Carlyle Group reported lower-than-expected distributable earnings for the fourth quarter on Tuesday, despite strong growth in its capital market business. This led to a 6.1% drop in its shares.
The profit shortfall was mainly due to reduced proceeds from asset sales, resulting in a 24.1% decline in earnings from its private equity business.
According to LSEG estimates, profit available to shareholders was $384 million, falling 4 cents short of analysts' expectations at 92 cents per share.
Realized performance revenue, driven by asset sales from its private equity arm, decreased by 4.7% to $245.7 million.
Carlyle anticipates that the decrease in its private equity business will be noticeably less in 2025, with growth expected to resume through capital raise in its upcoming U.S. buyout fund set to launch later this year.
The company successfully met the financial objectives set at the beginning of the previous year, under CEO Harvey Schwartz, who prioritized margin growth and investment performance by restructuring leadership and adjusting the compensation model.
Distributable earnings in credit, Carlyle's largest business by assets, increased by 20.6%, mitigating the impact in the quarter.
Although progress is being made in enhancing the platform, analyst Bill Katz from TD Cowen suggested that the rate of improvement may fall below expectations, based on investor discussions.
Fee-related earnings at Carlyle surged 13% to a quarterly high of $287.4 million, with assets under management rising by 4% to $441 billion.
Inflows reached $14.2 billion in the quarter, fueled by the credit business. Carlyle held $84 billion in unspent capital, deploying $17.6 billion in new investments.
Carlyle projects a 6% increase in fee-related earnings this year, with inflows expected to match 2024 levels.
Analyst Chris Kotowski from Oppenheimer highlighted that catalysts like the reinvestment of proceeds from private equity sales back into buyout funds are crucial for driving the stock price higher.
In a positive development, Carlyle's transaction and portfolio advisory fees more than doubled to $80.6 million in the fourth quarter, surpassing Street forecasts of $55.3 million.
Since Harvey Schwartz assumed leadership in early 2023, capital markets have been a major focus area for Carlyle, resulting in a record year for the business in 2024.
Last week, rival KKR also reported robust growth in its capital markets business.
Carlyle's corporate private equity funds and real estate funds saw a 1% increase, while global credit funds grew by 3%.
Regarding exits, Carlyle divested portfolio companies in the U.S. and Japan in October.
In December, the asset manager sold Italian component maker Forgital to U.S. alternative investment firm Stonepeak for over 1.5 billion euros ($1.55 billion).
(1 euro equals $0.9691)