude-related AUM, management fees, ownership dilution, valuation, and associated conflicts of interest.
- Verify debt maturities, variable-rate CLO borrowings, revolving-credit covenants, and the ability to fund approximately $3.7 billion of commitments.
- Track the SEC electronic-communications inquiry, Authentix litigation, other regulatory matters, and the adequacy of the approximately $35 million litigation and regulatory accrual.
- Consider the sensitivity of performance allocations to valuation changes: a 10% decline in remaining fair value was estimated to reduce performance allocation revenue by approximately $2.0 billion.