|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Consolidated Operating Entities | | Consolidated Funds | | Eliminations | | Consolidated |
| (Dollars in millions) |
Revenues | | | | | | | |
Fund management fees | $ | 259.1 |
| | $ | — |
| | $ | (4.0 | ) | | $ | 255.1 |
|
Performance fees | | | | | | | |
Realized | 383.4 |
| | — |
| | — |
| | 383.4 |
|
Unrealized | (168.7 | ) | | — |
| | — |
| | (168.7 | ) |
Total performance fees | 214.7 |
| | — |
| | — |
| | 214.7 |
|
Investment income | | | | | | | |
Realized | 40.3 |
| | — |
| | 0.4 |
| | 40.7 |
|
Unrealized | 43.0 |
| | — |
| | (13.2 | ) | | 29.8 |
|
Total investment income | 83.3 |
| | — |
| | (12.8 | ) | | 70.5 |
|
Interest and other income | 5.4 |
| | — |
| | (0.1 | ) | | 5.3 |
|
Interest and other income of Consolidated Funds | — |
| | 43.0 |
| | — |
| | 43.0 |
|
Revenue of a real estate VIE | 18.7 |
| | — |
| | — |
| | 18.7 |
|
Total revenues | 581.2 |
| | 43.0 |
| | (16.9 | ) | | 607.3 |
|
Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Base compensation | 154.3 |
| | — |
| | — |
| | 154.3 |
|
Equity-based compensation | 81.4 |
| | — |
| | — |
| | 81.4 |
|
Performance fee related | | | | | | | |
Realized | 189.0 |
| | — |
| | — |
| | 189.0 |
|
Unrealized | (78.1 | ) | | — |
| | — |
| | (78.1 | ) |
Total compensation and benefits | 346.6 |
| | — |
| | — |
| | 346.6 |
|
General, administrative and other expenses | 188.9 |
| | — |
| | — |
| | 188.9 |
|
Interest | 15.6 |
| | — |
| | — |
| | 15.6 |
|
Interest and other expenses of Consolidated Funds | — |
| | 41.2 |
| | (8.9 | ) | | 32.3 |
|
Interest and other expenses of a real estate VIE | 82.1 |
| | — |
| | — |
| | 82.1 |
|
Other non-operating income | (3.7 | ) | | — |
| | — |
| | (3.7 | ) |
Total expenses | 629.5 |
| | 41.2 |
| | (8.9 | ) | | 661.8 |
|
Other income | | | | | | | |
Net investment gains of Consolidated Funds | — |
| | 4.8 |
| | — |
| | 4.8 |
|
Income (loss) before provision for income taxes | (48.3 | ) | | 6.6 |
| | (8.0 | ) | | (49.7 | ) |
Provision for income taxes | 1.0 |
| | — |
| | — |
| | 1.0 |
|
Net income (loss) | (49.3 | ) | | 6.6 |
| | (8.0 | ) | | (50.7 | ) |
Net loss attributable to non-controlling interests in consolidated entities | (27.7 | ) | | — |
| | (1.4 | ) | | (29.1 | ) |
Net income (loss) attributable to Carlyle Holdings | (21.6 | ) | | 6.6 |
| | (6.6 | ) | | (21.6 | ) |
Net loss attributable to non-controlling interests in Carlyle Holdings | (22.4 | ) | | — |
| | — |
| | (22.4 | ) |
Net income attributable to The Carlyle Group L.P. | $ | 0.8 |
| | $ | 6.6 |
| | $ | (6.6 | ) | | $ | 0.8 |
|
The Carlyle Group L.P.Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Consolidated Operating Entities | | Consolidated Funds | | Eliminations | | Consolidated |
| (Dollars in millions) |
Revenues | | | | | | | |
Fund management fees | $ | 738.5 | | | $ | 0 | | | $ | (10.8) | | | $ | 727.7 | |
Incentive fees | 17.9 | | | 0 | | | 0 | | | 17.9 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Investment income (loss) | | | | | | | |
Performance allocations | 254.2 | | | 0 | | | 0 | | | 254.2 | |
| | | | | | | |
| | | | | | | |
Principal investment income (loss) | (826.2) | | | 0 | | | 60.3 | | | (765.9) | |
| | | | | | | |
| | | | | | | |
Total investment income (loss) | (572.0) | | | 0 | | | 60.3 | | | (511.7) | |
Interest and other income | 49.8 | | | 0 | | | (6.6) | | | 43.2 | |
Interest and other income of Consolidated Funds | 0 | | | 108.2 | | | 0 | | | 108.2 | |
| | | | | | | |
Total revenues | 234.2 | | | 108.2 | | | 42.9 | | | 385.3 | |
Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Cash-based compensation and benefits | 416.8 | | | 0 | | | 0 | | | 416.8 | |
Equity-based compensation | 59.6 | | | 0 | | | 0 | | | 59.6 | |
Performance allocations and incentive fee related compensation | 93.1 | | | 0 | | | 0 | | | 93.1 | |
| | | | | | | |
| | | | | | | |
Total compensation and benefits | 569.5 | | | 0 | | | 0 | | | 569.5 | |
General, administrative and other expenses | 149.8 | | | 0 | | | 0 | | | 149.8 | |
Interest | 49.8 | | | 0 | | | 0 | | | 49.8 | |
Interest and other expenses of Consolidated Funds | 0 | | | 100.9 | | | (16.0) | | | 84.9 | |
| | | | | | | |
Other non-operating expenses | 0.7 | | | 0 | | | 0 | | | 0.7 | |
Total expenses | 769.8 | | | 100.9 | | | (16.0) | | | 854.7 | |
Other loss | | | | | | | |
Net investment losses of Consolidated Funds | 0 | | | (62.8) | | | 0 | | | (62.8) | |
Loss before provision for income taxes | (535.6) | | | (55.5) | | | 58.9 | | | (532.2) | |
Benefit for income taxes | (27.7) | | | 0 | | | 0 | | | (27.7) | |
Net loss | (507.9) | | | (55.5) | | | 58.9 | | | (504.5) | |
Net loss attributable to non-controlling interests in consolidated entities | (41.8) | | | 0 | | | 3.4 | | | (38.4) | |
Net loss attributable to The Carlyle Group Inc. | (466.1) | | | (55.5) | | | 55.5 | | | (466.1) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Consolidated Operating Entities | | Consolidated Funds | | Eliminations | | Consolidated |
| (Dollars in millions) |
Revenues | | | | | | | |
Fund management fees | $ | 827.5 |
| | $ | — |
| | $ | (10.4 | ) | | $ | 817.1 |
|
Performance fees | | | | | | | |
Realized | 905.3 |
| | — |
| | (0.2 | ) | | 905.1 |
|
Unrealized | (334.3 | ) | | — |
| | — |
| | (334.3 | ) |
Total performance fees | 571.0 |
| | — |
| | (0.2 | ) | | 570.8 |
|
Investment income | | | | | | | |
Realized | 92.7 |
| | — |
| | (0.5 | ) | | 92.2 |
|
Unrealized | 45.1 |
| | — |
| | (11.1 | ) | | 34.0 |
|
Total investment income | 137.8 |
| | — |
| | (11.6 | ) | | 126.2 |
|
Interest and other income | 16.3 |
| | — |
| | (1.3 | ) | | 15.0 |
|
Interest and other income of Consolidated Funds | — |
| | 107.8 |
| | — |
| | 107.8 |
|
Revenue of a real estate VIE | 61.5 |
| | — |
| | — |
| | 61.5 |
|
Total revenues | 1,614.1 |
| | 107.8 |
| | (23.5 | ) | | 1,698.4 |
|
Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Base compensation | 470.5 |
| | — |
| | — |
| | 470.5 |
|
Equity-based compensation | 265.8 |
| | — |
| | — |
| | 265.8 |
|
Performance fee related | | | | | | | |
Realized | 423.0 |
| | — |
| | — |
| | 423.0 |
|
Unrealized | (146.1 | ) | | — |
| | — |
| | (146.1 | ) |
Total compensation and benefits | 1,013.2 |
| | — |
| | — |
| | 1,013.2 |
|
General, administrative and other expenses | 362.6 |
| | — |
| | — |
| | 362.6 |
|
Interest | 46.3 |
| | — |
| | — |
| | 46.3 |
|
Interest and other expenses of Consolidated Funds | — |
| | 105.9 |
| | (18.6 | ) | | 87.3 |
|
Interest and other expenses of a real estate VIE | 157.9 |
| | — |
| | — |
| | 157.9 |
|
Other non-operating expenses | 0.8 |
| | — |
| | — |
| | 0.8 |
|
Total expenses | 1,580.8 |
| | 105.9 |
| | (18.6 | ) | | 1,668.1 |
|
Other income | | | | | | | |
Net investment gains of Consolidated Funds | — |
| | 3.1 |
| | — |
| | 3.1 |
|
Income before provision for income taxes | 33.3 |
| | 5.0 |
| | (4.9 | ) | | 33.4 |
|
Provision for income taxes | 32.7 |
| | — |
| | — |
| | 32.7 |
|
Net income | 0.6 |
| | 5.0 |
| | (4.9 | ) | | 0.7 |
|
Net loss attributable to non-controlling interests in consolidated entities | (29.9 | ) | | — |
| | 0.1 |
| | (29.8 | ) |
Net income attributable to Carlyle Holdings | 30.5 |
| | 5.0 |
| | (5.0 | ) | | 30.5 |
|
Net income attributable to non-controlling interests in Carlyle Holdings | 15.2 |
| | — |
| | — |
| | 15.2 |
|
Net income attributable to The Carlyle Group L.P. | $ | 15.3 |
| | $ | 5.0 |
| | $ | (5.0 | ) | | $ | 15.3 |
|
The Carlyle Group L.P.Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
| (Dollars in millions) |
Cash flows from operating activities | | | |
Net income (loss) | $ | 1,837.2 | | | $ | (507.9) | |
Adjustments to reconcile net income (loss) to net cash flows from operating activities: | | | |
Depreciation and amortization | 26.8 | | | 26.0 | |
Right-of-use asset impairment, net of broker fees | 24.8 | | | 0 | |
Equity-based compensation | 79.6 | | | 59.6 | |
| | | |
Non-cash performance allocations and incentive fees | (1,703.9) | | | 28.7 | |
Non-cash principal investment (income) loss | (313.3) | | | 841.2 | |
Other non-cash amounts | 5.5 | | | (10.7) | |
Purchases of investments | (161.3) | | | (255.1) | |
Proceeds from the sale of investments | 418.5 | | | 190.8 | |
Payments of contingent consideration | (49.9) | | | 0 | |
| | | |
| | | |
Change in deferred taxes, net | 481.9 | | | (61.6) | |
Change in due from affiliates and other receivables | (14.8) | | | (19.2) | |
| | | |
Change in deposits and other | (26.6) | | | (4.8) | |
| | | |
Change in accounts payable, accrued expenses and other liabilities | 25.4 | | | (46.5) | |
Change in accrued compensation and benefits | (113.9) | | | (125.4) | |
Change in due to affiliates | 24.5 | | | (28.2) | |
| | | |
Change in lease right-of-use asset and lease liability | 4.6 | | | (5.9) | |
Change in deferred revenue | 35.6 | | | (19.2) | |
Net cash provided by operating activities | 580.7 | | | 61.8 | |
Cash flows from investing activities | | | |
| | | |
Purchases of fixed assets, net | (17.6) | | | (23.7) | |
Proceeds from sale of MRE, net of cash sold | 5.9 | | | 0 | |
Net cash used in investing activities | (11.7) | | | (23.7) | |
Cash flows from financing activities | | | |
| | | |
Borrowings under credit facilities | 0 | | | 263.8 | |
Repayments under credit facilities | 0 | | | (295.6) | |
Issuance of 4.625% subordinated notes due 2061, net of financing costs | 484.2 | | | 0 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Payments on debt obligations | (229.4) | | | (1.5) | |
Proceeds from debt obligations, net of financing costs | 87.6 | | | 0 | |
| | | |
Payments of contingent consideration | 0 | | | (0.3) | |
| | | |
Dividends to common stockholders | (177.4) | | | (174.6) | |
| | | |
| | | |
Payment of deferred consideration for Carlyle Holdings units | (68.8) | | | (68.8) | |
Contributions from non-controlling interest holders | 7.4 | | | 14.0 | |
Distributions to non-controlling interest holders | (22.9) | | | (34.1) | |
| | | |
Common shares repurchased | (25.0) | | | (26.4) | |
Change in due to/from affiliates financing activities | 12.8 | | | 30.0 | |
Net cash provided by (used in) financing activities | 68.5 | | | (293.5) | |
Effect of foreign exchange rate changes | (9.9) | | | (13.6) | |
Increase (decrease) in cash, cash equivalents and restricted cash | 627.6 | | | (269.0) | |
Cash, cash equivalents and restricted cash, beginning of period | 989.6 | | | 828.0 | |
Cash, cash equivalents and restricted cash, end of period | $ | 1,617.2 | | | $ | 559.0 | |
| | | |
Reconciliation of cash, cash equivalents and restricted cash, end of period: | | | |
Cash and cash equivalents | $ | 1,586.2 | | | $ | 554.5 | |
Restricted cash | 31.0 | | | 4.5 | |
Total cash, cash equivalents and restricted cash, end of period | $ | 1,617.2 | | | $ | 559.0 | |
| | | |
Cash and cash equivalents held at Consolidated Funds | $ | 187.5 | | | $ | 98.0 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| (Dollars in millions) |
Cash flows from operating activities | | | |
Net income | $ | 711.5 |
| | $ | 0.6 |
|
Adjustments to reconcile net income to net cash flows from operating activities: | | | |
Depreciation and amortization | 30.9 |
| | 52.6 |
|
Equity-based compensation | 241.8 |
| | 265.8 |
|
Non-cash performance fees | (561.5 | ) | | 108.0 |
|
Other non-cash amounts | (8.2 | ) | | (19.2 | ) |
Investment income | (129.5 | ) | | (135.8 | ) |
Purchases of investments | (445.0 | ) | | (262.7 | ) |
Proceeds from the sale of investments | 302.7 |
| | 236.7 |
|
Payments of contingent consideration | (22.5 | ) | | (82.6 | ) |
Deconsolidation of Claren Road (see Note 9) | (23.3 | ) | | — |
|
Deconsolidation of Urbplan (see Note 15) | 14.0 |
| | — |
|
Change in deferred taxes, net | (8.7 | ) | | 3.7 |
|
Change in due from affiliates and other receivables | (78.8 | ) | | 0.7 |
|
Change in receivables and inventory of a real estate VIE | (14.5 | ) | | 45.1 |
|
Change in deposits and other | (7.1 | ) | | 6.0 |
|
Change in other assets of a real estate VIE | 1.6 |
| | 33.1 |
|
Change in accounts payable, accrued expenses and other liabilities | 1.9 |
| | 71.8 |
|
Change in accrued compensation and benefits | 42.2 |
| | 32.4 |
|
Change in due to affiliates | 15.0 |
| | (22.4 | ) |
Change in other liabilities of a real estate VIE | 47.9 |
| | (1.2 | ) |
Change in deferred revenue | 178.6 |
| | 154.9 |
|
Net cash provided by operating activities | 289.0 |
| | 487.5 |
|
Cash flows from investing activities | | | |
Change in restricted cash | 3.6 |
| | 1.8 |
|
Purchases of fixed assets, net | (26.0 | ) | | (13.3 | ) |
Net cash used in investing activities | (22.4 | ) | | (11.5 | ) |
Cash flows from financing activities | | | |
Proceeds from issuance of preferred units | 387.6 |
| | — |
|
Borrowings under credit facility | 250.0 |
| | — |
|
Repayments under credit facility | (250.0 | ) | | — |
|
Payments on debt obligations | (15.0 | ) | | — |
|
Proceeds from debt obligations | 202.6 |
| | 20.6 |
|
Net payments on loans payable of a real estate VIE | (14.3 | ) | | (27.3 | ) |
Payments of contingent consideration | (0.4 | ) | | (3.3 | ) |
Distributions to common unitholders | (63.0 | ) | | (98.5 | ) |
Distributions to non-controlling interest holders in Carlyle Holdings | (163.1 | ) | | (300.9 | ) |
Contributions from non-controlling interest holders | 87.7 |
| | 75.3 |
|
Distributions to non-controlling interest holders | (74.0 | ) | | (85.5 | ) |
Common units repurchased | (0.2 | ) | | (53.6 | ) |
Change in due to/from affiliates financing activities | 38.5 |
| | 49.5 |
|
Net cash provided by (used in) financing activities | 386.4 |
| | (423.7 | ) |
Effect of foreign exchange rate changes | 31.8 |
| | (0.5 | ) |
Increase in cash and cash equivalents | 684.8 |
| | 51.8 |
|
Cash and cash equivalents, beginning of period | 670.9 |
| | 991.5 |
|
Cash and cash equivalents, end of period | $ | 1,355.7 |
| | $ | 1,043.3 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
On January 1, 2020, we completed our conversion from a Delaware limited partnership named The Carlyle Group L.P. into a Delaware corporation named The Carlyle Group Inc. Pursuant to the Conversion, at the specified effective time on January 1, 2020, each common unit of The Carlyle Group L.P. outstanding immediately prior to the effective time converted into one share of common stock of The Carlyle Group Inc. and each special voting unit and general partner unit was canceled for no consideration. In addition, holders of the partnership units in Carlyle Holdings I L.P., Carlyle Holdings II L.P., and Carlyle Holdings III L.P. exchanged such units for an equivalent number of shares of common stock and certain other restructuring steps occurred (the conversion, together with such restructuring steps and related transactions, the “Conversion”).
Unless the context suggests otherwise, references in this report to “Carlyle,” the “Company,” “we,” “us” and “our” refer (i) prior to the consummation of the Conversion to The Carlyle Group L.P. and its consolidated subsidiaries and (ii) from and after the consummation of the Conversion to The Carlyle Group Inc. and its consolidated subsidiaries. References to our common stock in periods prior to the Conversion refer to the common units of The Carlyle Group L.P.
The following discussion analyzes the financial condition and results of operations of The Carlyle Group L.P.Inc. (the “Partnership”“Company”). Such analysis should be read in conjunction with the consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Overview
We conduct our operations through fourthree reportable segments: CorporateGlobal Private Equity, Real Assets, Global Market Strategies,Credit, and Investment Solutions.
Corporate•Global Private Equity — Our CorporateGlobal Private Equity segment advises our 21 buyout, middle market and 10 growth capital funds, which seek a wide variety of investments of different sizes and growth potentials. As of September 30, 2017, our Corporate Private Equity segment had over $56 billion in AUM and over $36 billion in Fee-earning AUM.
Real Assets — Our Real Assets segment advises our eleven U.S. and internationally focused real estate funds, our two infrastructurenatural resources funds, and our two power funds, our international energy fund, as well as our four Legacy Energy funds (funds that we jointly advise with Riverstone)(as defined below). The segment also includes fivethe NGP management fee fundsPredecessor Funds and four carry fundsNGP Carry Funds advised by NGP. As of SeptemberJune 30, 2017,2021, our Real AssetsGlobal Private Equity segment had approximately $40$150 billion in AUM and over $30$90 billion in Fee-earning AUM.
•Global Market StrategiesCredit — Our Global Market StrategiesCredit segment advises a group of 56 funds and vehicles that pursue investment opportunities acrossstrategies including loans and structured credit, direct lending, opportunistic credit, distressed debt, corporatecredit, and energy mezzanine debt,aircraft financing and middle-market and senior debt.servicing. As of SeptemberJune 30, 2017,2021, our Global Market StrategiesCredit segment had approximately $32$61 billion in AUM and over $26$46 billion in Fee-earning AUM.
•Investment Solutions — Our Investment Solutions segment advises global private equity and real estate fund of funds programs and related co-investment and secondary activities across 190 fund vehicles.activities. As of SeptemberJune 30, 2017,2021, our Investment Solutions segment had approximately $47$65 billion in AUM and over $30$38 billion in Fee-earning AUM.
Our Investment Solutions segment also included Metropolitan Real Estate (“MRE”) prior to its sale on April 1, 2021.We earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds. We also typically receive a performance fee from an investment fund which may be either an incentive fee or a special residual allocation of income, which we refer to as a performance allocation, or carried interest, in the event that specified investment returns are achieved by the fund. Under U.S. generally accepted accounting principles (“U.S. GAAP”), we are required to consolidate some of the investment funds that we advise. However, for segment reporting purposes, we present revenues and expenses on a basis that deconsolidates these investment funds. Accordingly, our segment revenues primarily consist of fund management and related advisory fees, realized performance feesrevenues (consisting of incentive fees and carried interestperformance allocations), realized principal investment income, including realized and unrealized gains on our investments in our funds and other trading securities, as well as interest and other income. Our segment expenses primarily consist of compensation and benefits expenses, including salaries, bonuses, realized performance payment arrangements, and equity-based compensation excluding awards granted in our initial public offering or in connection with acquisitions and strategic investments, and general and administrative expenses. While our segment expenses include depreciation and interest expense, our segment expenses exclude acquisition-relatedacquisition and disposition related charges and amortization of intangibles and impairment. Refer to Note 1614 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on the differences between our financial results reported pursuant to U.S. GAAP and our financial results for segment reporting purposes.
Our Family of Funds
The following chart presents the name (acronym), total capital commitments (in the case of our carry funds, structured credit funds, and the NGP management fee funds)Predecessor Funds), assets under management (in the case of structured products)(open-end products and non-carry Aviation vehicles), gross assets (in the case of our business development companies),BDCs) and vintage year of the active funds in each of our segments, as of SeptemberJune 30, 2017.2021. We present total capital commitments (as opposed to assets under management) for our closed-end investment funds because we
believe this metric provides the most useful information regarding the relative size and scale of such funds. In the case of our products which are open-ended and accordingly do not have permanent committed capital, we generally believe the most useful metric regarding relative size and scale is assets under management.
| | Global Private Equity1 | | Global Private Equity1 | | Global Credit |
Corporate Private Equity | Corporate Private Equity | | Real Assets | | Global Market Strategies | Corporate Private Equity | Real Estate Carry Funds | | Liquid Credit |
Buyout Carry Funds | | Real Estate Carry Funds | | Structured Credit | |
Carlyle Partners (U.S.) | Carlyle Partners (U.S.) | | Carlyle Realty Partners (U.S.) | | Cash CLOs | Carlyle Partners (U.S.) | Carlyle Realty Partners (U.S.) | | Cash CLOs |
CP VII | | CP VII | $18.5 bn | 2018 | CRP IX | $5.4 bn | 2021 | | U.S. | $22.2 bn | 2012-2021 |
CP VI | $13.0 bn | 2014 | | CRP VIII | $4.3 bn | 2017 | | U.S. | $15.7 bn | 2006-2017 | CP VI | $13.0 bn | 2014 | CRP VIII | $5.5 bn | 2017 | | Europe | €8.1 bn | 2013-2021 |
CP V | $13.7 bn | 2007 | | CRP VII | $4.2 bn | 2014 | | Europe | €8.1 bn | 2005-2017 | CP V | $13.7 bn | 2007 | CRP VII | $4.2 bn | 2014 | | Structured Credit Funds |
CP IV | $7.9 bn | 2005 | | CRP VI | $2.3 bn | 2011 | | Structured Credit Carry Funds | |
Global Financial Services Partners | Global Financial Services Partners | | CRP V | $3.0 bn | 2006 | | CSC | $817 mm | 2016 | Global Financial Services Partners | CRP VI | $2.3 bn | 2011 | | CREV | $0.5 bn | 2020 |
CGFSP III | $418 mm | 2017 | | CRP IV | $950 mm | 2005 | | CASCOF | $445 mm | 2015 | CGFSP III | $1.0 bn | 2018 | CRP V | $3.0 bn | 2006 | | CSC | $0.8 bn | 2017 |
CGFSP II | $1.0 bn | 2013 | | CRP III | $564 mm | 2001 | | Private Credit | CGFSP II | $1.0 bn | 2013 | CRP IV | $1.0 bn | 2005 | | Illiquid Credit |
CGFSP I | $1.1 bn | 2008 | | Carlyle Europe Real Estate Partners | | Business Development Company 1 | |
Carlyle Europe Partners | Carlyle Europe Partners | | CEREP III | €2.2 bn | 2007 | | TCG BDC, Inc. | $2.0 bn | 2013 | Carlyle Europe Partners | Core Plus Real Estate (U.S.) | | Business Development Companies3 |
CEP V | | CEP V | €6.4 bn | 2018 | CPI4 | $5.7 bn | 2016 | | TCG BDC II, Inc. | $2.2 bn | 2017 |
CEP IV | €3.7 bn | 2014 | | CEREP II | €763 mm | 2005 | | Corporate Mezzanine Carry Fund | CEP IV | €3.8 bn | 2014 | International Real Estate | | TCG BDC, Inc. | $2.0 bn | 2013 |
CEP III | €5.3 bn | 2007 | | Carlyle Asia Real Estate Partners | | CMP II | $553 mm | 2008 | CEP III | €5.3 bn | 2007 | CER | €0.5 bn | 2017 | | Opportunistic Credit Carry Funds |
CEP II | €1.8 bn | 2003 | | CCR | $120 mm | 2016 | | Opportunistic Credit Carry Funds | CEP II | €1.8 bn | 2003 | CEREP III | €2.2 bn | 2007 | | CCOF II | $2.5 bn | 2020 |
Carlyle Asia Partners | Carlyle Asia Partners | | CAREP II | $486 mm | 2008 | | CCOF | $757 mm | 2017 | Carlyle Asia Partners | Natural Resources Funds | | CCOF | $2.4 bn | 2017 |
CAP V | | CAP V | $6.6 bn | 2018 | NGP Energy Carry Funds | | Distressed Credit Carry Funds |
CBPF II | | CBPF II | RMB 2.0 bn | 2017 | NGP XII | $4.3 bn | 2017 | | CSP IV | $2.5 bn | 2016 |
CAP IV | $3.9 bn | 2014 | | Core Plus Real Estate (U.S.) | | Energy Credit Carry Funds | CAP IV | $3.9 bn | 2014 | NGP XI | $5.3 bn | 2014 | | CSP III | $0.7 bn | 2011 |
CBPF | RMB 2.0 bn | 2010 | | CPI | $1.1 bn | 2016 | | CEMOF II | $2.8 bn | 2015 | |
CAP III | $2.6 bn | 2008 | | Natural Resources Funds | | CEMOF I | $1.4 bn | 2011 | CAP III | $2.6 bn | 2008 | NGP X | $3.6 bn | 2012 | | CSP II | $1.4 bn | 2007 |
CAP II | $1.8 bn | 2006 | | Infrastructure Carry Funds | | Distressed Credit Carry Funds | |
Carlyle Japan Partners | Carlyle Japan Partners | | CGIOF | $597 mm | 2017 | | CSP IV | $2.5 bn | 2016 | Carlyle Japan Partners | Other NGP Carry Funds | | Real Assets Credit |
CJP IV | | CJP IV | ¥258.0 bn | 2020 | NGP Minerals | $0.3 bn | 2020 | | Energy Credit Carry Funds |
CJP III | ¥119.5 bn | 2013 | | CIP I | $1.1 bn | 2006 | | CSP III | $703 mm | 2011 | CJP III | ¥119.5 bn | 2013 | NGP GAP | $0.4 bn | 2014 | | CEMOF II | $2.8 bn | 2015 |
CJP II | ¥165.6 bn | 2006 | | Power Carry Funds | | CSP II | $1.4 bn | 2007 | CJP II | ¥165.6 bn | 2006 | NGP Predecessor Funds | | CEMOF I | $1.4 bn | 2011 |
Carlyle Mexico Partners | | CPP II | $1.5 bn | 2014 | | |
Mexico | $134 mm | 2005 | | CPOCP | $478 mm | 2013 | | |
Carlyle Global Partners | | Carlyle Global Partners | Various2 | $5.7 bn | 2007-2008 | | Carlyle Aviation Partners |
CGP II | | CGP II | $1.8 bn | 2020 | International Energy Carry Funds | | SASOF V | $1.0 bn | 2020 |
CGP I | | CGP I | $3.6 bn | 2015 | CIEP II | $2.3 bn | 2019 | | SASOF IV | $1.0 bn | 2018 |
Carlyle MENA Partners | Carlyle MENA Partners | | International Energy Carry Fund | | Investment Solutions | Carlyle MENA Partners | CIEP I | $2.5 bn | 2013 | | SASOF III | $0.8 bn | 2015 |
MENA I | $471 mm | 2008 | | CIEP | $2.5 bn | 2013 | | AlpInvest | MENA I | $0.5 bn | 2008 | Infrastructure Funds | | SASOF II | $0.6 bn | 2012 |
Carlyle South America Buyout Fund | | NGP Energy Carry Funds | | Fund of Private Equity Funds | |
Carlyle South American Buyout Fund | | Carlyle South American Buyout Fund | CRSEF | $0.7 bn | 2019 | | Securitization Vehicles4 | $1.8 bn | Various |
CSABF I | $776 mm | 2009 | | NGP XII | $696 mm | 2017 | | 64 vehicles | €41.4 bn | 2000-2017 | CSABF I | $0.8 bn | 2009 | CGIOF | $2.2 bn | 2019 | | 9 Other Vehicles4 | $2.8 bn | Various |
Carlyle Sub-Saharan Africa Fund | Carlyle Sub-Saharan Africa Fund | | NGP XI | $5.3 bn | 2014 | | Secondary Investments | Carlyle Sub-Saharan Africa Fund | CPP II | $1.5 bn | 2014 | | Other Credit |
CSSAF I | $698 mm | 2012 | | NGP X | $3.6 bn | 2012 | | 47 vehicles | €14.6 bn | 2002-2017 | CSSAF I | $0.7 bn | 2012 | CPOCP | $0.5 bn | 2013 | | Fortitude5 | $2.8 bn | 2020 |
Carlyle Peru Fund | Carlyle Peru Fund | | NGP Agribusiness Carry Fund | | Co-Investments | Carlyle Peru Fund | | | | | |
CPF I | $308 mm | 2012 | | NGP GAP | $402 mm | 2014 | | 48 vehicles | €14.2 bn | 2000-2017 | CPF I | $0.3 bn | 2012 | | | Investment Solutions6 |
Carlyle Global Partners | | NGP Management Fee Funds | | Metropolitan Real Estate | |
CGP | $3.6 bn | 2015 | | Various 2 | $7.2 bn | 2004-2008 | | Real Estate Fund of Funds | |
Growth Carry Funds | | Legacy Energy Carry Funds | | 31 vehicles | $3.6 bn | 2002-2017 | |
Carlyle U.S. Venture/Growth Partners | Carlyle U.S. Venture/Growth Partners | | Carlyle/Riverstone Global Energy | | Carlyle U.S. Venture/Growth Partners | | | AlpInvest |
CEOF II | $2.4 bn | 2015 | | Energy IV | $6.0 bn | 2008 | | CEOF II | $2.4 bn | 2015 | | | Fund of Private Equity Funds |
CEOF I | $1.1 bn | 2011 | | Energy III | $3.8 bn | 2005 | | CEOF I | $1.1 bn | 2011 | | | 110 vehicles | €47.0 bn | 2000-2021 |
CUSGF III | $605 mm | 2006 | | Energy II | $1.1 bn | 2003 | | |
CVP II | $602 mm | 2001 | | Carlyle/Riverstone Renewable Energy | | CVP II | $0.6 bn | 2001 | | | Secondary Investments |
Carlyle Europe Technology Partners | Carlyle Europe Technology Partners | | Renew II | $3.4 bn | 2008 | | Carlyle Europe Technology Partners | | | 85 vehicles | €25.1 bn | 2002-2021 |
CETP IV | | CETP IV | €1.4 bn | 2019 | | | Co-Investments |
CETP III | €657 mm | 2014 | | CETP III | €0.7 bn | 2014 | | | 80 vehicles | €19.7 bn | 2002-2021 |
CETP II | €522 mm | 2008 | | |
Carlyle Asia Venture/Growth Partners | Carlyle Asia Venture/Growth Partners | | Carlyle Asia Venture/Growth Partners | | | |
CAGP V | $292 mm | 2017 | | |
CAP Growth II | | CAP Growth II | $0.5 bn | 2021 | | |
CAP Growth I | | CAP Growth I | $0.3 bn | 2017 | | |
CAGP IV | $1.0 bn | 2008 | | CAGP IV | $1.0 bn | 2008 | | |
CAGP III | $680 mm | 2005 | | |
Carlyle Cardinal Ireland | Carlyle Cardinal Ireland | | Carlyle Cardinal Ireland | | |
CCI | €292 mm | 2014 | | CCI | €0.3 bn | 2014 | | |
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Note: All amounts shown represent total capital commitments as of SeptemberJune 30, 20172021 unless otherwise noted. Certain of our recent vintage funds are currently in fundraising and total capital commitments are subject to change. In addition, certain carry funds included herein may be disclosed which are not included in fund performance if they have not made an initial capital call or commenced investment or calledactivity. The NGP funds are advised by NGP Energy Capital Management, LLC, a separately registered investment adviser, and we do not serve as an investment adviser to those funds.
(1)Global Private Equity also includes funds which we jointly advise with Riverstone Holdings L.L.C. (the “Legacy Energy funds”). The impact of these funds is no longer significant to our results of operations.
(2)Includes NGP M&R, NGP ETP II, and NGP IX, on which we are not entitled to a share of carried interest.
(3)Amounts represent gross assets plus any available capital for investments or fees.
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(1) | Amounts represent gross assets as of September 30, 2017. |
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(2) | Includes NGP ETP I, NGP M&R, NGP ETP II, NGP VIII and NGP IX. |
as of June 30, 2021.
(4)Amounts represent Total AUM as of June 30, 2021.
(5)Reflects AUM related to capital raised from third-party investors to acquire a 76.6% interest in Fortitude Holdings.
(6)On April 1, 2021, we completed the sale of our interest in Metropolitan Real Estate.
Trends Affecting our Business
Expectations for global economicGlobal growth generally have strengthened since the end ofin the second quarter of 2021 was largely consistent with upward revisions to the International Monetary Fund’s globalfrom earlier this year as advanced economies experienced strong sequential growth forecasts for both 2017driven by vaccine distribution and 2018. Public andgovernment stimulus. Our proprietary data suggest manufacturing and related trade flows have been responsible for mostthat U.S. gross domestic product (GDP) grew at a 9.1% annualized rate from the first quarter of 2021, while the euro zone economy expanded at a 6% annualized rate. Growth in much of the rest of the world also strengthened relative to the first quarter, with China’s economy expanding at a 5.3% annualized rate, up from just 1.6% in Q1 2021.
The acceleration in global growth. Our proprietary portfolio economic data also indicates that trade-sensitive industrial orders have been growing at their fastest rates since 2011, which has supported earnings growth across our global portfolio duringactivity and pandemic-related disruptions caused inflation to reach levels not seen in over a decade, with the first three quarters of 2017.
While real growth rates appear to have accelerated, inflation continues to fall short of central bank targets. In the U.S., the core PCEconsumer price index (the Federal Reserve’s preferred measure of inflation) roseincreasing by just 1.3%5.4% in the twelve months ending in August 2017June. Above-forecast inflation has translated into increased volatility in financial markets, as market participants react to both the data and central banks’ expected response to it. Expectations that the Fed would have to raise policy rates sooner than previously expected caused yields on the 10-year U.S. Treasury note to fall by more than 25 basis points from March 2021, stabilizing between 1.3% and 1.4%. Market participants expected that higher short-term rates in 2022 and 2023 will translate to less inflation in future years. Sub-investment grade corporate bond yields declined in tandem with U.S. treasuries as spreads continued to tighten. As of late July, B-rated U.S. corporate spreads had declined by roughly 40 basis points since the start of the year.
The broad economic reopening has remained belowalso resulted in a tightening of labor markets. During the Fed’s 2% target since April 2012. The Euro area core inflation rate was even lower at 1.1% for the twelve months ending in September 2017. As market surveys and our portfolio data currently do not point to signs of price pressuresquarter, businesses in the market, central banks are expectedU.S. and globally found it increasingly difficult to keep policy interest rates low despite continued declinesfill open positions, across a wide variety of skill levels. While this will likely increase technological utilization, it will also result in unemployment. The U.S. 10-year Treasury yield stood at 2.3% in mid-October, roughly unchanged fromhigher compensation expense than many firms anticipated entering the end of theyear.
The second quarter while the spread between the 10-year and two-year Treasury yields fell to 0.75%, its lowest level since November 2007. Stronger real growth and low longer-term interest rates led towas a further strengthening of risk appetite in the third quarter. The MSCI World Index advanced 6.6% andrecord setting period for equity markets as the S&P 500 added 5.3% both over the period from July 1 through October 24, bringing the year-to-date gains in the S&P 500 to 13.5%. Both realized and implied volatility remained well below historic averages during the third quarter.
Private equity has benefited from these favorable financial market conditions, which have resulted in tight credit spreads on portfolio company loan and bond issuances and a healthy fundraising environment. Credit spreads on B-rated corporate credit declined below 350 basis points in the third quarterbreached 4,300 for the first time, driven by strong corporate earnings and low interest rates. Second quarter corporate earnings estimates are expected to increase 70% from year over year recession levels but are also up 7.2% from strong Q1 2021 results. In the second quarter, the Dow Jones, S&P 500, and NASDAQ 100 rose 4.6%, 8.2%, and 11.2% respectively. Globally, over the second quarter of 2021, the MSCI ACWI, EuroStoxx 600 and Shanghai Composite rose 5.0%, 5.4%, and 4.3% respectively.
Our carry fund portfolio extended the strong positive trend experienced since 2014 due, in part, to a historically low trailing high-yield default ratethe first quarter of 2.3% (measured globally). According to Thomson Reuters, global private equity-backed M&A activity reached $212 billion year-to-date2020, appreciating 11% in the thirdsecond quarter and 25% year-to-date. Within our Global Private Equity segment, our corporate private equity funds appreciated 12% in the second quarter driven by strong gains in our U.S., Europe and Asia portfolios, our real estate funds appreciated 11% in the second quarter, continuing their attractive performance, and our natural resources funds appreciated 9%, boosted by the effect of 2017,rising commodity prices on our energy-focused investments. In our Global Credit segment, our carry funds (which represent approximately 17% of the total Global Credit remaining fair value) appreciated 8% in the second quarter, reflecting continued positive portfolio company performance. Our Investment Solutions funds appreciated 12% in the second quarter, which generally reflects investment fair values on a 25% increase relativeone-quarter lag in the valuations of our primary and secondary fund of funds.
With continued positive impact from valuations across the portfolio, net accrued performance revenues on our balance sheet reached another high at $4.0 billion at June 30, 2021, up 72% from December 31, 2020. The portion of our traditional carry funds attributable to publicly traded companies is 18% of fair value as of June 30, 2021, compared to 15% as of December 31, 2020 and 6% as of December 31, 2019. While our publicly traded investments have performed well to date overall, this shift may result in an increasing correlation to public market performance and a significant concentration of investment gains in individual investments for certain funds. To the same periodextent that there is volatility in 2016public equity markets and/or the prices of our publicly-traded portfolio companies, there may be elevated volatility in our performance revenue accrual in the coming quarters. For example, as of June 30, 2021, approximately 40% of our net accrued performance revenues were generated by Carlyle Partners VI, L.P. (“CP VI”), which has over 65% of its remaining fair value in publicly-traded portfolio companies.
We generated $8.7 billion in realized proceeds from our carry funds in the second quarter. We believe that the high level of public securities and maturing portfolio position us well to deliver higher levels of both realized proceeds and realized performance revenue over the highest totallong term. For example, during the second quarter we realized performance revenues for the first three quarterstime from our fourth Asia Buyout fund and our eighth U.S. Real Estate fund, and approximately 70% of a year since 2007. Nearly $100 billionour net accrued performance revenues are in private equity capital commitments closed infunds from which we are currently realizing performance revenues. We have announced several exit transactions that we expect will close during the third quarter, bringing total fundraising forsecond half of the year, to roughly $300 billionwhich we anticipate will generate at least $500 million of net realized performance revenues. These exits include Atotech, Pharmaceutical Product Development and raising total industry “dry powder” above $963 billion.Novetta in CP VI, AMEOS Group in Carlyle Europe Partners III, L.P. (“CEP III”) and The Bountiful Company in Carlyle Partners V, L.P. and CEP III.
While the increase in new capital commitments has raised concerns about too much capital chasing a finite number of investment opportunities, we believe that recent fundraising activity across the industry is commensurate with the size of the market opportunity for two primary reasons. First, asset values have been increasing substantially over the past decade. Year-to-date commitments to buyout funds in the U.S. amount to just 0.64% of U.S. stock market capitalization, 60% less than the peak ratio of 1.6% recorded in 2007. Second, there has been a secular shift in corporate finance away from initial public offerings and other public listings toward take private transactions and private financial solutions. Over the past 20 years, the number of public companies in the U.S. has shrunk by half from nearly 8,000 to just 3,500, while the number of private equity-backed companies has grown five-fold, from 1,462 in 2000 to more than 7,580 in 2016. The decline in the number of public companies has been fueled by a drop in the micro, small, and midcap companies that once constituted the “growth stocks” of public portfolios. Relative to their late-1990s peak, initial public offerings were down by 80% in 2016, as entrepreneurs increasingly seemed to prefer to raise capital and access liquidity by selling to a private equity investor rather than going public. In particular, private equity funds (including our funds) tend to invest in fast-growing private companies as these companies provide a particular value creation opportunity, in our case driven by the ability to leverage the resources of our OneCarlyle network.
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While higher asset valuations may continue to put downward pressure on rates of return for new investments across all asset classes, we remain confident in our ability to find investment opportunities that meet the investment criteria and strategic focus of our investment funds. During the thirdsecond quarter, weour carry funds invested $6.9$8.1 billion in new or follow-on transactions, and we have invested nearly $21announced or signed an additional $6.0 billion of new or follow-on transactions expected to close in the coming quarters. We have deployed capital at a pace faster than in recent years, investing more than $26 billion over the last twelve months. We also generated $8.4 billion in realized proceeds inmonths, and we anticipate the third quarter, and $26.5 billion over the last twelve months. Our diverse fund mandates, geographical footprint, and experienced investment teams continue to combine to generate a high level of investment lead generation.market activity and opportunities for large buyouts will facilitate strong deployment activity throughout the remainder of 2021, particularly in the healthcare, technology, and consumer sectors.
DuringAt our Investor Day in February 2021, we announced our goal of raising at least $130 billion by the third quarter, our overall carry fund portfolio appreciated by 3%end of 2024. Fundraising has been strong during the first half of the year, and is up 19%we are ahead of schedule in fundraising for the last twelve months. In the third quarter, our Corporate Private Equity funds appreciated by 4%, our real estate funds appreciated by 3% and our natural resources funds appreciated by 5%. The valuationsome of our Global Market Strategies carry funds was flatlarge successor funds. We raised $10.4 billion in new capital in the thirdsecond quarter, with the first closing in our ninth U.S. Real Estate fund, as well as continued strength in distressed credit offset by weaknessGlobal Credit and Investment Solutions. Additionally, we launched fundraising on our eighth flagship U.S. Buyout fund in energy debt funds. Dollar denominated appreciation in Investment Solutions was 2.5%, but as AlpInvest funds are primarily denominated in Euros, they were negatively impacted by the strength of the Euro relativesecond quarter. We have raised $18.2 billion year to the U.S. dollar during the quarter. Our private carry fund portfolio appreciated by 3% and our public carry fund portfolio appreciated by 2% during the third quarter, each excluding Investment Solutions.
date.
We are working to raise $100 billion in grossclosely evaluating the financial and other proposals put forth by the new capital over the four-year period that began in 2016Administration and will continue through the end of 2019. During the third quarter of 2017, we raised $7.1 billion of new capitalCongress and we raised $22.1 billion of gross new capital over the last twelve months. We expect that the pace of fundraising will accelerate for the remainder of 2017 and into 2018 as our largest flagship buyout funds proceed through the fundraising cycle. As we have previously indicated, fundraising activity generates one-time costs that are incurred upon the closing of new commitments. As these new commitments may not generate fees for several quarters, we will incur costs ahead of revenues. These costs are likely to increase in the fourth quarter and into 2018 because our largest buyout funds are actively fundraising for new commitments. When fees on those new commitments are activated, we expect to see an increase in Fee-Earning AUM and a similar increase in management fee revenue. Pending Fee-Earning AUM, which is capital that we have raised, but on which we have not yet activated fees, was $5.5 billion at September 30, 2017, down from $8.6 billion at June 30, 2017, primarily due to the activation of feestheir potential impacts on our mostbusiness. While there may be changes to current tax and regulatory regimes, recent vintage U.S. real estate fund.
Duringfiscal stimulus and proposed infrastructure packages could be followed by longer-term spending increases. The potential for policy changes may create regulatory uncertainty for our portfolio companies and our investment strategies and could adversely affect our profitability and the third quarter, we continued to invest our resources in further expanding and supporting our global credit business. We continued to identify and retain leaders in the industry to enhance our global credit team, which continues to aggressively focus on opportunities in the global credit space. As we continue to hire new employees, expand our global credit operations and compensate existing employees for an active and successful year and to incentivize future performance, we anticipate that expenses across the firm will be elevated as compared to prior periods.
In October 2017 we announced that effective January 1, 2018, Kewsong Lee and Glenn Youngkin will succeed Bill Conway and David Rubenstein as Co-Chief Executive Officers of the firm. Carlyle’s three founders (Bill Conway, Daniel D’Aniello and David Rubenstein) will remain actively involved in our business with Messrs. Conway and Rubenstein serving as Co-Executive Chairmen of the Board of Directors of the general partner of the Partnership, Mr. Conway also serving as Co-Chief Investment Officer, Mr. D’Aniello serving as Chairman Emeritus and all threeprofitability of our founders continuing to serve as members of the firm’s executive group. Peter Clare has been named Co-Chief Investment Officer alongside Bill Conway and remains co-head of Carlyle’s U.S. Buyout team. Messrs. Clare, Lee and Youngkin also will be joining the Board of Directors of the general partner of the Partnership. We do not anticipate that these leadership transitions will result in changes to our investment process or investment teams.portfolio companies.
Recent Transactions
Distributions
Dividends
In October 2017,July 2021, the Company’s Board of Directors of our general partner declared a quarterly distributiondividend of $0.56$0.25 per common unitshare to common unitholdersstockholders of record at the close of business on NovemberAugust 10, 2017,2021, payable on November 16, 2017.August 17, 2021.
On September 13, 2017, Carlyle issued 16 million of its 5.875% Series A Preferred Units (the “Preferred Units”) at a price of $25.00 per unit for total gross proceeds of $400 million, or $387.6 million, net of issuance costs and expenses. Distributions on the Preferred Units, when and if declared, will be payable quarterly on the 15th day of March, June, September and December of each year,beginning December 15, 2017. Distributions on the Preferred Units are discretionary and non-cumulative. The Board of Directors of our general partner has declared a quarterly distribution of $0.375347 per Preferred Unit to holders of record at the close of business on December 1, 2017, payable on December 15, 2017. The first distribution on the Preferred Units is calculated based on the date of original issuance. See Note 14 of our unaudited condensed consolidated financial statements for more information.
Key Financial Measures
Our key financial measures are discussed in the following pages. Additional information regarding these key financial measures and our other significant accounting policies can be found in Note 2 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Revenues
Revenues primarily consist of fund management fees, performanceincentive fees, investment income including(including performance allocations), realized and unrealized gains of our investments in our funds and other principal investments, as well as interest and other income.
Fund Management Fees. Fund management fees include management fees and transaction and portfolio advisory fees. We earn management fees for advisory services we provide to funds in which we hold a general partner interest or with which we have an investment advisory or investment management agreement. Additionally, management fees include catch-up
management fees, which are episodic in nature and represent management fees charged to fund investors in subsequent closings of a fund which apply to the time period between the fee initiation date and the subsequent closing date. Approximately 90% of our fee revenue is in the form of management fees from traditional closed-end, long-dated funds, which are highly predictable and stable, and do not have significant exposure to the underlying fund valuations.
Management fees attributable to Carlyle Partners VI,VII, L.P. (“CP VI”VII”), our sixthseventh U.S. buyout fund with approximately $12.0$17.5 billion of Fee-earning AUM as of SeptemberJune 30, 2017,2021 were approximately 15% of total management fees recognized during the three months ended September 30, 2017 and 16% of total management fees recognized during the ninethree and six months ended SeptemberJune 30, 2017. Management fees attributable to CP VI were approximately 15%2021, respectively, and 17% of total management fees recognized during both the three and ninesix months ended SeptemberJune 30, 2016, respectively.2020. No other fund generated over 10% of total management fees in the periods presented.
Fund management fees exclude the reimbursement of any partnership expenses paid by the PartnershipCompany on behalf of the Carlyle funds pursuant to the limited partnership agreements, including amounts related to the pursuit of actual, proposed, or unconsummated investments, professional fees, expenses associated with the acquisition, holding and disposition of investments, and other fund administrative expenses.
Transaction and Portfolio Advisory Fees.Transaction and portfolio advisory fees aregenerally include fees we receive for the transaction and portfolio advisory services we provide to our portfolio companies. When covered by separate contractual agreements, we recognize transaction and portfolio advisory fees for these services when the serviceperformance obligation has been providedsatisfied and collection is reasonably assured. We are required to offset our fund management fees earned by a percentage of the transaction and advisory fees earned, which we refer to as the “rebate offsets.” SuchHistorically, such rebate offset percentages generally approximateapproximated 80% of the fund’s portion of the transaction and advisory fees earned. However, the percentage of transaction and portfolio advisory fees we share with our investors on our recent vintage funds has generally increased, and as such the rebate offset percentages generally range from 80% to 100% of the fund’s portion of the transaction and advisory fees earned, such that a larger share of the transaction fee revenue we retain is driven by co-investment activity. In addition, Carlyle
Global Capital Markets (“GCM”) generates capital markets fees in connection with activities related to the underwriting, issuance and placement of debt and equity securities, and loan syndication for our portfolio companies and third-party clients, which are generally not subject to rebate offsets with respect to our most recent vintages (but are subject to the rebate offsets set forth above for older funds). Underwriting fees include gains, losses and fees arising from securities offerings in which we participate in the underwriter syndicate. The recognition of portfolio advisory fees, transactions fees, and transactionscapital markets fees can be volatile as they are primarily generated by investment activity within our funds, and therefore are impacted by our investment pace. We have received
Incentive Fees. Incentive fees consist of performance-based incentive arrangements pursuant to management contracts, primarily from certain of our Global Credit funds, when the return on assets under management exceeds certain benchmark returns or other performance targets. In such arrangements, incentive fees are recognized when the performance benchmark has been achieved.
Investment Income. Investment income consists of our performance allocations as well as the realized and expect to continue to receive requestsunrealized gains and losses resulting from a variety of investorsour equity method investments and groups representing investors to increase the percentage of transaction and advisory fees we share with our investors in future funds; to the extent that we accommodate such requests on future funds, the rebate offset percentages would increase relative to historical levels.other principal investments.
Performance Fees. Performance feesallocations consist principally of the performance-based capital allocation from fund limited partners to us, commonly referred to as carried interest, from certain of our investment funds, which we refer to as the “carry funds.” Carried interest revenue which historically has comprised over 80% of all performance fees in our consolidated financial statements, is recognized by Carlyle upon appreciation of the valuation of our funds'funds’ investments above certain return hurdles as set forth in each respective partnership agreement and is based on the amount that would be due to us pursuant to the fund partnership agreement at each period end as if the funds were liquidated at such date. Accordingly, the amount of carried interest recognized as performance feesallocations reflects our share of the fair value gains and losses of the associated funds'funds’ underlying investments measured at their then-current fair values relative to the fair values as of the end of the prior period. As a result, the performance feesallocations earned in an applicable reporting period are not indicative of any future period, as fair values are based on conditions prevalent as of the reporting date. Refer to “— Trends Affecting our Business” for further discussion.
In addition to itsthe performance feesallocations from our CorporateGlobal Private Equity and Real Assets funds and closed-end carry funds in the Global Market StrategiesCredit segment, we are also entitled to receive performance feesallocations from our Investment Solutions, Carlyle Aviation and NGP carry funds.Carry Funds. We also retained our interest in the net accrued performance allocations of existing funds at the time of the sale of MRE. The timing of performance feeallocations realizations for these funds is typically later than in our other carry funds based on the terms of such arrangements.
Our performance feesallocations are generated by a diverse set of funds with different vintages, geographic concentration, investment strategies and industry specialties. For an explanation of the fund acronyms used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, refer to “— Our Family of Funds.”
Performance feesallocations in excess of 10% of the total for the three and six months ended SeptemberJune 30, 20172021 and 2020 were generated from the following funds:
$74.2 million from CP VI (with total AUM of approximately $14.6 billion),
$36.7 million from Carlyle International Energy Partners, L.P. (“CIEP”) (with total AUM of approximately $2.7 billion),
$33.7 million from Carlyle Partners V, L.P. (“CP V”) (with total AUM of approximately $5.6 billion), and
$(34.2) million from Carlyle Equity Opportunity Fund, L.P. (“CEOF”) (with total AUM of approximately $1.1 billion).
Performance fees in excess of 10% of the total for the nine months ended September 30, 2017 were generated from the following funds:
$471.5 million from CP VI,
$286.7 million from CP V, and
$221.7 million from Carlyle Asia Partners IV, L.P. (“CAP IV”).
Performance fees in excess of 10% of the total for the three months ended September 30, 2016 were generated primarily from the following funds:
•$183.4 million from CP VI,
•$(53.1) million from Carlyle Realty Partners V, L.P. (“CRP V”), and
•$(22.4) million from Carlyle Asia Partners III, L.P. (“CAP III”).
Performance fees in excess of 10% of the total for the nine months ended September 30, 2016 were generated primarily from the following funds:
•$184.8 million from CP VI,
•$79.2 million from CP V, and
•$74.2 million from CRP VII. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, | | Six Months Ended June 30, |
2021 | | 2020 | | 2021 | | 2020 |
(Dollars in millions) |
| | | | | | | | | | |
CP VI | $ | 532.2 | | | CP VI | $ | 1,126.2 | | | CP VI | $ | 1,067.8 | | | CP VI | $ | 567.6 | |
CEOF II | 208.4 | | | | | | CEP IV | 478.0 | | | CAP IV | 190.5 | |
| | | | | | | | | CETP III | 34.7 | |
| | | | | | | | | CIEP | (160.1) | |
| | | | | | | | | CP V | (57.3) | |
| | | | | | | | | CEOF | (45.7) | |
| | | | | | | | | Alpinvest Co - & Secondary Investments 2006-2008 | (30.2) | |
| | | | | | | | | CEP III | (30.2) | |
| | | | | | | | | CAP V | (29.4) | |
| | | | | | | | | | |
No other fund generated over 10% of performance feesallocations in the periods presented above. Performance allocations from CP VI during the three and six months ended June 30, 2021 were driven by appreciation across the portfolio, with notable increases in the values of the publicly traded investments in the portfolio and private investments with pending sale
transactions. During the three months ended March 31, 2020, our carry fund portfolio experienced depreciation driven by the turbulence in the global economies, which resulted in the reversal of $558.6 million in previously recognized performance allocations in CP VI, which it subsequently more than recovered during the three months ended June 30, 2020. As a result, performance allocations generated by CP VI during the three months ended June 30, 2020 were in excess of performance allocations generated during the six months ended June 30, 2020.
Under our arrangements with the historical owners and management team of AlpInvest, we generally do not retain any carried interest in respect of the historical investments and commitments to our fund vehicles that existed as of July 1, 2011 (including any options to increase any such commitments exercised after such date). We are entitled to 15% of the carried interest in respect of commitments from the historical owners of AlpInvest for the period between 2011 and 2020, except in certain instances, and 40% of the carried interest in respect of all other commitments (including all future commitments from third parties). In certain instances, carried interest associated with the AlpInvest fund vehicles is subject to entity level income taxes in the Netherlands.
Realized carried interest may be clawed back or given back to the fund if the fund’s investment values decline below certain return hurdles, which vary from fund to fund. When the fair value of a fund’s investments remains constant or falls below certain return hurdles, previously recognized performance feesallocations are reversed. In all cases, each investment fund is considered separately in evaluating carried interest and potential giveback obligations. For any given period, performance feeallocations revenue on our statement of operations may include reversals of previously recognized performance feesallocations due to a decrease in the value of a particular fund that results in a decrease of cumulative performance feesallocations earned to date. Since fund return hurdles are cumulative, previously recognized performance feesallocations also may be reversed in a period of appreciation that is lower than the particular fund’s hurdle rate. For the three months ended SeptemberJune 30, 20172021 and 2016,2020, the reversals of performance feesallocations were $60.7$8.1 million and $121.8$97.5 million, respectively. For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the reversals of performance feesallocations were $90.0$10.0 million and $95.0$638.3 million, respectively. Additionally, unrealized performance allocations reverse when performance allocations are realized, and unrealized performance allocations can be negative if the amount of realized performance allocations exceed total performance allocations generated in the period.
As of SeptemberJune 30, 2017,2021, accrued performance feesallocations and accrued giveback obligations were approximately $3.5$8.1 billion and $67.6$21.0 million, respectively. Each balance assumes a hypothetical liquidation of the funds’ investments at SeptemberJune 30, 20172021 at their then current fair values. These assets and liabilities will continue to fluctuate in accordance with the fair values of the fundfunds’ investments until they are realized. As of SeptemberJune 30, 2017, approximately $38.32021, $9.9 million of the accrued giveback obligation is the responsibility of various current and former senior Carlyle professionals and other limited partners of the Carlyle Holdings partnerships, and the net accrued giveback obligation attributable to Carlyle Holdingsthe Company is $29.3$11.1 million. The PartnershipCompany uses “net accrued performance fees”revenues” to refer to the aggregation of the accrued performance allocations and incentive fees net of (i) accrued giveback obligations, (ii) accrued performance feeallocations and incentive fee-related compensation, (iii) performance allocations and incentive fee-related tax obligations, and (iv) accrued performance allocations and incentive fees attributable to non-controlling interests and excludes any net accrued performance allocations and incentive fees that have been realized but will be collected in subsequent periods. Net accrued performance feesrevenues as of SeptemberJune 30, 20172021 are $1.5$4.0 billion.
In addition, realized performance feesallocations may be reversed in future periods to the extent that such amounts become subject to a giveback obligation. If, at SeptemberJune 30, 2017,2021, all investments held by our carry funds were deemed worthless, the amount of realized and previously distributed performance feesallocations subject to potential giveback would be approximately $0.8$0.7 billion on an after-tax basis where applicable.applicable, of which approximately $0.3 billion would be the responsibility of current and former senior Carlyle professionals. See the related discussion of “Contingent Obligations (Giveback)” within “— Liquidity and Capital Resources.” Since Carlyle’s inception,
The following table summarizes the total amount of aggregate giveback obligations that we have realized a total of approximately $217.8 million in aggregate giveback obligations. Approximately $37.3 millionsince Carlyle’s inception. Given various current and former senior Carlyle professionals and other former limited partners of the $217.8 million in aggregateCarlyle Holdings partnerships are responsible for paying the majority of the realized giveback obligationsobligation, the table below also summarizes the amount that was attributable to Carlyle Holdings. the Company:
| | | | | | | | | | | |
| Inception through June 30, 2021 |
| Total Giveback | | Giveback Attributable to Carlyle |
| (Dollars in millions) |
Various Legacy Energy Funds | $ | 158.0 | | | $ | 55.0 | |
All other Carlyle Funds | 58.1 | | | 0.6 | |
Aggregate Giveback since Inception | $ | 216.1 | | | $ | 55.6 | |
The funding for employee obligations and givebacks related to carry realized pre-IPO is primarily through a collection of employee receivables related to giveback obligations and from non-controlling interests for their portion of the obligation. The realization of giveback obligations for the Partnership'sCompany’s portion of such obligations reduces Distributable Earnings in the period realized and negatively impacts earnings available for distributiondistributions to unitholders in the period realized. Further, each individual recipient of realized carried interest typically signs a guarantee agreement or partnership agreement that personally obligates such person to return his/her pro rata share of any amounts of realized carried interest previously distributed that are later clawed back. Accordingly, carried interest as performance feeallocation compensation is subject to return to the PartnershipCompany in the event a giveback obligation is funded. Generally, the actual giveback liability, if any, does not become due until the end of a fund'sfund’s life.
Each investment fund is considered separately in evaluating carried interest and potential giveback obligations. As a result, performance feesallocations within funds will continue to fluctuate primarily due to certain investments within each fund constituting a material portion of the carry in that fund. Additionally, the fair value of investments in our funds may have substantial fluctuations from period to period.
In addition, in our discussion of our non-GAAP results, we use the term “net performance fees” to refer to the performance fees from our funds net of the portion allocated to our investment professionals, if any, and certain tax expenses associated with carried interest attributable to certain partners and employees, which are reflected as performance fee related compensation expense. We use the term “realized net performance fees”revenues” to refer to realized performance allocations and incentive fees from our funds, net of the portion allocated to our investment professionals, if any, and certain tax expenses associated with carried interest attributable to certain partners and employees, which are reflected as realized performance feeallocations and incentive fees related compensation expense. See “— Non-GAAP Financial Measures” for the amount of realized and unrealizednet performance feesrevenues recognized each period. See “— Segment Analysis” for the realized and unrealizednet performance feesrevenues by segment and related discussion for each period.
Investment income also represents the realized and unrealized gains and losses on our principal investments, including our investments in Carlyle funds that are not consolidated, as well as any interest and other income. Investment income also includes the related amortization of the basis difference between the carrying value of our investment and our share of the underlying net assets of the investee, as well as the compensation expense associated with compensatory arrangements provided by us to employees of our equity method investee, as it relates to our investments in NGP. Principal investment income also included our proportionate share of U.S. GAAP earnings from our strategic investment in Fortitude Holdings prior to the contribution of our investment to a Carlyle-affiliated investment fund (see Note 4). Realized principal investment income (loss) is recorded when we redeem all or a portion of our investment or when we receive or are due cash income, such as dividends or distributions. A realized principal investment loss is also recorded when an investment is deemed to be worthless. Unrealized principal investment income (loss) results from changes in the fair value of the underlying investment, as well as the reversal of previously recognized unrealized gains (losses) at the time an investment is realized.
Fair Value Measurement. U.S. GAAP establishes a hierarchalhierarchical disclosure framework which ranks the observability of market price inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, will generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.
The table below summarizes the valuation of investments and other financial instruments included within our AUM, by segment and fair value hierarchy levels, as of SeptemberJune 30, 2017 (amounts in millions):2021:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2021 |
| Global Private Equity | | | | Global Credit | | Investment Solutions | | Total |
Consolidated Results | (Dollars in millions) |
Level I | $ | 9,918 | | | | | $ | 256 | | | $ | 1,885 | | | $ | 12,059 | |
Level II | 10,656 | | | | | 1,513 | | | 194 | | | 12,363 | |
Level III | 87,412 | | | | | 48,830 | | | 38,554 | | | 174,796 | |
Fair Value of Investments | 107,986 | | | | | 50,599 | | | 40,633 | | | 199,218 | |
Available Capital | 42,162 | | | | | 10,482 | | | 24,015 | | | 76,659 | |
Total AUM | $ | 150,148 | | | | | $ | 61,081 | | | $ | 64,648 | | | $ | 275,877 | |
|
| | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Corporate Private Equity | | Real Assets | | Global Market Strategies | | Investment Solutions | | Total |
Consolidated Results | | | | | | | | | |
Level I | $ | 2,515 |
| | $ | 2,447 |
| | $ | 209 |
| | $ | 750 |
| | $ | 5,921 |
|
Level II | 162 |
| | 757 |
| | 70 |
| | 294 |
| | 1,283 |
|
Level III | 36,711 |
| | 21,530 |
| | 24,484 |
| | 29,940 |
| | 112,665 |
|
Total Fair Value | 39,388 |
| | 24,734 |
| | 24,763 |
| | 30,984 |
| | 119,869 |
|
Other Net Asset Value | 3,135 |
| | (835 | ) | | (320 | ) | | (633 | ) | | 1,347 |
|
Total AUM, Excluding Available Capital Commitments | 42,523 |
| | 23,899 |
| | 24,443 |
| | 30,351 |
| | 121,216 |
|
Available Capital Commitments | 13,220 |
| | 15,869 |
| | 7,432 |
| | 16,691 |
| | 53,212 |
|
Total AUM | $ | 55,743 |
| | $ | 39,768 |
| | $ | 31,875 |
| | $ | 47,042 |
| | $ | 174,428 |
|
Investment Income, Interest, and Other Income. Investment income, interest, and other income represent the unrealized and realized gains and losses on our principal investments, including our investments in Carlyle funds that are not consolidated, our equity method investments and other principal investments, as well as any interest and other income. Investment income (loss) also includes the related amortization of the basis difference between the carrying value of our investment and our share of the underlying net assets of the investee, as well as the compensation expense associated with compensatory arrangements provided by us to employees of our equity method investee, as it relates to our investments in NGP. Realized investment income (loss) is recorded when we redeem all or a portion of our investment or when we receive or are due cash income, such as dividends or distributions. A realized investment loss is also recorded when an investment is deemed to be worthless. Unrealized investment income (loss) results from changes in the fair value of the underlying investment, as well as the reversal of previously recognized unrealized gains (losses) at the time an investment is realized.
Interest and Other Income of Consolidated Funds. Interest and other income of Consolidated Funds primarily represents the interest earned on CLO assets. However, the Consolidated Funds are not the same entities in all periods presented. The Consolidated Funds in future periods may change due to changes in fund terms, formation of new funds, and terminations of funds.
Revenue of a Real Estate VIE. Revenue of a real estate VIE consists of revenue generated by Urbplan, which primarily is revenue earned for land development services using the completed contract method and investment income earned on Urbplan's investments. Under the completed contract method of revenue recognition, revenue is not recognized until the period in which the land development services contract is completed, which can cause volatility from period to period based on which contracts are completed. Urbplan was deconsolidated from the Partnership's financial results during the three months ended September 30, 2017 as a result of the Partnership disposing of its interests in Urbplan in a transaction in which a third party acquired operational control and all of the economic interests in Urbplan (see Note 15 to the unaudited condensed consolidated financial statements).
74
Net Investment Gains (Losses) of Consolidated Funds. Net investment gains (losses) of Consolidated Funds measures the change in the difference in fair value between the assets and the liabilities of the Consolidated Funds. A gain (loss) indicates that the fair value of the assets of the Consolidated Funds appreciated more (less), or depreciated less (more), than the fair value of the liabilities of the Consolidated Funds. A gain or loss is not necessarily indicative of the investment performance of the Consolidated Funds and does not impact the management or incentive fees received by Carlyle for its management of the Consolidated Funds. The portion of the net investment gains (losses) of Consolidated Funds attributable to the limited partner investors is allocated to non-controlling interests. Therefore a gain or loss is not expected to have a material impact on the revenues or profitability of the Partnership.Company. Moreover, although the assets of the Consolidated Funds are consolidated onto our balance sheet pursuant to U.S. GAAP, ultimately we do not have recourse to such assets and such liabilities are generally non-recourse to us. Therefore, a gain or loss from the Consolidated Funds generally does not impact the assets available to our equity holders.
Expenses
Compensation and Benefits. Compensation includes salaries, bonuses, equity-based compensation, and performance payment arrangements. Bonuses are accrued over the service period to which they relate.
We recognize as compensation expense the portion of performance allocations and incentive fees that are due to our employees, senior Carlyle professionals, advisors, and operating executives in a manner consistent with how we recognize the performance allocations and incentive fee revenue. These amounts are accounted for as compensation expense in conjunction with the related performance allocations and incentive fee revenue and, until paid, are recognized as a component of the accrued compensation and benefits liability. Compensation in respect of performance allocations and incentive fees is paid when the related performance allocations and incentive fees are realized, and not when such performance allocations and incentive fees are accrued. The funds do not have a uniform allocation of performance allocations and incentive fees to our employees, senior Carlyle professionals, advisors, and operating executives. Therefore, for any given period, the ratio of performance allocations and incentive fee compensation to performance allocations and incentive fee revenue may vary based on the funds generating the performance allocations and incentive fee revenue for that period and their particular allocation percentages.
In addition, we have implemented various equity-based compensation arrangements that require senior Carlyle professionals and other employees to vest ownership of a portion of their equity interests over a service period of upgenerally one to 60 months,four years, which under U.S. GAAP will result in compensation charges over current and future periods. Further, in order to recruitDuring 2019 and retain existing and future senior Carlyle professionals and other employees,2020, we have implemented additional equity-based compensation programs that have resulted in increases to our equity-based compensation expenses, which is a trend that may continue in the future ifgranted fewer equity awards than we increase our issuance of deferred restricted common units as employee compensation.had previously. For example, in February 2017,2018, 2019 and 2020, we granted approximately 7.613.3 million, deferred6.7 million and 3.7 million of restricted commonstock units acrossand other awards, respectively. In 2021, we granted 7.0 million long-term strategic restricted stock units to certain senior professionals, the majority of which are subject to vesting based on the achievement of annual performance targets over four years, with a significantlarger proportion of the awards vesting based on the 2024 performance year. As a result, the number of our employees forrestricted stock units granted in 2021 is higher than in 2020, which, combined with a total estimated grant-date fair value of approximately $106 million; these awards vest over a period of
18 to 60 months. Compensation charges associated with thehigher share price than in prior periods, will result in higher equity-based compensation grants issuedexpense in our initial public offering in May 2012 or grants issued in acquisitions or strategic investments are excluded from our calculation of Economic Net Income.the coming years. Compensation charges associated with all equity-based compensation grants are excluded from Fee Related Earnings and Distributable Earnings.
We may hire additional individuals and overall compensation levels may correspondingly increase, which could result in an increase in compensation and benefits expense. As a result of acquisitions, we have charges associated with contingent consideration taking the form of earn-outs and profit participation, some of which are reflected as compensation expense. A portion of our compensation expense relates to internal fundraising costs, and compensation will fluctuate based on increases or decreases in our fundraising activity. Amounts due to employees related to such fundraising will be expensed when earned even though the benefit of the new capital and related fees will be reflected in operations over the life of the related fund.
General, Administrative and Other Expenses. General, administrative and other expenses include occupancy and equipment expenses and other expenses, which consist principally of professional fees, including those related to our global regulatory compliance program, external costs of fundraising, travel and related expenses, communications and information services, depreciation and amortization (including intangible asset amortization and impairment) and foreign currency transactions. We expect that general, administrative and other expenses will vary due to infrequently occurring or unusual items, such as the impairment of intangible assets and expenses or insurance recoveries associated with litigation and contingencies. Also, in periods of significant fundraising, to the extent that we use third parties to assist in our fundraising efforts, our general, administrative and other expenses may increase accordingly. Additionally, we anticipate that general, administrative and other expenses will fluctuate from period to period due to the impact of foreign exchange transactions.
We also could incur additional expenses in the future related to our acquisitions including amortization of acquired intangibles, earn-outs to equity holders and fair value adjustments on contingent consideration issued, as well as related to our global compliance efforts. As discussed in Note 6 to the unaudited condensed consolidated financial statements, we evaluate our intangible assets (including goodwill) for impairment and could record additional impairment losses in future periods.
Interest and Other Expenses of Consolidated Funds. The interest and other expenses of Consolidated Funds consist primarily of interest expenses related primarily to our CLO loans, professional fees and other third-party expenses.
Interest and Other Expenses of a Real Estate VIE and LossIncome Taxes. Following the Conversion on Deconsolidation. Interest and other expenses of a real estate VIE and loss on deconsolidation reflects the loss recognized in the three months ended September 30, 2017 as a result of the Partnership disposing of its interests in Urbplan in a transaction in which a third party acquired operational control andJanuary 1, 2020, all of the economic interests in Urbplan, which resulted in the deconsolidation of Urbplan from the Partnership's financial results (see Note 15income before provision for income taxes attributable to the unaudited condensed consolidated financial statements). This line item also includes expenses incurred by Urbplan prior to deconsolidation, which consisted primarily of interest expense, general and administrative expenses, impairment charges, compensation and benefits, and costs associated with land development services. Also included in this caption was the change in our estimate of the fair value of Urbplan's loans payable.
Income Taxes. The Carlyle Holdings partnerships and their subsidiaries primarily operate as pass-through entities for U.S. income tax purposes and record a provision for state and local income taxes for certain entities based on applicable laws and a provision for foreign income taxes for certain foreign entities. In addition, Carlyle Holdings I GPGroup Inc. is subject to U.S. federal, state, and local corporate income taxestaxes. Prior to the Conversion, the Company was generally organized as a series of pass through entities pursuant to the United States Internal Revenue Code. As such, the Company was not responsible for the tax liability due on only a portion of ourcertain income or loss. Depending onearned during the sources of our taxableyear. Such income or loss, ourwas taxed at the unitholder and non-controlling interest holder level, and any income tax provision or benefit can vary significantly from periodwas the responsibility of the unitholders
and is paid at that level. See Note 9 to period.
the accompanying unaudited condensed consolidated financial statements for more information regarding the impact of the Conversion.
Income taxes for foreign entities are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period in which the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized.
The interim provision for income taxes is calculated using the discrete effective tax rate method as allowed by ASC 740, Accounting for Income Taxes. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis.
In the normal course of business, we are subject to examination by federal and certain state, local and foreign tax regulators. WthWith a few exceptions, as of SeptemberJune 30, 2017,2021, our U.S. federal income tax returns for thetax years 20142017 through 20162019 are open under the normal three-year statute of limitations and therefore subject to examination. State and local tax returns are generally subject to audit from 2012for tax years 2015 to 2016.2019. Foreign tax returns are generally subject to audit from 2009for tax years 2011 to 2016.2019. Certain of our affiliates are currently under audit by federal, state and foreign tax authorities. Currently, the Internal Revenue Service is examining the tax returns of certain subsidiaries for the 2013, 2014 and 2015 years. We do not believe the outcome of any future audit will have a material impact on our consolidated financial statements.
Non-controlling Interests in Consolidated Entities. Non-controlling interests in consolidated entities represent the component of equity in consolidated entities not held by us. These interests are adjusted for general partner allocations.
Earnings Per Common Share.We record significant non-controlling interestscompute earnings per common share in Carlyle Holdings relatingaccordance with ASC 260, Earnings Per Share. Basic earnings per common share is calculated by dividing net income (loss) attributable to the ownership interestscommon shares of the limited partnersCompany by the weighted average number of common shares outstanding for the Carlyle Holdings partnerships. The Partnership, through wholly owned subsidiaries, isperiod. Diluted earnings per common share reflects the sole general partnerassumed conversion of Carlyle Holdings. Accordingly,all dilutive securities. We apply the Partnership consolidatestreasury stock method to determine the financial position and results of operations of Carlyle Holdings into its financial statements, and the other ownership interests in Carlyle Holdings are reflected as a non-controlling interest in the Partnership’s financial statements.dilutive weighted-average common shares represented by unvested restricted stock units.
Non-GAAP Financial Measures
Economic Net Income. Economic net income,Distributable Earnings. Distributable Earnings, or “ENI,”“DE”, is a key performance benchmark used in our industry. ENIindustry and is evaluated regularly by management in making resource deployment and compensation decisions, and in assessing the performance of our three segments. We also use DE in our budgeting, forecasting, and the overall management of our segments. We believe that reporting DE is helpful to understanding our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance. DE is intended to show the amount of net realized earnings without the effects of consolidation of the Consolidated Funds. DE is derived from our segment reported results and is an additional measure to assess performance and determine amounts potentially available for distribution to the Company’s common stockholders.
Distributable Earnings differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it includes certain tax expenses associated with certain foreign performance fees,revenues (comprised of performance allocations and incentive fees), and does not include unrealized performance allocations and related compensation expense, unrealized principal investment income, equity-based compensation expense, net income (loss) attributable to non-Carlyle interestsinterest in consolidated entities, or charges (credits) related to Carlyle corporate actions and non-recurring items. Charges (credits) related to Carlyle corporate actions and non-recurring items include: charges (credits) associated with equity-based compensation that was issued in the initial public offering in May 2012 or is issued in acquisitions, dispositions, or strategic investments, changes in the tax receivable agreement liability, corporate conversion costs, amortization and any impairment charges associated with acquired intangible assets, transaction costs associated with acquisitions and dispositions, charges associated with earnouts and contingent consideration including gains and losses associated with the estimated fair value of contingent consideration issued in conjunction with acquisitions or strategic investments, impairment charges associated with lease right-of-use assets, gains and losses from the retirement of debt, charges associated with contract terminations and employee severance. We believe the inclusion or exclusion of these items provides investors with a meaningful indication of our core operating performance. For segment reporting purposes, revenues and expenses, and, accordingly, segment net income, are presented on a basis that deconsolidates the Consolidated Funds. Total Segment ENI equals the aggregate of ENI for all segments. This measure supplements and should be considered in addition to and not in lieu of the results of operations discussed further under “Consolidated Results of Operations” prepared in accordance with U.S. GAAP.
Fee Related Earnings. Fee Related Earnings, or “FRE,”“FRE”, is a component of ENIDE and measures ouris used to assess the ability of the business to cover direct base compensation and operating profitability exclusiveexpenses from total fee revenues. FRE differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it adjusts for the items included in the calculation of DE and also adjusts DE to exclude net realized performance fees,revenues, realized principal investment income from investments in ourCarlyle funds, performance fee-related compensation, equity-based compensation expense,net interest (interest income less interest expense), and certain general, administrative and other expenses when the timing of any future payment is uncertain. Accordingly, Fee Related Earnings reflect the ability of the business to cover direct base compensation and operating expenses from fee revenues other than performance fees. Fee Related Earnings are reported as part of our segment results. We use Fee Related Earnings from operations to measure our profitability from fund management fees.
Distributable Earnings. Distributable Earnings is FRE plus realized net performance fees and realized investment income. Distributable Earnings is intended to show the amount of net realized earnings without the effects of consolidation of the Consolidated Funds. Distributable Earnings is derived from our segment reported results and is an additional measure to assess performance and determine amounts potentially available for distribution from Carlyle Holdings to its unitholders. Distributable Earnings is evaluated regularly by management in making resource deployment and compensation decisions and in assessing performance of our four segments. We also use Distributable Earnings in our budgeting, forecasting, and the overall management of our segments. We believe that reporting Distributable Earnings is helpful to understanding our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance.
Operating Metrics
We monitor certain operating metrics that are common to the alternative asset management industry.
Fee-earning Assets under Management
Management. Fee-earning assets under management or Fee-earning AUM refers to the assets we manage or advise from which we derive recurring fund management fees. Our Fee-earning AUM is generally based on one of the following, once fees have been activated:
| |
(a) | the amount of limited partner capital commitments, generally for carry funds where the original investment period has not expired, for AlpInvest carry funds during the commitment fee period and for Metropolitan carry funds during the weighted-average investment period of the underlying funds (see “Fee-earning AUM based on capital commitments” in the table below for the amount of this component at each period); |
(a)the amount of limited partner capital commitments, generally for carry funds where the original investment period has not expired, for AlpInvest carry funds during the commitment fee period (see “Fee-earning AUM based on capital commitments” in the table below for the amount of this component at each period);
| |
(b) | the remaining amount of limited partner invested capital at cost, generally for carry funds and certain co-investment vehicles where the original investment period has expired and Metropolitan carry funds after the expiration of the weighted-average investment period of the underlying funds (see “Fee-earning AUM based on invested capital” in the table below for the amount of this component at each period); |
| |
(c) | the amount of aggregate fee-earning collateral balance at par of our collateralized loan obligations (“CLOs”), as defined in the fund indentures (typically exclusive of equities and defaulted positions) as of the quarterly cut-off date for each CLO (see “Fee-earning AUM based on collateral balances, at par” in the table below for the amount of this component at each period); |
| |
(d) | the external investor portion of the net asset value of our hedge fund and fund of hedge funds vehicles (pre redemptions and subscriptions), as well as certain carry funds (see “Fee-earning AUM based on net asset value” in the table below for the amount of this component at each period); |
| |
(e) | the gross assets (including assets acquired with leverage), excluding cash and cash equivalents of our business development companies and certain carry funds (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period); and |
| |
(f) | the lower of cost or fair value of invested capital, generally for AlpInvest carry funds where the commitment fee period has expired and certain carry funds where the investment period has expired, (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period). |
(b)the remaining amount of limited partner invested capital at cost, generally for carry funds and certain co-investment vehicles where the original investment period has expired and one of our business development companies (see “Fee-earning AUM based on invested capital” in the table below for the amount of this component at each period);
(c)the amount of aggregate fee-earning collateral balance of our CLOs and other securitization vehicles, as defined in the fund indentures (typically exclusive of equities and defaulted positions) as of the quarterly cut-off date;
(d)the external investor portion of the net asset value of our open-ended funds (pre redemptions and subscriptions), as well as certain carry funds (see “Fee-earning AUM based on net asset value” in the table below for the amount of this component at each period);
(e)the gross assets (including assets acquired with leverage), excluding cash and cash equivalents, of one of our business development companies and certain carry funds (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period); and
(f)the lower of cost or fair value of invested capital, generally for AlpInvest carry funds where the commitment fee period has expired and certain carry funds where the investment period has expired, (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period).
The table below details Fee-earning AUM by its respective components at each period.
| | | | | | | | | | | | |
| As of June 30, | |
| 2021 | | 2020 | |
Consolidated Results | (Dollars in millions) | |
Components of Fee-earning AUM | | | | |
Fee-earning AUM based on capital commitments (1) | $ | 76,238 | | | $ | 71,792 | | |
Fee-earning AUM based on invested capital (2) | 40,901 | | | 38,801 | | |
Fee-earning AUM based on collateral balances, at par (3) | 28,111 | | | 25,811 | | |
Fee-earning AUM based on net asset value (4) | 8,935 | | | 6,679 | | |
Fee-earning AUM based on lower of cost or fair value and other (5) | 20,671 | | | 19,306 | | |
Balance, End of Period (6) (7) | $ | 174,856 | | | $ | 162,389 | | |
(1)Reflects limited partner capital commitments where the original investment period, weighted-average investment period, or commitment fee period has not expired.
(2)Reflects limited partner invested capital at cost and includes amounts committed to or reserved for investments for certain Global Private Equity and Investment Solutions funds.
(3)Represents the amount of aggregate Fee-earning collateral balances and principal balances, at par, for our CLOs/structured products.
(4)Reflects the net asset value of certain other carry funds.
(5)Includes funds with fees based on gross asset value.
(6)Energy III, Energy IV, and Renew II (collectively, the “Legacy Energy Funds”), are managed with Riverstone Holdings LLC and its affiliates. Affiliates of both Carlyle and Riverstone act as investment advisors to each of the Legacy Energy Funds. Carlyle has a minority representation on the management committees of Energy IV and Renew II. Carlyle and Riverstone each hold half of the seats on the management committee of Energy III, but the investment period for this fund has expired and the remaining investments in such fund are being disposed of in the ordinary course of business. As of June 30, 2021, the Legacy Energy Funds had, in the aggregate, approximately $0.6 billion in AUM and $0.7 billion in Fee-earning AUM. We are no longer raising capital for the Legacy Energy Funds and expect these balances to continue to decrease over time as the funds wind down.
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| | | | | | | |
| As of September 30, |
| 2017 | | 2016 |
Consolidated Results | (Dollars in millions) |
Components of Fee-earning AUM | | | |
Fee-earning AUM based on capital commitments (1) | $ | 60,065 |
| | $ | 51,256 |
|
Fee-earning AUM based on invested capital (2) | 21,252 |
| | 27,922 |
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Fee-earning AUM based on collateral balances, at par (3) | 17,647 |
| | 17,677 |
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Fee-earning AUM based on net asset value (4) | 1,518 |
| | 5,103 |
|
Fee-earning AUM based on lower of cost or fair value and other (5) | 21,299 |
| | 21,794 |
|
Balance, End of Period (6) | $ | 121,781 |
| | $ | 123,752 |
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(1) | Reflects limited partner capital commitments where the original investment period, weighted-average investment period, or commitment fee period has not expired. |
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(2) | Reflects limited partner invested capital at cost and includes amounts committed to or reserved for investments for certain Real Assets and Investment Solutions funds. |
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(3) | Represents the amount of aggregate Fee-earning collateral balances and principal balances, at par, for our CLOs/structured products. |
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(4) | Reflects the net asset value (pre-redemptions and subscriptions) of our hedge funds, fund of hedge funds vehicles, and certain other carry funds. |
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(5) | Includes funds with fees based on gross asset value. |
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(6) | Energy II, Energy III, Energy IV, and Renew II (collectively, the “Legacy Energy Funds”), are managed with Riverstone Holdings LLC and its affiliates. Affiliates of both Carlyle and Riverstone act as investment advisers to each of the Legacy Energy Funds. Carlyle has a minority representation on the management committees of Energy IV and Renew II. Carlyle and Riverstone each hold half of the seats on the management committees of Energy II and Energy III, but the investment period for these funds has expired and the remaining investments in such funds are being disposed of in the ordinary course of business. As of September 30, 2017, the Legacy Energy Funds had, in the aggregate, approximately $5.2 billion in AUM and $3.8 billion in Fee-earning AUM. We are no longer raising capital for the Legacy Energy Funds and expect these balances to continue to decrease over time as the funds wind down. |
(7)Ending balances as of June 30, 2021 and 2020 exclude $17.3 billion and $8.5 billion, respectively, of pending Fee-earning AUM for which fees have not yet been activated.
The table below provides the period to period rollforward of Fee-earning AUM.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Consolidated Results | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 173,132 | | | $ | 158,246 | | | $ | 170,102 | | | $ | 161,057 | |
Inflows (1) | 6,092 | | | 9,671 | | | 14,051 | | | 12,568 | |
Outflows (including realizations) (2) | (5,771) | | | (5,865) | | | (9,345) | | | (10,521) | |
Market Activity & Other (3) | 1,078 | | | (1,197) | | | 1,586 | | | (1,168) | |
Foreign Exchange (4) | 325 | | | 1,534 | | | (1,538) | | | 453 | |
Balance, End of Period | $ | 174,856 | | | $ | 162,389 | | | $ | 174,856 | | | $ | 162,389 | |
(1)Inflows represents limited partner capital raised by our carry funds or separately managed accounts for which management fees based on commitments were activated during the period, the fee-earning commitments invested in vehicles for which management fees are based on invested capital, the fee-earning collateral balance of new CLO issuances, as well as gross subscriptions in our vehicles for which management fees are based on net asset value. Inflows exclude fundraising amounts during the period for which fees have not yet been activated, which are referenced as Pending Fee-earning AUM. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Consolidated Results | (Dollars in millions) | | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 116,134 |
| | $ | 125,319 |
| | $ | 114,994 |
| | $ | 130,994 |
|
Inflows, including Fee-paying Commitments (1) | 7,708 |
| | 3,438 |
| | 12,747 |
| | 8,043 |
|
Outflows, including Distributions (2) | (3,590 | ) | | (3,662 | ) | | (9,751 | ) | | (11,350 | ) |
Subscriptions, net of Redemptions (3) | — |
| | (955 | ) | | — |
| | (3,850 | ) |
Changes in CLO collateral balances (4) | 332 |
| | (267 | ) | | (17 | ) | | (400 | ) |
Market Appreciation/(Depreciation) (5) | (65 | ) | | (710 | ) | | (220 | ) | | (1,439 | ) |
Foreign Exchange and other (6) | 1,262 |
| | 589 |
| | 4,028 |
| | 1,754 |
|
Balance, End of Period | $ | 121,781 |
| | $ | 123,752 |
| | $ | 121,781 |
| | $ | 123,752 |
|
(2)Outflows represents the impact of realizations from vehicles with management fees based on remaining invested capital at cost or fair value, changes in basis for funds where the investment period, weighted-average investment period or commitment fee period has expired during the period, reductions for funds that are no longer calling for fees, gross redemptions in our open-end funds, and runoff of CLO collateral balances. Distributions for funds earning management fees based on commitments during the period do not affect Fee-earning AUM. Outflows during the three and six months ended June 30, 2021 also reflect the sale of MRE on April 1, 2021, which had $2.3 billion of Fee-earning AUM as of March 31, 2021.(3)Market Activity & Other represents realized and unrealized gains (losses) on portfolio investments in our carry funds based on the lower of cost or fair value and net asset value, as well as activity of funds with fees based on gross asset value.
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(1) | Inflows represent limited partner capital raised and capital invested by our carry funds and the NGP management fee funds outside the investment period, weighted-average investment period or commitment fee period. Inflows do not include funds raised of $5.5 billion, which are not yet earning fees. |
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(2) | Outflows represent limited partner distributions from our carry funds and NGP management fee funds, changes in basis for our carry funds where the investment period, weighted-average investment period or commitment fee period has expired, and reductions for funds that are no longer calling for fees. |
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(3) | Represents the net result of subscriptions to and redemptions from our hedge funds and fund of hedge funds vehicles. |
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(4) | Represents the change in the aggregate Fee-earning collateral balances at par of our CLOs/structured products, as of the quarterly cut-off dates. |
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(5) | Market Appreciation/(Depreciation) represents realized and unrealized gains (losses) on portfolio investments in our carry funds based on the lower of cost or fair value and net asset value and also includes for periods prior to their disposition, the changes in the net asset value of our former hedge funds and fund of hedge funds vehicles. |
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(6) | Includes activity of funds with fees based on gross asset value. Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
(4)Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Refer to “— Segment Analysis” for a detailed discussion by segment of the activity affecting Fee-earning AUM for each of the periods presented by segment.
Assets under Management
Management. Assets under management or AUM refers to the assets we manage or advise. Our AUM generally equals the sum of the following:
(a) the aggregate fair value of the capital invested inour carry funds and related co-investment vehicles, NGP Predecessor Funds and NGP management fee fundsseparately managed accounts, plus the capital that Carlyle is entitled to call from investors in those funds and vehicles (including Carlyle commitments to those funds and vehicles and those of senior Carlyle professionals and employees) pursuant to the terms of their capital commitments to those funds and vehicles;
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(b) | the amount of aggregate collateral balance and principal cash at par or aggregate principal amount of the notes of our CLOs and other structured products (inclusive of all positions); |
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(c) | the net asset value (pre-redemptions and subscriptions) of our long/short credit, emerging markets, multi-product macroeconomic, fund of hedge funds vehicles, mutual fund and other hedge funds; and |
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(d) | the gross assets (including assets acquired with leverage) of our business development companies. |
(b) the amount of aggregate collateral balance and principal cash or aggregate principal amount of the notes of our CLOs and other structured products (inclusive of all positions);
(c) the net asset value of certain carry funds; and
(d) the gross assets (including assets acquired with leverage) of our business development companies, plus the capital that Carlyle is entitled to call from investors in those vehicles pursuant to the terms of their capital commitments to those vehicles.
We include in our calculation of AUM and Fee-earning AUM certain energy and renewable resources funds that we jointly advise with Riverstone, and certainthe NGP management fee funds and carry fundsEnergy Funds that are advised by NGP.NGP, as well as capital raised from third-party investors to acquire a 76.6% interest in Fortitude Holdings.
For most of our carry funds, total AUM includes the fair value of the capital invested, whereas Fee-earning AUM includes the amount of capital commitments or the remaining amount of invested capital, at cost, depending on whether the
original investment period for the fund has expired. As such, Fee-earning AUM may be greater than total AUM when the aggregate fair value of the remaining investments is less than the cost of those investments.
Our calculations of Fee-earning AUM and AUM may differ from the calculations of other alternative asset managers. As a result, these measures may not be comparable to similar measures presented by other alternative asset managers. In addition, our calculation of AUM (but not Fee-earning AUM) includes uncalled commitments to, and the fair value of invested capital in, our investment funds from Carlyle and our personnel, regardless of whether such commitments or invested capital are subject to management fees or performance fees.allocations. Our calculations of AUM or Fee-earning AUM are not based on any definition of AUM or Fee-earning AUM that is set forth in the agreements governing the investment funds that we manage or advise.
We generally use Fee-earning AUM as a metric to measure changes in the assets from which we earn recurring management fees. Total AUM tends to be a better measure of our investment and fundraising performance as it reflects assetsinvestments at fair value plus available uncalled capital.
Available Capital
Capital. “Available capital, commonly known as “dry powder,” for our carry funds and NGP management fee funds referCapital” refers to the amount of capital commitments available to be called for investments, which may be reduced for equity invested that is funded via a fund credit facility and expected to be called from investors at a later date, plus any additional assets/liabilities at the fund level other than active investments. Amounts previously called may be added back to available capital following certain distributions. “Expired Available Capital” occurs when a fund has passed the investment and follow-on periods and can no longer invest capital into new or existing deals. Any remaining Available Capital, typically a result of either recycled distributions or specific reserves established for the follow-on period that are not drawn, can only be called for fees and expenses and is therefore removed from the Total AUM calculation.
The table below provides the period to period rollforward of Available Capital and Fair ValueTotal AUM.
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
Consolidated Results | (Dollars in millions) |
Total AUM Rollforward | | | |
Balance, Beginning of Period | $ | 259,844 | | | $ | 245,769 | |
Inflows (1) | 10,445 | | | 18,238 | |
Outflows (including realizations) (2) | (10,795) | | | (18,651) | |
Market Activity & Other (3) | 15,802 | | | 32,992 | |
Foreign Exchange (4) | 581 | | | (2,471) | |
Balance, End of Period | $ | 275,877 | | | $ | 275,877 | |
(1)Inflows reflects the impact of Capital,gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects translation at the average quarterly rate, while the separately reported Fundraising metric is translated at the spot rate for each individual closing.
(2)Outflows includes distributions net of recallable or recyclable amounts in our carry funds, related co-investment vehicles, separately managed accounts and the resulting rollforwardNGP Predecessor Funds, gross redemptions in our open-end funds, runoff of CLO collateral balances and the expiration of available capital. Outflows during the three and six months ended June 30, 2021 also reflect the sale of MRE on April 1, 2021, which had $2.4 billion of Total AUM.AUM as of March 31, 2021.
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| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| Available Capital | | Fair Value of Capital | | Total AUM | | Available Capital | | Fair Value of Capital | | Total AUM |
| (Dollars in millions) | | (Dollars in millions) |
Consolidated Results | | | | | | | | | | | |
Balance, Beginning of Period | $ | 54,096 |
| | $ | 115,729 |
| | $ | 169,825 |
| | $ | 50,140 |
| | $ | 107,467 |
| | $ | 157,607 |
|
Commitments (1) | 4,880 |
| | — |
| | 4,880 |
| | 13,929 |
| | — |
| | 13,929 |
|
Capital Called, net (2) | (6,813 | ) | | 6,765 |
| | (48 | ) | | (13,534 | ) | | 13,255 |
| | (279 | ) |
Distributions (3) | 691 |
| | (5,797 | ) | | (5,106 | ) | | 1,647 |
| | (16,316 | ) | | (14,669 | ) |
Subscriptions, net of Redemptions (4) | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) |
Changes in CLO collateral balances (5) | — |
| | 377 |
| | 377 |
| | — |
| | 131 |
| | 131 |
|
Market Appreciation/(Depreciation) (6) | — |
| | 2,479 |
| | 2,479 |
| | — |
| | 11,899 |
| | 11,899 |
|
Foreign Exchange and other (7) | 358 |
| | 1,663 |
| | 2,021 |
| | 1,030 |
| | 4,787 |
| | 5,817 |
|
Balance, End of Period | $ | 53,212 |
| | $ | 121,216 |
| | $ | 174,428 |
| | $ | 53,212 |
| | $ | 121,216 |
| | $ | 174,428 |
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(1) | Represents capital raised by our carry funds and NGP management fee funds, net of expired available capital. |
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(2) | Represents capital called by our carry funds and NGP management fee funds, net of fund fees and expenses(3)Market Activity & Other generally represents realized and unrealized gains (losses) on portfolio investments in our business development companies. Invested capital amounts may vary from capital called due to timing differences between investment acquisition and capital call dates. |
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(3) | Represents distributions from our carry funds and NGP management fee funds, net of amounts recycled and distributions from our business development companies. Distributions are based on when proceeds are actually distributed to investors, which may differ from when they are realized. |
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(4) | Represents the net result of subscriptions to and redemptions from our hedge funds and and fund of hedge funds vehicles. |
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(5) | Represents the change in the aggregate collateral balance and principal cash at par of the CLOs/structured products. |
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(6) | Market Appreciation/(Depreciation) represents realized and unrealized gains (losses) on portfolio investments. Appreciation for the third quarter of 2017 was driven by 2% appreciation ($0.2 billion) in the public portfolio and 3% appreciation ($1.5 billion) in the private portfolio of our Corporate Private Equity, Real Assets, and Global Market |
Strategies carry funds and related co-investment vehicles, the NGP Predecessor Funds and separately managed accounts, as well as the net impact of fees, expenses and non-investment income, change in addition to $0.9 billion of appreciation ingross asset value for our Investment Solutions carry funds. This also includes for periods prior to their disposition,business development companies and other changes in AUM.
(4)Foreign Exchange represents the net asset valueimpact of foreign exchange rate fluctuations on the translation of our hedge funds, mutual fund, and fundnon-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of hedge funds vehicles.the period end.
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(7) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds and other changes in AUM. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
Please refer to “— Segment Analysis” for a detailed discussion by segment of the activity affecting Total AUM for each of the periods presented.
Portfolio Appreciation (Depreciation). The table below presentsoverall portfolio appreciation of 11% for the changethree months ended June 30, 2021 is comprised of 12% appreciation for carry funds within our Global Private Equity segment focusing on corporate private equity, 11% for funds focusing on real estate, and 9% for funds focusing on natural resources; 8% appreciation for carry funds in the Global Credit segment; and 12% appreciation for carry funds in the Investment Solutions segment. Overall portfolio appreciation for the six months ended June 30, 2021 of 25% is comprised of 28% appreciation for carry funds within our Global
Private Equity segment focusing on corporate private equity, 15% for funds focusing on real estate, and 17% for funds focusing on natural resources; 16% appreciation for carry funds in the Global Credit segment; and 28% appreciation for carry funds in the Investment Solutions segment.
While there is no perfectly comparable market index benchmark for the overall portfolio investmentsor any of our carry funds. Please refer to “— Segment Analysis”its segments or strategies, we would note that S&P 500 and MSCI ACWI appreciation for a detailed discussion by segment of the activity affecting Total AUMthree months ended June 30, 2021 were 8.2% and 6.9%, respectively, while the FTSE NAREIT Composite appreciation was 10.9%, the S&P Oil and Gas Exploration and Production Index was 15.6%, and the S&P Leveraged Loan Index appreciation was 1.1%. S&P 500 and MSCI ACWI appreciation for each of the periods presented.six months ended June 30, 2021 were 14.4% and 11.4%, respectively, while the FTSE NAREIT Composite appreciation was 19.3%, the S&P Oil and Gas Exploration and Production Index was 58.8%, and the S&P Leveraged Loan Index appreciation was 1.6%.
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(1) | Corporate Private Equity, Real Assets, and Global Market Strategies carry funds only, excluding external co-investment. |
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(2) | For Carlyle returns, “Appreciation/Depreciation” represents realized and unrealized gain / loss for the period on a total return basis before fees and expenses. The percentage of return is calculated as the sum of ending remaining investment fair market value ("FMV") and net investment outflow (sales proceeds less net purchases) less beginning remaining investment FMV divided by beginning remaining investment FMV. |
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(3) | Public portfolio includes initial public offerings ("IPO") that occurred in the quarter. Investments may be reported as private in quarters prior to the IPO quarter. |
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(4) | The MSCI ACWI - All Cap Index represents the performance of the MSCI All Country World Index across all market capitalization sizes of the global equity market. There are significant differences between the types of securities and assets typically acquired by our carry funds and the investments covered by the MSCI All Country World Index. Specifically, our carry funds may make investments in securities and other assets that have a greater degree of risk and volatility, and less liquidity, than those securities included in the MSCI All Country World Index. Moreover, investors in the securities included in the MSCI All Country World Index may not be subject to the management fees, carried interest or expenses to which investors in our carry funds are typically subject. Comparisons between the our carry fund appreciation and the MSCI All Country World Index are included for informational purposes only. |
Consolidation of Certain Carlyle FundsNon-GAAP Financial Measures
The Partnership consolidates all entities that it controls either throughDistributable Earnings. Distributable Earnings, or “DE”, is a majority voting interest or as the primary beneficiary of variable interest entities. On January 1, 2016, the Partnership adopted ASU 2015-2, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which provides a revised consolidation model for all reporting entities to use in evaluating whether to consolidate certain types of legal entities. As a result, the Partnership deconsolidated the majority of the Partnership's consolidated funds on January 1, 2016. The entities we consolidate are referred to collectively as the Consolidated Fundskey performance benchmark used in our unaudited condensed consolidated financial statements. For further information on our consolidation policy, see Note 2 toindustry and is evaluated regularly by management in making resource deployment and compensation decisions, and in assessing the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
As of September 30, 2017, our Consolidated Funds represent approximately 2%performance of our AUM; 2%three segments. We also use DE in our budgeting, forecasting, and the overall management of our fundsegments. We believe that reporting DE is helpful to understanding our business and that investors should review the same supplemental financial measure that management fees for bothuses to analyze our segment performance. DE is intended to show the three and nine months ended September 30, 2017; and less than 1%amount of our performance fees for bothnet realized earnings without the three and nine months ended September 30, 2017.
We are not required under theeffects of consolidation guidance to consolidate in our financial statements most of the investment funds we advise. However, we consolidate certain CLOs that we advise. As of September 30, 2017, our consolidated CLOs held approximately $4.5 billion of total assets and comprised substantially all of the assets and loans payable of the Consolidated Funds. TheDE is derived from our segment reported results and is an additional measure to assess performance and determine amounts potentially available for distribution to the Company’s common stockholders.
Distributable Earnings differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it includes tax expenses associated with certain foreign performance revenues (comprised of performance allocations and incentive fees), and does not include unrealized performance allocations and related compensation expense, unrealized principal investment income, equity-based compensation expense, net income (loss) attributable to non-Carlyle interest in consolidated entities, or charges (credits) related to Carlyle corporate actions and non-recurring items. Charges (credits) related to Carlyle corporate actions and non-recurring items include: charges (credits) associated with acquisitions, dispositions, or strategic investments, changes in the tax receivable agreement liability, corporate conversion costs, amortization and any impairment charges associated with acquired intangible assets, transaction costs associated with acquisitions and liabilitiesdispositions, charges associated with earnouts and contingent consideration including gains and losses associated with the estimated fair value of contingent consideration issued in conjunction with acquisitions or strategic investments, impairment charges associated with lease right-of-use assets, gains and losses from the retirement of debt, charges associated with contract terminations and employee severance. We believe the inclusion or exclusion of these items provides investors with a meaningful indication of our core operating performance. This measure supplements and should be considered in addition to and not in lieu of the Consolidated Funds are generally held within separate legal entitiesresults of operations discussed further under “Consolidated Results of Operations” prepared in accordance with U.S. GAAP.
Fee Related Earnings. Fee Related Earnings, or “FRE”, is a component of DE and as a result,is used to assess the liabilitiesability of the Consolidated Fundsbusiness to cover direct base compensation and operating expenses from total fee revenues. FRE differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it adjusts for the items included in the calculation of DE and also adjusts DE to exclude net realized performance revenues, realized principal investment income from investments in Carlyle funds, net interest (interest income less interest expense), and certain general, administrative and other expenses when the timing of any future payment is uncertain.
Operating Metrics
We monitor certain operating metrics that are non-recourse to us. For further information on consolidation of certain funds, see Note 2common to the unaudited condensed consolidated financial statements included in this Quarterly Reportasset management industry.
Fee-earning Assets under Management. Fee-earning assets under management or Fee-earning AUM refers to the assets we manage or advise from which we derive recurring fund management fees. Our Fee-earning AUM is generally based on Form 10-Q.
Generally, the consolidationone of the Consolidated Fundsfollowing, once fees have been activated:
(a)the amount of limited partner capital commitments, generally for carry funds where the original investment period has a gross-up effectnot expired, for AlpInvest carry funds during the commitment fee period (see “Fee-earning AUM based on capital commitments” in the table below for the amount of this component at each period);
(b)the remaining amount of limited partner invested capital at cost, generally for carry funds and certain co-investment vehicles where the original investment period has expired and one of our assets, liabilitiesbusiness development companies (see “Fee-earning AUM based on invested capital” in the table below for the amount of this component at each period);
(c)the amount of aggregate fee-earning collateral balance of our CLOs and cash flows but has no net effect onother securitization vehicles, as defined in the net income attributable tofund indentures (typically exclusive of equities and defaulted positions) as of the Partnership and partners’ capital. The majorityquarterly cut-off date;
(d)the external investor portion of the net economic ownership interestsasset value of our open-ended funds (pre redemptions and subscriptions), as well as certain carry funds (see “Fee-earning AUM based on net asset value” in the table below for the amount of this component at each period);
(e)the gross assets (including assets acquired with leverage), excluding cash and cash equivalents, of one of our business development companies and certain carry funds (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period); and
(f)the lower of cost or fair value of invested capital, generally for AlpInvest carry funds where the commitment fee period has expired and certain carry funds where the investment period has expired, (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period).
The table below details Fee-earning AUM by its respective components at each period.
| | | | | | | | | | | | |
| As of June 30, | |
| 2021 | | 2020 | |
Consolidated Results | (Dollars in millions) | |
Components of Fee-earning AUM | | | | |
Fee-earning AUM based on capital commitments (1) | $ | 76,238 | | | $ | 71,792 | | |
Fee-earning AUM based on invested capital (2) | 40,901 | | | 38,801 | | |
Fee-earning AUM based on collateral balances, at par (3) | 28,111 | | | 25,811 | | |
Fee-earning AUM based on net asset value (4) | 8,935 | | | 6,679 | | |
Fee-earning AUM based on lower of cost or fair value and other (5) | 20,671 | | | 19,306 | | |
Balance, End of Period (6) (7) | $ | 174,856 | | | $ | 162,389 | | |
(1)Reflects limited partner capital commitments where the original investment period, weighted-average investment period, or commitment fee period has not expired.
(2)Reflects limited partner invested capital at cost and includes amounts committed to or reserved for investments for certain Global Private Equity and Investment Solutions funds.
(3)Represents the amount of aggregate Fee-earning collateral balances and principal balances, at par, for our CLOs/structured products.
(4)Reflects the net asset value of certain other carry funds.
(5)Includes funds with fees based on gross asset value.
(6)Energy III, Energy IV, and Renew II (collectively, the “Legacy Energy Funds”), are managed with Riverstone Holdings LLC and its affiliates. Affiliates of both Carlyle and Riverstone act as investment advisors to each of the Consolidated FundsLegacy Energy Funds. Carlyle has a minority representation on the management committees of Energy IV and Renew II. Carlyle and Riverstone each hold half of the seats on the management committee of Energy III, but the investment period for this fund has expired and the remaining investments in such fund are reflected as non-controlling interests in consolidated entitiesbeing disposed of in the consolidated financial statements. For further information, see Note 2ordinary course of business. As of June 30, 2021, the Legacy Energy Funds had, in the aggregate, approximately $0.6 billion in AUM and $0.7 billion in Fee-earning AUM. We are no longer raising capital for the Legacy Energy Funds and expect these balances to continue to decrease over time as the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.funds wind down.
Because only a small portion
(7)Ending balances as of our funds are consolidated, the performanceJune 30, 2021 and 2020 exclude $17.3 billion and $8.5 billion, respectively, of the Consolidated Funds ispending Fee-earning AUM for which fees have not necessarily consistent with or representative of the combined performance trends of all of our funds.
Consolidated Results of Operationsyet been activated.
The following table below provides the period to period rollforward of Fee-earning AUM.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Consolidated Results | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 173,132 | | | $ | 158,246 | | | $ | 170,102 | | | $ | 161,057 | |
Inflows (1) | 6,092 | | | 9,671 | | | 14,051 | | | 12,568 | |
Outflows (including realizations) (2) | (5,771) | | | (5,865) | | | (9,345) | | | (10,521) | |
Market Activity & Other (3) | 1,078 | | | (1,197) | | | 1,586 | | | (1,168) | |
Foreign Exchange (4) | 325 | | | 1,534 | | | (1,538) | | | 453 | |
Balance, End of Period | $ | 174,856 | | | $ | 162,389 | | | $ | 174,856 | | | $ | 162,389 | |
(1)Inflows represents limited partner capital raised by our carry funds or separately managed accounts for which management fees based on commitments were activated during the period, the fee-earning commitments invested in vehicles for which management fees are based on invested capital, the fee-earning collateral balance of new CLO issuances, as well as gross subscriptions in our vehicles for which management fees are based on net asset value. Inflows exclude fundraising amounts during the period for which fees have not yet been activated, which are referenced as Pending Fee-earning AUM.
(2)Outflows represents the impact of realizations from vehicles with management fees based on remaining invested capital at cost or fair value, changes in basis for funds where the investment period, weighted-average investment period or commitment fee period has expired during the period, reductions for funds that are no longer calling for fees, gross redemptions in our open-end funds, and discussion sets forth information regarding our unaudited condensed consolidated resultsrunoff of operationsCLO collateral balances. Distributions for funds earning management fees based on commitments during the period do not affect Fee-earning AUM. Outflows during the three and ninesix months ended SeptemberJune 30, 20172021 also reflect the sale of MRE on April 1, 2021, which had $2.3 billion of Fee-earning AUM as of March 31, 2021.
(3)Market Activity & Other represents realized and 2016. The unaudited condensed consolidated financial statements have been preparedunrealized gains (losses) on substantiallyportfolio investments in our carry funds based on the same basis for all historical periods presented; however, the consolidatedlower of cost or fair value and net asset value, as well as activity of funds are not the same entities in all periods shown due to changes in U.S. GAAP, changes in fund terms and the creation and termination of funds. As further described below, the consolidation of these funds primarily hadwith fees based on gross asset value.
(4)Foreign Exchange represents the impact of increasing interestforeign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Refer to “— Segment Analysis” for a detailed discussion by segment of the activity affecting Fee-earning AUM for each of the periods presented by segment.
Assets under Management. Assets under management or AUM refers to the assets we manage or advise. Our AUM generally equals the sum of the following:
(a) the aggregate fair value of our carry funds and related co-investment vehicles, NGP Predecessor Funds and separately managed accounts, plus the capital that Carlyle is entitled to call from investors in those funds and vehicles (including Carlyle commitments to those funds and vehicles and those of senior Carlyle professionals and employees) pursuant to the terms of their capital commitments to those funds and vehicles;
(b) the amount of aggregate collateral balance and principal cash or aggregate principal amount of the notes of our CLOs and other structured products (inclusive of all positions);
(c) the net asset value of certain carry funds; and
(d) the gross assets (including assets acquired with leverage) of our business development companies, plus the capital that Carlyle is entitled to call from investors in those vehicles pursuant to the terms of their capital commitments to those vehicles.
We include in our calculation of AUM and Fee-earning AUM certain energy and renewable resources funds that we jointly advise with Riverstone, the NGP Energy Funds that are advised by NGP, as well as capital raised from third-party investors to acquire a 76.6% interest in Fortitude Holdings.
For most of our carry funds, total AUM includes the fair value of the capital invested, whereas Fee-earning AUM includes the amount of capital commitments or the remaining amount of invested capital, depending on whether the original investment period for the fund has expired. As such, Fee-earning AUM may be greater than total AUM when the aggregate fair value of the remaining investments is less than the cost of those investments.
Our calculations of Fee-earning AUM and AUM may differ from the calculations of other asset managers. As a result, these measures may not be comparable to similar measures presented by other asset managers. In addition, our calculation of AUM (but not Fee-earning AUM) includes uncalled commitments to, and the fair value of invested capital in, our investment funds from Carlyle and our personnel, regardless of whether such commitments or invested capital are subject to management fees or performance allocations. Our calculations of AUM or Fee-earning AUM are not based on any definition of AUM or Fee-earning AUM that is set forth in the agreements governing the investment funds that we manage or advise.
We generally use Fee-earning AUM as a metric to measure changes in the assets from which we earn recurring management fees. Total AUM tends to be a better measure of our investment and fundraising performance as it reflects investments at fair value plus available capital.
Available Capital. “Available Capital” refers to the amount of capital commitments available to be called for investments, which may be reduced for equity invested that is funded via a fund credit facility and expected to be called from investors at a later date, plus any additional assets/liabilities at the fund level other than active investments. Amounts previously called may be added back to available capital following certain distributions. “Expired Available Capital” occurs when a fund has passed the investment and follow-on periods and can no longer invest capital into new or existing deals. Any remaining Available Capital, typically a result of either recycled distributions or specific reserves established for the follow-on period that are not drawn, can only be called for fees and expenses and is therefore removed from the Total AUM calculation.
The table below provides the period to period rollforward of Total AUM.
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
Consolidated Results | (Dollars in millions) |
Total AUM Rollforward | | | |
Balance, Beginning of Period | $ | 259,844 | | | $ | 245,769 | |
Inflows (1) | 10,445 | | | 18,238 | |
Outflows (including realizations) (2) | (10,795) | | | (18,651) | |
Market Activity & Other (3) | 15,802 | | | 32,992 | |
Foreign Exchange (4) | 581 | | | (2,471) | |
Balance, End of Period | $ | 275,877 | | | $ | 275,877 | |
(1)Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects translation at the average quarterly rate, while the separately reported Fundraising metric is translated at the spot rate for each individual closing.
(2)Outflows includes distributions net of recallable or recyclable amounts in our carry funds, related co-investment vehicles, separately managed accounts and the NGP Predecessor Funds, gross redemptions in our open-end funds, runoff of CLO collateral balances and the expiration of available capital. Outflows during the three and six months ended June 30, 2021 also reflect the sale of MRE on April 1, 2021, which had $2.4 billion of Total AUM as of March 31, 2021.
(3)Market Activity & Other generally represents realized and unrealized gains (losses) on portfolio investments in our carry funds and related co-investment vehicles, the NGP Predecessor Funds and separately managed accounts, as well as the net impact of fees, expenses and non-investment income, of Consolidated Funds, interestchange in gross asset value for our business development companies and other expenseschanges in AUM.
(4)Foreign Exchange represents the impact of Consolidated Funds, and net investment gains (losses)foreign exchange rate fluctuations on the translation of Consolidated Funds inour non-U.S. dollar denominated funds. Activity during the year thatperiod is translated at the fund is initially consolidated. The consolidationaverage rate for the period. Ending balances are translated at the spot rate as of these funds had no effect on net income attributablethe period end.
Please refer to “— Segment Analysis” for a detailed discussion by segment of the Partnershipactivity affecting Total AUM for each of the periods presented.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions, except unit and per unit data) |
Revenues | | | | | | | |
Fund management fees | $ | 262.5 |
| | $ | 255.1 |
| | $ | 747.6 |
| | $ | 817.1 |
|
Performance fees | | | | | | | |
Realized | 411.8 |
| | 383.4 |
| | 852.7 |
| | 905.1 |
|
Unrealized | (126.2 | ) | | (168.7 | ) | | 658.1 |
| | (334.3 | ) |
Total performance fees | 285.6 |
| | 214.7 |
| | 1,510.8 |
| | 570.8 |
|
Investment income | | | | | | | |
Realized | 15.5 |
| | 40.7 |
| | 42.0 |
| | 92.2 |
|
Unrealized | 21.7 |
| | 29.8 |
| | 100.5 |
| | 34.0 |
|
Total investment income | 37.2 |
| | 70.5 |
| | 142.5 |
| | 126.2 |
|
Interest and other income | 9.9 |
| | 5.3 |
| | 25.9 |
| | 15.0 |
|
Interest and other income of Consolidated Funds | 44.7 |
| | 43.0 |
| | 132.6 |
| | 107.8 |
|
Revenue of a real estate VIE | — |
| | 18.7 |
| | 109.0 |
| | 61.5 |
|
Total revenues | 639.9 |
| | 607.3 |
| | 2,668.4 |
| | 1,698.4 |
|
Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Base compensation | 174.1 |
| | 154.3 |
| | 471.1 |
| | 470.5 |
|
Equity-based compensation | 81.0 |
| | 81.4 |
| | 241.8 |
| | 265.8 |
|
Performance fee related | | | | | | | |
Realized | 189.4 |
| | 189.0 |
| | 401.9 |
| | 423.0 |
|
Unrealized | (51.8 | ) | | (78.1 | ) | | 309.9 |
| | (146.1 | ) |
Total compensation and benefits | 392.7 |
| | 346.6 |
| | 1,424.7 |
| | 1,013.2 |
|
General, administrative and other expenses | (18.7 | ) | | 188.9 |
| | 170.9 |
| | 362.6 |
|
Interest | 16.9 |
| | 15.6 |
| | 48.4 |
| | 46.3 |
|
Interest and other expenses of Consolidated Funds | 37.2 |
| | 32.3 |
| | 160.9 |
| | 87.3 |
|
Interest and other expenses of a real estate VIE and loss on deconsolidation | 64.5 |
| | 82.1 |
| | 202.5 |
| | 157.9 |
|
Other non-operating expenses (income) | — |
| | (3.7 | ) | | 0.1 |
| | 0.8 |
|
Total expenses | 492.6 |
| | 661.8 |
| | 2,007.5 |
| | 1,668.1 |
|
Other income | | | | | | | |
Net investment gains of Consolidated Funds | 18.6 |
| | 4.8 |
| | 76.4 |
| | 3.1 |
|
Income before provision for income taxes | 165.9 |
| | (49.7 | ) | | 737.3 |
| | 33.4 |
|
Provision (benefit) for income taxes | (1.3 | ) | | 1.0 |
| | 17.7 |
| | 32.7 |
|
Net income (loss) | 167.2 |
| | (50.7 | ) | | 719.6 |
| | 0.7 |
|
Net income (loss) attributable to non-controlling interests in consolidated entities | 27.6 |
| | (29.1 | ) | | 47.4 |
| | (29.8 | ) |
Net income (loss) attributable to Carlyle Holdings | 139.6 |
| | (21.6 | ) | | 672.2 |
| | 30.5 |
|
Net income (loss) attributable to non-controlling interests in Carlyle Holdings | 95.0 |
| | (22.4 | ) | | 487.0 |
| | 15.2 |
|
Net income (loss) attributable to The Carlyle Group L.P. | $ | 44.6 |
| | $ | 0.8 |
| | $ | 185.2 |
| | $ | 15.3 |
|
| | | | | | | |
Net income (loss) attributable to The Carlyle Group L.P. per common unit | | | | | | | |
Basic | $ | 0.47 |
| | $ | 0.01 |
| | $ | 2.06 |
| | $ | 0.19 |
|
Diluted | $ | 0.43 |
| | $ | (0.02 | ) | | $ | 1.90 |
| | $ | 0.08 |
|
Weighted-average common units | | | | | | | |
Basic | 95,198,102 |
| | 83,602,503 |
| | 89,815,112 |
| | 82,062,633 |
|
Diluted | 334,392,424 |
| | 312,534,968 |
| | 97,538,190 |
| | 306,981,103 |
|
Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016 and Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Revenues
Total revenues increased $32.6 million, or 5%,Portfolio Appreciation (Depreciation). The overall portfolio appreciation of 11% for the three months ended SeptemberJune 30, 2017 as compared to2021 is comprised of 12% appreciation for carry funds within our Global Private Equity segment focusing on corporate private equity, 11% for funds focusing on real estate, and 9% for funds focusing on natural resources; 8% appreciation for carry funds in the threeGlobal Credit segment; and 12% appreciation for carry funds in the Investment Solutions segment. Overall portfolio appreciation for the six months ended SeptemberJune 30, 20162021 of 25% is comprised of 28% appreciation for carry funds within our Global
Private Equity segment focusing on corporate private equity, 15% for funds focusing on real estate, and increased $970.0 million, or 57%17% for funds focusing on natural resources; 16% appreciation for carry funds in the Global Credit segment; and 28% appreciation for carry funds in the Investment Solutions segment.
While there is no perfectly comparable market index benchmark for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the componentsoverall portfolio or any of the changes in total revenues for the threeits segments or strategies, we would note that S&P 500 and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Total Revenue, September 30, 2016 | $ | 607.3 |
| $ | 1,698.4 |
|
Increase (decrease) in fund management fees | 7.4 |
| (69.5 | ) |
Increase in performance fees | 70.9 |
| 940.0 |
|
(Decrease) increase in investment income | (33.3 | ) | 16.3 |
|
Increase in interest and other income of Consolidated Funds | 1.7 |
| 24.8 |
|
(Decrease) increase in revenue from a real estate VIE | (18.7 | ) | 47.5 |
|
All other changes | 4.6 |
| 10.9 |
|
Total increase | 32.6 |
| 970.0 |
|
Total Revenue, September 30, 2017 | $ | 639.9 |
| $ | 2,668.4 |
|
Fund Management Fees. Fund management fees increased $7.4 million, or 3%, to $262.5 millionMSCI ACWI appreciation for the three months ended SeptemberJune 30, 2017 as compared to2021 were 8.2% and 6.9%, respectively, while the threeFTSE NAREIT Composite appreciation was 10.9%, the S&P Oil and Gas Exploration and Production Index was 15.6%, and the S&P Leveraged Loan Index appreciation was 1.1%. S&P 500 and MSCI ACWI appreciation for the six months ended SeptemberJune 30, 20162021 were 14.4% and decreased $69.5 million, or 9%11.4%, to $747.6 million forrespectively, while the nine months ended September 30, 2017 as compared toFTSE NAREIT Composite appreciation was 19.3%, the nine months ended September 30, 2016, primarily due to the following:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
Higher management fees from the commencement of the investment period for certain newly raised funds | $ | 31.0 |
| 59.6 |
|
Lower management fees resulting from the change in basis for earning management fees from commitments to invested capital for certain funds and from distributions from funds whose management fees are based on invested capital | (11.5 | ) | (48.8 | ) |
Decrease in catch-up management fees from subsequent closes of funds that are in the fundraising period | (0.1 | ) | (6.5 | ) |
Lower management fees from lower assets under management in our former hedge funds | (16.8 | ) | (60.2 | ) |
Higher (lower) transaction and portfolio advisory fees | 5.0 |
| (9.1 | ) |
All other changes | (0.2 | ) | (4.5 | ) |
Total increase (decrease) in fund management fees | $ | 7.4 |
| $ | (69.5 | ) |
Fund management fees include transactionS&P Oil and portfolio advisory fees, net of rebate offsets, of $10.2 millionGas Exploration and $5.2 million for the three months ended September 30, 2017 and 2016, respectively, and $28.0 million and $37.1 million for the nine months ended September 30, 2017 and 2016, respectively. The $9.1 million decrease in transaction and portfolio advisory fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 resulted primarily from a significant transaction related to one of our U.S. buyout funds in the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2017.
Performance Fees. Performance fees increased $70.9 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $940.0 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Performance fees by segment on a consolidated U.S. GAAP basis for the three and nine months ended September 30, 2017 and 2016 comprised the following:
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
| (Dollars in Millions) |
Corporate Private Equity | $ | 159.6 |
| $ | 186.5 |
| | $ | 1,147.4 |
| $ | 283.0 |
|
Real Assets | 74.5 |
| (19.1 | ) | | 214.0 |
| 198.6 |
|
Global Market Strategies | 17.2 |
| 17.8 |
| | 50.8 |
| 26.8 |
|
Investment Solutions | 34.3 |
| 29.5 |
| | 98.6 |
| 62.4 |
|
Total performance fees | $ | 285.6 |
| $ | 214.7 |
| | $ | 1,510.8 |
| $ | 570.8 |
|
| | | | | |
Total carry fund appreciation | 3% | 3% | | 14% | 7% |
Approximately $110.4 million of our performance fees for the three months ended September 30, 2017 were related to CP VI, CP V, CIEP, and CEOF while approximately $107.9 million of our performance fees for the three months ended September 30, 2016 were related to CP VI, CRP V, and CAP III. Approximately $979.9 million of our performance fees for the nine months ended September 30, 2017 were related to CP VI, CP V, and CAP IV, while approximately $338.2 million of our performance fees for the nine months ended September 30, 2016 were related to CP VI, CP V, and CRP VII.
Expectations for global economic growth generally have strengthened since the end of the second quarter, with upward revisions to the International Monetary Fund’s global growth forecasts for both 2017 and 2018. Public and proprietary data suggest manufacturing and related trade flows have been responsible for most of the acceleration in global growth. Our proprietary portfolio economic data also indicates that trade-sensitive industrial orders have been growing at their fastest rates since 2011, which has supported earnings growth across our global portfolio during the first three quarters of 2017. Private equity has benefited from these favorable financial market conditions, which have resulted in tight credit spreads on portfolio company loan and bond issuances and a healthy fundraising environment. Further, while higher asset valuations may continue to put downward pressure on rates of return for new investments across all asset classes, we remain confident in our ability to find investment opportunities that meet the investment criteria and strategic focus of our investment funds. The positive economic climateProduction Index was 58.8%, and the strong underlying performance of many of the portfolio companies in our funds facilitated theS&P Leveraged Loan Index appreciation of our carry funds during the third quarter. The measurement of our performance fees for any given period reflects the change in the valuation of our portfolios for funds that have exceeded their performance hurdles and are otherwise in accrued carry which is impacted by market volatility. During the third quarter, our overall carry fund portfolio appreciated by 3% and is up 19% for the last twelve months. Our Corporate Private Equity funds increased 4% and our real estate funds up 3% and natural resources up 5% in the third quarter. The valuation of our Global Market Strategies carry funds was flat in the third quarter with strength in distressed credit offset by weakness in energy debt funds. Dollar denominated appreciation in Investment Solutions was 2.5%, but as AlpInvest funds are primarily denominated in Euros, they were negatively impacted by the strength of the Euro relative to the U.S. dollar during the quarter. Our private carry fund portfolio appreciated by 4% and our public carry fund portfolio appreciated by 1% during the third quarter, each excluding Investment Solutions.1.6%.
Investment Income. Investment income decreased $33.3 million to $37.2 million for the three months ended September 30, 2017 as compared to investment income of $70.5 million for the three months ended September 30, 2016 and increased $16.3 million to $142.5 million for the nine months ended September 30, 2017 as compared to investment income of $126.2 million for the nine months ended September 30, 2016, primarily due to the following:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
(Decrease) increase in investment income from NGP, which includes performance fees from the investments in NGP | $ | (29.4 | ) | $ | 29.6 |
|
Investment loss related to Q1 2017 amended NGP agreements (See Note 5 to the unaudited condensed consolidated financial statements) | — |
| (20.8 | ) |
(Decrease) increase in investment income from our buyout and growth funds | (6.0 | ) | 0.9 |
|
Decrease in losses on foreign currency hedges | 3.0 |
| 12.5 |
|
Increase (decrease) in investment income from our real assets funds, excluding NGP | 0.3 |
| (7.0 | ) |
Decrease in investment loss from our distressed debt funds, former hedge funds, and energy mezzanine funds | 0.4 |
| 3.7 |
|
Decrease in investment income from CLOs | (4.1 | ) | (9.2 | ) |
All other changes | 2.5 |
| 6.6 |
|
Total (decrease) increase in investment income | $ | (33.3 | ) | $ | 16.3 |
|
Interest and Other Income of Consolidated Funds. Our CLOs generate interest income primarily from investments in bonds and loans inclusive of amortization of discounts and generate other income from consent and amendment fees. Substantially all interest and other income of the CLOs and other consolidated funds together with interest expense of our CLOs and net investment gains (losses) of Consolidated Funds is attributable to the related funds’ limited partners or CLO investors and therefore is allocated to non-controlling interests. Accordingly, such amounts have no material impact on net income attributable to the Partnership.
Interest and other income of Consolidated Funds increased $1.7 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $24.8 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Substantially all of the increase in interest and other income of Consolidated Funds for both periods relates to increased interest income from CLOs.
Revenue of a Real Estate VIE. Revenue of a real estate VIE was $18.7 million for the three months ended September 30, 2016. There was no revenue recognized for the three months ended September 30, 2017 due to the deconsolidation of the VIE (see Note 15 to our unaudited condensed consolidated financial statements).
Revenue of a real estate VIE was $109.0 million for the nine months ended September 30, 2017 as compared to $61.5 million for the nine months ended September 30, 2016. The increase in revenue of a real estate VIE for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to an increase in the number of completed land development projects in the first half of 2017 prior to deconsolidation as compared to 2016, partially offset by a decrease in investment income.
Expenses
Total expenses decreased $169.2 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $339.4 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the components of the changes in total expenses for the three and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Total Expenses, September 30, 2016 | $ | 661.8 |
| $ | 1,668.1 |
|
Increases (Decreases): | | |
Increase in total compensation and benefits | 46.1 |
| 411.5 |
|
Decrease in general, administrative and other expenses | (207.6 | ) | (191.7 | ) |
Increase in interest and other expenses of Consolidated Funds | 4.9 |
| 73.6 |
|
(Decrease) increase in interest and other expenses of a real estate VIE and loss on deconsolidation | (17.6 | ) | 44.6 |
|
All other changes | 5.0 |
| 1.4 |
|
Total (decrease) increase | (169.2 | ) | 339.4 |
|
Total Expenses, September 30, 2017 | $ | 492.6 |
| $ | 2,007.5 |
|
Total Compensation and Benefits. Total compensation and benefits increased $46.1 million, or 13%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $411.5 million, or 41%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, due to the following:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
Increase in base compensation | $ | 19.8 |
| $ | 0.6 |
|
Decrease in equity-based compensation | (0.4 | ) | (24.0 | ) |
Increase in performance fee related compensation | 26.7 |
| 434.9 |
|
Total increase in total compensation and benefits | $ | 46.1 |
| $ | 411.5 |
|
Base compensation and benefits. Base compensation and benefits increased $19.8 million, or 13%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $0.6 million, or 0%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to the following:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
Decrease in hedge fund headcount and bonuses | $ | (3.4 | ) | $ | (21.6 | ) |
Increase (decrease) in all other headcount and bonuses | 16.7 |
| (9.3 | ) |
Increase in compensation costs associated with fundraising activities | 5.6 |
| 17.7 |
|
Absence in 2017 of prior year net write-down of acquisition- related compensatory arrangements | 0.9 |
| 13.8 |
|
Total increase in base compensation and benefits | $ | 19.8 |
| $ | 0.6 |
|
Equity-based Compensation. Equity-based compensation decreased $24.0 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease in equity-based compensation was due primarily to the forfeiture of equity-based awards due to employee terminations occurring since the third quarter of 2016 and the accounting policy change on January 1, 2017 to account for forfeitures as they occur instead of estimating an expense at the grant date. These decreases were partially offset by the settlement of the DGAM earnout arrangement due to the commencement of the wind down of DGAM during 2016 in which a reduction of expense was incurred in 2016 and by ongoing grants of deferred restricted common units to new and existing employees during 2016 and 2017.
Performance fee related compensation expense. Performance fee related compensation expense increased $26.7 million for the three months ended September 30, 2017 as compared to three months ended September 30, 2016 and increased $434.9 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Performance fee related compensation as a percentage of performance fees was 48% and 47% for the three and nine months ended September 30, 2017, respectively, and 52% and 49% for the three and nine months ended September 30, 2016, respectively. For our largest segment, Corporate Private Equity, our performance fee related compensation expense as a percentage of performance fees is generally around 45%. Performance fees from our Investment Solutions segment pay a higher ratio of performance fees as compensation. Conversely, performance fees from the Legacy Energy funds in the Real Assets segment are primarily allocated to Carlyle because the investment teams for the Legacy Energy funds are employed by Riverstone and not Carlyle.
General, Administrative and Other Expenses. General, administrative and other expenses decreased $207.6 million for the three months ended September 30, 2017 as compared to three months ended September 30, 2016 and decreased $191.7 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
Lower intangible asset amortization | $ | (8.5 | ) | (22.8 | ) |
(Lower) higher expenses for litigation and contingencies *
| (125.0 | ) | 23.8 |
|
Net insurance proceeds recognized for certain legal matters | (74.0 | ) | (212.6 | ) |
Lower professional fees and office expenses | (7.5 | ) | (10.8 | ) |
Lower external fundraising costs | (1.2 | ) | (0.6 | ) |
Foreign exchange and other changes | 8.6 |
| 31.3 |
|
Total decrease in general, administrative and other expenses | $ | (207.6 | ) | $ | (191.7 | ) |
* For the three months ended September 30, 2017 compared to the three months ended September 30, 2016, this reflects the $100 million Q3 2016 commodities charge as compared to the $25 million reversal of the CCC litigation reserve in Q3 2017.
Interest and Other Expenses of Consolidated Funds. Interest and other expenses of Consolidated Funds increased $4.9 million for the three months ended September 30, 2017 as compared to three months ended September 30, 2016 and increased $73.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase for both periods is primarily due to higher interest expense on the consolidated CLOs.
The CLOs incur interest expense on their loans payable and incur other expenses consisting of trustee fees, rating agency fees and professional fees. Substantially all interest and other income of the CLOs together with interest expense of our CLOs and net investment gains (losses) of Consolidated Funds is attributable to the related funds’ limited partners or CLO investors and therefore is allocated to non-controlling interests. Accordingly, such amounts have no material impact on net income attributable to the Partnership.
Interest and Other Expenses of a Real Estate VIE and Loss on Deconsolidation. Interest and other expenses of a real estate VIE and loss on deconsolidation decreased $17.6 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $44.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. During the three months ended September 30, 2017, the Partnership recognized a loss of approximately $65 million as a result of the Partnership disposing of its interests in Urbplan in a transaction in which a third party acquired operational control and all of the economic interests in Urbplan. With this
transaction, Urbplan has been deconsolidated from the Partnership's financial results (see Note 15 to our unaudited condensed consolidated financial statements). Excluding the effect of this transaction, Urbplan's income before provision for income taxes (including interest and other expenses of a real estate VIE and loss on deconsolidation) was not material for the three months ended September 30, 2017.
The increase for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to:
|
| | | |
| Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
Higher expenses associated with land development services | $ | 45.5 |
|
Lower income related to fair market value adjustment for Urbplan loans | (4.0 | ) |
Lower interest expense | (17.7 | ) |
Lower compensation and benefits | (2.7 | ) |
Lower general, administrative and other expenses | (41.0 | ) |
Loss on deconsolidation | $ | 64.5 |
|
Total increase in interest and other expenses of a real estate VIE and loss on deconsolidation | $ | 44.6 |
|
Other Non-operating Expenses. For the three and nine months ended September 30, 2017 and 2016, this caption primarily represents the change in fair value of contingent consideration associated with the Partnership's acquisitions.
The increase in other non-operating expenses for both the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016 was the result of the separation from ESG and Claren Road and the associated termination of their respective earnout arrangements and the change in fair value of contingent consideration associated with the Partnership's other acquisitions.
Net Investment Gains of Consolidated Funds
For the three months ended September 30, 2017, net investment gains of Consolidated Funds were $18.6 million as compared to net investment gains of $4.8 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, net investment gains of Consolidated Funds were $76.4 million as compared to net investment gains of $3.1 million for the nine months ended September 30, 2016. For both the three and nine months ended September 30, 2017 and 2016, net investment gains (losses) comprise the activity of the consolidated CLOs and certain other funds. For the consolidated CLOs, the amount reflects the net gain or loss on the fair value adjustment of both assets and liabilities. The components of net investment gains of consolidated funds for the respective periods are:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Realized losses | $ | (3.3 | ) | | $ | — |
| | $ | (9.1 | ) | | $ | (9.6 | ) |
Net change in unrealized gains | 0.8 |
| | 18.6 |
| | 36.2 |
| | 54.6 |
|
Total gains (losses) | (2.5 | ) | | 18.6 |
| | 27.1 |
| | 45.0 |
|
Gains (losses) from liabilities of CLOs | 21.1 |
| | (15.9 | ) | | 49.3 |
| | (43.8 | ) |
Gains on other assets of CLOs | — |
| | 2.1 |
| | — |
| | 1.9 |
|
Total investment gains of Consolidated Funds | $ | 18.6 |
| | $ | 4.8 |
| | $ | 76.4 |
| | $ | 3.1 |
|
For the three and nine months ended September 30, 2017 and 2016, the unrealized investment gains/losses primarily included the appreciation/depreciation of consolidated funds.
The net investment gains (losses) for the three and nine months ended September 30, 2017 and 2016 were due to the following:
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
| (Dollars in Millions) |
Gains (losses) attributable to other consolidated funds | $ | 13.9 |
| $ | (2.1 | ) | | $ | 13.9 |
| $ | 0.6 |
|
Net appreciation of CLOs | 4.7 |
| 6.9 |
| | 62.5 |
| 2.5 |
|
Total net investment gains | $ | 18.6 |
| $ | 4.8 |
| | $ | 76.4 |
| $ | 3.1 |
|
Net Income Attributable to Non-controlling Interests in Consolidated Entities
Net income attributable to non-controlling interests in consolidated entities was $27.6 million for the three months ended September 30, 2017 as compared to net loss attributable to non-controlling interests in consolidated entities of $29.1 million for the three months ended September 30, 2016. Net income attributable to non-controlling interests in consolidated entities was $47.4 million for the nine months ended September 30, 2017 as compared to net loss attributable to non-controlling interests in consolidated entities of $29.8 million for the nine months ended September 30, 2016. These amounts are primarily attributable to the net earnings or losses of non-Carlyle interests in majority-owned subsidiaries and non-controlling interest in carried interest and giveback obligations for each period. This balance also includes the allocation of Urbplan’s net losses that are attributable to non-controlling interests.
The net income (loss) of our Consolidated Funds for the three and nine months ended September 30, 2017 and 2016 is comprised of the following:
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
| (Dollars in Millions) |
Net income (loss) from the consolidated CLOs | $ | (2.8 | ) | $ | 8.8 |
| | $ | (1.9 | ) | $ | 5.7 |
|
Net income (loss) from other consolidated funds | 13.8 |
| (2.2 | ) | | 13.7 |
| (0.7 | ) |
Total net income of our Consolidated Funds | $ | 11.0 |
| $ | 6.6 |
| | $ | 11.8 |
| $ | 5.0 |
|
Net Income Attributable to The Carlyle Group L.P.
The net income attributable to the Partnership was $44.6 million for the three months ended September 30, 2017 as compared to net income attributable to the Partnership of $0.8 million for the three months ended September 30, 2016. The net income attributable to the Partnership was $185.2 million for the nine months ended September 30, 2017 as compared to net income attributable to the Partnership of $15.3 million for the nine months ended September 30, 2016. The Partnership is allocated a portion of the monthly net income (loss) attributable to Carlyle Holdings based on the Partnership’s ownership in Carlyle Holdings (which was approximately 29% and 26% as of September 30, 2017 and 2016, respectively). Net income or loss attributable to the Partnership also includes 100% of the net income or loss attributable to the Partnership’s wholly-owned taxable subsidiary, Carlyle Holdings I GP Inc., which was $5.4 million and $8.7 million for the three months ended September 30, 2017 and 2016, respectively, and $2.5 million and $10.0 million for the nine months ended September 30, 2017 and 2016, respectively. As a result, the total net income or loss attributable to the Partnership will vary as a percentage of the net income or loss attributable to Carlyle Holdings.
Non-GAAP Financial Measures
Distributable Earnings. Distributable Earnings, or “DE”, is a key performance benchmark used in our industry and is evaluated regularly by management in making resource deployment and compensation decisions, and in assessing the performance of our three segments. We also use DE in our budgeting, forecasting, and the overall management of our segments. We believe that reporting DE is helpful to understanding our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance. DE is intended to show the amount of net realized earnings without the effects of consolidation of the Consolidated Funds. DE is derived from our segment reported results and is an additional measure to assess performance and determine amounts potentially available for distribution to the Company’s common stockholders.
Distributable Earnings differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it includes tax expenses associated with certain foreign performance revenues (comprised of performance allocations and incentive fees), and does not include unrealized performance allocations and related compensation expense, unrealized principal investment income, equity-based compensation expense, net income (loss) attributable to non-Carlyle interest in consolidated entities, or charges (credits) related to Carlyle corporate actions and non-recurring items. Charges (credits) related to Carlyle corporate actions and non-recurring items include: charges (credits) associated with acquisitions, dispositions, or strategic investments, changes in the tax receivable agreement liability, corporate conversion costs, amortization and any impairment charges associated with acquired intangible assets, transaction costs associated with acquisitions and dispositions, charges associated with earnouts and contingent consideration including gains and losses associated with the estimated fair value of contingent consideration issued in conjunction with acquisitions or strategic investments, impairment charges associated with lease right-of-use assets, gains and losses from the retirement of debt, charges associated with contract terminations and employee severance. We believe the inclusion or exclusion of these items provides investors with a meaningful indication of our core operating performance. This measure supplements and should be considered in addition to and not in lieu of the results of operations discussed further under “Consolidated Results of Operations” prepared in accordance with U.S. GAAP.
Fee Related Earnings. Fee Related Earnings, or “FRE”, is a component of DE and is used to assess the ability of the business to cover direct base compensation and operating expenses from total fee revenues. FRE differs from income (loss) before provision for income taxes computed in accordance with U.S. GAAP in that it adjusts for the items included in the calculation of DE and also adjusts DE to exclude net realized performance revenues, realized principal investment income from investments in Carlyle funds, net interest (interest income less interest expense), and certain general, administrative and other expenses when the timing of any future payment is uncertain.
Operating Metrics
We monitor certain operating metrics that are common to the asset management industry.
Fee-earning Assets under Management. Fee-earning assets under management or Fee-earning AUM refers to the assets we manage or advise from which we derive recurring fund management fees. Our Fee-earning AUM is generally based on one of the following, once fees have been activated:
(a)the amount of limited partner capital commitments, generally for carry funds where the original investment period has not expired, for AlpInvest carry funds during the commitment fee period (see “Fee-earning AUM based on capital commitments” in the table below for the amount of this component at each period);
(b)the remaining amount of limited partner invested capital at cost, generally for carry funds and certain co-investment vehicles where the original investment period has expired and one of our business development companies (see “Fee-earning AUM based on invested capital” in the table below for the amount of this component at each period);
(c)the amount of aggregate fee-earning collateral balance of our CLOs and other securitization vehicles, as defined in the fund indentures (typically exclusive of equities and defaulted positions) as of the quarterly cut-off date;
(d)the external investor portion of the net asset value of our open-ended funds (pre redemptions and subscriptions), as well as certain carry funds (see “Fee-earning AUM based on net asset value” in the table below for the amount of this component at each period);
(e)the gross assets (including assets acquired with leverage), excluding cash and cash equivalents, of one of our business development companies and certain carry funds (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period); and
(f)the lower of cost or fair value of invested capital, generally for AlpInvest carry funds where the commitment fee period has expired and certain carry funds where the investment period has expired, (see “Fee-earning AUM based on lower of cost or fair value and other” in the table below for the amount of this component at each period).
The table below details Fee-earning AUM by its respective components at each period.
| | | | | | | | | | | | |
| As of June 30, | |
| 2021 | | 2020 | |
Consolidated Results | (Dollars in millions) | |
Components of Fee-earning AUM | | | | |
Fee-earning AUM based on capital commitments (1) | $ | 76,238 | | | $ | 71,792 | | |
Fee-earning AUM based on invested capital (2) | 40,901 | | | 38,801 | | |
Fee-earning AUM based on collateral balances, at par (3) | 28,111 | | | 25,811 | | |
Fee-earning AUM based on net asset value (4) | 8,935 | | | 6,679 | | |
Fee-earning AUM based on lower of cost or fair value and other (5) | 20,671 | | | 19,306 | | |
Balance, End of Period (6) (7) | $ | 174,856 | | | $ | 162,389 | | |
(1)Reflects limited partner capital commitments where the original investment period, weighted-average investment period, or commitment fee period has not expired.
(2)Reflects limited partner invested capital at cost and includes amounts committed to or reserved for investments for certain Global Private Equity and Investment Solutions funds.
(3)Represents the amount of aggregate Fee-earning collateral balances and principal balances, at par, for our CLOs/structured products.
(4)Reflects the net asset value of certain other carry funds.
(5)Includes funds with fees based on gross asset value.
(6)Energy III, Energy IV, and Renew II (collectively, the “Legacy Energy Funds”), are managed with Riverstone Holdings LLC and its affiliates. Affiliates of both Carlyle and Riverstone act as investment advisors to each of the Legacy Energy Funds. Carlyle has a minority representation on the management committees of Energy IV and Renew II. Carlyle and Riverstone each hold half of the seats on the management committee of Energy III, but the investment period for this fund has expired and the remaining investments in such fund are being disposed of in the ordinary course of business. As of June 30, 2021, the Legacy Energy Funds had, in the aggregate, approximately $0.6 billion in AUM and $0.7 billion in Fee-earning AUM. We are no longer raising capital for the Legacy Energy Funds and expect these balances to continue to decrease over time as the funds wind down.
(7)Ending balances as of June 30, 2021 and 2020 exclude $17.3 billion and $8.5 billion, respectively, of pending Fee-earning AUM for which fees have not yet been activated.
The table below provides the period to period rollforward of Fee-earning AUM.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Consolidated Results | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 173,132 | | | $ | 158,246 | | | $ | 170,102 | | | $ | 161,057 | |
Inflows (1) | 6,092 | | | 9,671 | | | 14,051 | | | 12,568 | |
Outflows (including realizations) (2) | (5,771) | | | (5,865) | | | (9,345) | | | (10,521) | |
Market Activity & Other (3) | 1,078 | | | (1,197) | | | 1,586 | | | (1,168) | |
Foreign Exchange (4) | 325 | | | 1,534 | | | (1,538) | | | 453 | |
Balance, End of Period | $ | 174,856 | | | $ | 162,389 | | | $ | 174,856 | | | $ | 162,389 | |
(1)Inflows represents limited partner capital raised by our carry funds or separately managed accounts for which management fees based on commitments were activated during the period, the fee-earning commitments invested in vehicles for which management fees are based on invested capital, the fee-earning collateral balance of new CLO issuances, as well as gross subscriptions in our vehicles for which management fees are based on net asset value. Inflows exclude fundraising amounts during the period for which fees have not yet been activated, which are referenced as Pending Fee-earning AUM.
(2)Outflows represents the impact of realizations from vehicles with management fees based on remaining invested capital at cost or fair value, changes in basis for funds where the investment period, weighted-average investment period or commitment fee period has expired during the period, reductions for funds that are no longer calling for fees, gross redemptions in our open-end funds, and runoff of CLO collateral balances. Distributions for funds earning management fees based on commitments during the period do not affect Fee-earning AUM. Outflows during the three and six months ended June 30, 2021 also reflect the sale of MRE on April 1, 2021, which had $2.3 billion of Fee-earning AUM as of March 31, 2021.
(3)Market Activity & Other represents realized and unrealized gains (losses) on portfolio investments in our carry funds based on the lower of cost or fair value and net asset value, as well as activity of funds with fees based on gross asset value.
(4)Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Refer to “— Segment Analysis” for a detailed discussion by segment of the activity affecting Fee-earning AUM for each of the periods presented by segment.
Assets under Management. Assets under management or AUM refers to the assets we manage or advise. Our AUM generally equals the sum of the following:
(a) the aggregate fair value of our carry funds and related co-investment vehicles, NGP Predecessor Funds and separately managed accounts, plus the capital that Carlyle is entitled to call from investors in those funds and vehicles (including Carlyle commitments to those funds and vehicles and those of senior Carlyle professionals and employees) pursuant to the terms of their capital commitments to those funds and vehicles;
(b) the amount of aggregate collateral balance and principal cash or aggregate principal amount of the notes of our CLOs and other structured products (inclusive of all positions);
(c) the net asset value of certain carry funds; and
(d) the gross assets (including assets acquired with leverage) of our business development companies, plus the capital that Carlyle is entitled to call from investors in those vehicles pursuant to the terms of their capital commitments to those vehicles.
We include in our calculation of AUM and Fee-earning AUM certain energy and renewable resources funds that we jointly advise with Riverstone, the NGP Energy Funds that are advised by NGP, as well as capital raised from third-party investors to acquire a 76.6% interest in Fortitude Holdings.
For most of our carry funds, total AUM includes the fair value of the capital invested, whereas Fee-earning AUM includes the amount of capital commitments or the remaining amount of invested capital, depending on whether the original investment period for the fund has expired. As such, Fee-earning AUM may be greater than total AUM when the aggregate fair value of the remaining investments is less than the cost of those investments.
Our calculations of Fee-earning AUM and AUM may differ from the calculations of other asset managers. As a result, these measures may not be comparable to similar measures presented by other asset managers. In addition, our calculation of AUM (but not Fee-earning AUM) includes uncalled commitments to, and the fair value of invested capital in, our investment funds from Carlyle and our personnel, regardless of whether such commitments or invested capital are subject to management fees or performance allocations. Our calculations of AUM or Fee-earning AUM are not based on any definition of AUM or Fee-earning AUM that is set forth in the agreements governing the investment funds that we manage or advise.
We generally use Fee-earning AUM as a metric to measure changes in the assets from which we earn recurring management fees. Total AUM tends to be a better measure of our investment and fundraising performance as it reflects investments at fair value plus available capital.
Available Capital. “Available Capital” refers to the amount of capital commitments available to be called for investments, which may be reduced for equity invested that is funded via a fund credit facility and expected to be called from investors at a later date, plus any additional assets/liabilities at the fund level other than active investments. Amounts previously called may be added back to available capital following certain distributions. “Expired Available Capital” occurs when a fund has passed the investment and follow-on periods and can no longer invest capital into new or existing deals. Any remaining Available Capital, typically a result of either recycled distributions or specific reserves established for the follow-on period that are not drawn, can only be called for fees and expenses and is therefore removed from the Total AUM calculation.
The table below provides the period to period rollforward of Total AUM.
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
Consolidated Results | (Dollars in millions) |
Total AUM Rollforward | | | |
Balance, Beginning of Period | $ | 259,844 | | | $ | 245,769 | |
Inflows (1) | 10,445 | | | 18,238 | |
Outflows (including realizations) (2) | (10,795) | | | (18,651) | |
Market Activity & Other (3) | 15,802 | | | 32,992 | |
Foreign Exchange (4) | 581 | | | (2,471) | |
Balance, End of Period | $ | 275,877 | | | $ | 275,877 | |
(1)Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects translation at the average quarterly rate, while the separately reported Fundraising metric is translated at the spot rate for each individual closing.
(2)Outflows includes distributions net of recallable or recyclable amounts in our carry funds, related co-investment vehicles, separately managed accounts and the NGP Predecessor Funds, gross redemptions in our open-end funds, runoff of CLO collateral balances and the expiration of available capital. Outflows during the three and six months ended June 30, 2021 also reflect the sale of MRE on April 1, 2021, which had $2.4 billion of Total AUM as of March 31, 2021.
(3)Market Activity & Other generally represents realized and unrealized gains (losses) on portfolio investments in our carry funds and related co-investment vehicles, the NGP Predecessor Funds and separately managed accounts, as well as the net impact of fees, expenses and non-investment income, change in gross asset value for our business development companies and other changes in AUM.
(4)Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Please refer to “— Segment Analysis” for a detailed discussion by segment of the activity affecting Total AUM for each of the periods presented.
Portfolio Appreciation (Depreciation). The overall portfolio appreciation of 11% for the three months ended June 30, 2021 is comprised of 12% appreciation for carry funds within our Global Private Equity segment focusing on corporate private equity, 11% for funds focusing on real estate, and 9% for funds focusing on natural resources; 8% appreciation for carry funds in the Global Credit segment; and 12% appreciation for carry funds in the Investment Solutions segment. Overall portfolio appreciation for the six months ended June 30, 2021 of 25% is comprised of 28% appreciation for carry funds within our Global
Private Equity segment focusing on corporate private equity, 15% for funds focusing on real estate, and 17% for funds focusing on natural resources; 16% appreciation for carry funds in the Global Credit segment; and 28% appreciation for carry funds in the Investment Solutions segment.
While there is no perfectly comparable market index benchmark for the overall portfolio or any of its segments or strategies, we would note that S&P 500 and MSCI ACWI appreciation for the three months ended June 30, 2021 were 8.2% and 6.9%, respectively, while the FTSE NAREIT Composite appreciation was 10.9%, the S&P Oil and Gas Exploration and Production Index was 15.6%, and the S&P Leveraged Loan Index appreciation was 1.1%. S&P 500 and MSCI ACWI appreciation for the six months ended June 30, 2021 were 14.4% and 11.4%, respectively, while the FTSE NAREIT Composite appreciation was 19.3%, the S&P Oil and Gas Exploration and Production Index was 58.8%, and the S&P Leveraged Loan Index appreciation was 1.6%.
Consolidation of Certain Carlyle Funds
The Company consolidates all entities that it controls either through a majority voting interest or as the primary beneficiary of variable interest entities. The entities we consolidate are referred to collectively as the Consolidated Funds in our unaudited condensed consolidated financial statements. As of June 30, 2021, our Consolidated Funds represent approximately 2% of our AUM; 2% of our management fees for both the three and six months ended June 30, 2021; 1% of our total investment income or loss for the six months ended June 30, 2021.
We are not required under the consolidation guidance to consolidate in our financial statements most of the investment funds we advise. However, we consolidate certain CLOs that we advise. As of June 30, 2021, our consolidated CLOs held approximately $6.5 billion of total assets and comprised substantially all of the assets and loans payable of the Consolidated Funds. The assets and liabilities of the Consolidated Funds are generally held within separate legal entities and, as a result, the liabilities of the Consolidated Funds are non-recourse to us.
Generally, the consolidation of the Consolidated Funds has a gross-up effect on our assets, liabilities and cash flows but has no net effect on the net income attributable to the Company and equity. The majority of the net economic ownership interests of the Consolidated Funds are reflected as non-controlling interests in consolidated entities in the consolidated financial statements. Because only a small portion of our funds are consolidated, the performance of the Consolidated Funds is not necessarily consistent with or representative of the combined performance trends of all of our funds.
For further information on our consolidation policy and the consolidation of certain funds, see Note 2 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Consolidated Results of Operations
The following table and discussion sets forth information regarding our unaudited condensed consolidated results of operations for the three and six months ended June 30, 2021 and 2020. The unaudited condensed consolidated financial statements have been prepared on substantially the same basis for all historical periods presented; however, the consolidated funds are not the same entities in all periods shown due to changes in U.S. GAAP, changes in fund terms and the creation and termination of funds. As further described above, the consolidation of these funds primarily has the impact of increasing interest and other income of Consolidated Funds, interest and other expenses of Consolidated Funds, and net investment gains (losses) of Consolidated Funds in the year that the fund is initially consolidated. The consolidation of these funds had no effect on net income attributable to the Company for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions, except share and per share data) |
Revenues | | | | | | | |
Fund management fees | $ | 394.4 | | | $ | 371.8 | | | $ | 775.4 | | | $ | 727.7 | |
Incentive fees | 10.4 | | | 9.0 | | | 19.9 | | | 17.9 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Investment income (loss) | | | | | | | |
Performance allocations | 2,080.7 | | | 1,191.8 | | | 3,866.8 | | | 254.2 | |
| | | | | | | |
| | | | | | | |
Principal investment income (loss) | 137.7 | | | (512.6) | | | 316.8 | | | (765.9) | |
| | | | | | | |
| | | | | | | |
Total investment income (loss) | 2,218.4 | | | 679.2 | | | 4,183.6 | | | (511.7) | |
Interest and other income | 21.0 | | | 15.8 | | | 41.4 | | | 43.2 | |
Interest and other income of Consolidated Funds | 62.1 | | | 55.2 | | | 123.2 | | | 108.2 | |
| | | | | | | |
Total revenues | 2,706.3 | | | 1,131.0 | | | 5,143.5 | | | 385.3 | |
Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Cash-based compensation and benefits | 231.8 | | | 212.5 | | | 460.3 | | | 416.8 | |
Equity-based compensation | 47.2 | | | 30.5 | | | 79.6 | | | 59.6 | |
Performance allocations and incentive fee related compensation | 994.0 | | | 535.6 | | | 1,860.6 | | | 93.1 | |
| | | | | | | |
| | | | | | | |
Total compensation and benefits | 1,273.0 | | | 778.6 | | | 2,400.5 | | | 569.5 | |
General, administrative and other expenses | 109.1 | | | 80.2 | | | 200.8 | | | 149.8 | |
Interest | 25.5 | | | 25.9 | | | 48.5 | | | 49.8 | |
Interest and other expenses of Consolidated Funds | 46.5 | | | 39.3 | | | 88.9 | | | 84.9 | |
| | | | | | | |
Other non-operating expenses | (3.1) | | | 0.5 | | | (2.5) | | | 0.7 | |
Total expenses | 1,451.0 | | | 924.5 | | | 2,736.2 | | | 854.7 | |
Other income (loss) | | | | | | | |
Net investment income (losses) of Consolidated Funds | (2.6) | | | 50.3 | | | 9.7 | | | (62.8) | |
Income (Loss) before provision for income taxes | 1,252.7 | | | 256.8 | | | 2,417.0 | | | (532.2) | |
Provision (Benefit) for income taxes | 306.2 | | | 52.3 | | | 579.6 | | | (27.7) | |
Net income (loss) | 946.5 | | | 204.5 | | | 1,837.4 | | | (504.5) | |
Net income (loss) attributable to non-controlling interests in consolidated entities | 21.5 | | | 58.6 | | | 43.1 | | | (38.4) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income (loss) attributable to The Carlyle Group Inc. Common Stockholders | $ | 925.0 | | | $ | 145.9 | | | $ | 1,794.3 | | | $ | (466.1) | |
| | | | | | | |
Net income (loss) attributable to The Carlyle Group Inc. per common share | | | | | | | |
Basic | $ | 2.61 | | | $ | 0.42 | | | $ | 5.06 | | | $ | (1.34) | |
Diluted | $ | 2.55 | | | $ | 0.41 | | | $ | 4.97 | | | $ | (1.34) | |
Weighted-average common shares | | | | | | | |
Basic | 354,506,335 | | | 348,574,528 | | | 354,368,976 | | | 348,407,144 | |
Diluted | 362,151,588 | | | 357,268,275 | | | 361,328,946 | | | 348,407,144 | |
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 and Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Revenues
Total revenues increased $1.6 billion, or 139.3%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $4.8 billion, or 1,234.9%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The following table provides the components of the changes in total revenues for the three and six months ended June 30, 2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Total Revenues, June 30, 2020 | $ | 1,131.0 | | | $ | 385.3 | |
Increases (Decreases): | | | |
Increase in fund management fees | 22.6 | | | 47.7 | |
Increase in incentive fees | 1.4 | | | 2.0 | |
Increase in investment income, including performance allocations | 1,539.2 | | | 4,695.3 | |
Increase (decrease) in interest and other income | 5.2 | | | (1.8) | |
Increase in interest and other income of Consolidated Funds | 6.9 | | | 15.0 | |
| | | |
| | | |
Total increase | 1,575.3 | | | 4,758.2 | |
Total Revenues, June 30, 2021 | $ | 2,706.3 | | | $ | 5,143.5 | |
Fund Management Fees. Fund management fees increased $22.6 million, or 6.1%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $47.7 million, or 6.6%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to the following:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Higher management fees from the commencement of the investment period for certain newly raised funds | $ | 41.4 | | | $ | 72.5 | |
Lower management fees resulting from the change in basis for earning management fees from commitments to invested capital for certain funds and from distributions from funds whose management fees are based on invested capital | (22.9) | | | (46.5) | |
Increase in catch-up management fees from subsequent closes of funds that are in the fundraising period | 3.1 | | | 3.2 | |
Higher management fees on CLOs (after the effect of consolidation) due to the deferral of subordinated fees in 2020 | 3.5 | | | 7.0 | |
(Lower) higher transaction and portfolio advisory fees | (2.8) | | | 10.8 | |
All other changes | 0.3 | | | 0.7 | |
Total increase in fund management fees | $ | 22.6 | | | $ | 47.7 | |
Fund management fees include transaction and portfolio advisory fees, net of rebate offsets, of $14.4 million and $17.2 million for the three months ended June 30, 2021 and 2020, respectively. The decrease was primarily driven by transaction fees related to our investment in Carlyle FRL during the three months ended June 30, 2020, partially offset by higher underwriting and placement fees generated by Carlyle Global Capital Markets during the three months ended June 30, 2021. Transaction and portfolio advisory fees, net of rebate offsets, were $32.4 million and $21.6 million for the six months ended June 30, 2021 and 2020, respectively. The increase was primarily driven by higher underwriting and placement fees generated by Carlyle Global Capital Markets and transaction fees related to investments in CJP IV during the three and six months ended June 30, 2021, partially offset by transaction fees related to our investment in Carlyle FRL during the three months ended June 30, 2020.
Investment Income. Investment income increased $1.5 billion to $2.2 billion for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $4.7 billion to $4.2 billion for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to the following:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Increase in performance allocations, excluding NGP | $ | 888.9 | | | $ | 3,612.6 | |
Increase in investment income from NGP, which includes performance allocations from the investments in NGP | 5.4 | | | 27.4 | |
Increase in investment income from our corporate private equity funds | 25.1 | | | 138.2 | |
Decrease in losses on foreign currency hedges | 4.0 | | | 9.7 | |
Increase in investment income from our real estate funds | 0.9 | | | 4.9 | |
Increase in investment income from our natural resources funds, excluding NGP | 1.8 | | | 14.0 | |
| | | |
Increase in investment income from our Global Credit carry funds | 0.7 | | | 12.7 | |
(Decrease) increase in investment income from our direct lending funds and interval funds | (1.9) | | | 18.4 | |
Increase in investment income from Carlyle Aviation | 0.2 | | | 1.2 | |
(Decrease) increase in investment income from our CLOs | (28.0) | | | 51.0 | |
Increase in investment income from Fortitude Re | 634.2 | | | 791.6 | |
All other changes | 7.9 | | | 13.6 | |
Total increase in investment income | $ | 1,539.2 | | | $ | 4,695.3 | |
Prior to the Control Transaction which closed on June 2, 2020, as described in Note 4 to the unaudited condensed consolidated financial statements, we accounted for our investment in Fortitude Re under the equity method of accounting by recognizing our pro rata share of Fortitude Holdings’ U.S. GAAP earnings, which is included in principal investment income (loss) in the unaudited condensed consolidated statements of operations. These amounts were inclusive of unrealized gains (losses) resulting from changes in the fair value of embedded derivatives related to certain reinsurance contracts included in Fortitude Re’s U.S. GAAP financial statements. Modified coinsurance is subject to the general accounting principles for hedging, specifically the guidance originally issued as Derivatives Implementation Group Issue No. B36: Embedded Derivatives: Modified Coinsurance Agreements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments (“DIG B36”). At the time we contributed our existing 19.9% interest in Fortitude Holdings to Carlyle FRL, a Carlyle-affiliated investment fund, we began accounting for our investment under the equity method based on our net asset value in the fund, which resulted in a loss in principal investment income (loss) of $620.7 million during the three months ended June 30, 2020, as compared to principal investment income of $13.5 million during the three months ended June 30, 2021. As of June 30, 2021, our investment in Carlyle FRL was $613.3 million, relative to our cost of $465.3 million.
We recorded a decrease in the investment income from CLOs during the three months ended June 30, 2021 and an increase in the investment income from CLOs during the six months ended June 30, 2021 relative to the comparable periods in 2020. The fair value of the CLO investments held by the firm (before the effects of consolidation) decreased 1% during the quarter, with our investments in subordinated notes depreciating 3% during the three months ended June 30, 2021, while our investments in the senior notes were flat quarter over quarter. The fair value of the CLO investments held by the firm (before the effects of consolidation) decreased 2% year-to-date, with our investments in subordinated notes appreciating 2% during the six months ended June 30, 2021, while our investments in the senior notes depreciated 3% year-to-date.
Performance Allocations. Performance allocations increased $888.9 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and $3.6 billion for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Performance allocations by segment on a consolidated U.S. GAAP basis for the three and six months ended June 30, 2021 and 2020 comprised the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Global Private Equity | $ | 1,798.2 | | | $ | 1,198.7 | | | $ | 3,364.7 | | | $ | 389.4 | |
| | | | | | | |
Global Credit | 76.2 | | | 22.7 | | | 97.2 | | | (40.3) | |
Investment Solutions (1) | 206.3 | | | (29.6) | | | 404.9 | | | (94.9) | |
Total performance allocations | $ | 2,080.7 | | | $ | 1,191.8 | | | $ | 3,866.8 | | | $ | 254.2 | |
| | | | | | | |
Total carry fund appreciation (depreciation) | 11 | % | | 5 | % | | 25 | % | | (3) | % |
(1) The Company’s primary and secondary investments in external funds are generally valued based on its proportionate share of the net assets provided by the third party general partners of the underlying fund partnerships based on the most recent available information which typically has a lag of up to 90 days. As a result, amounts presented may not include the impact of economic activity in the current quarter.
Refer to “— Key Financial Measures” for a listing of the funds with performance allocations in excess of 10% of the total for the periods presented.
Global growth in the second quarter of 2021 was largely consistent with upward revisions from earlier this year as advanced economies experienced strong sequential growth driven by vaccine distribution and government stimulus. Proprietary data suggest that U.S. gross domestic product (GDP) grew at a 9.1% annualized rate from the first quarter of 2021, while the euro zone economy expanded at a 6% annualized rate in the second quarter. The acceleration in economic activity and pandemic-related disruptions caused inflation to reach levels not seen in over a decade and above-forecast inflation has translated into increased volatility in financial markets.
The second quarter was a record setting period for equity markets as the S&P 500 breached 4,300 for the first time, driven by strong corporate earnings, combined with low interest rates. Second quarter corporate earnings estimates are expected to increase 70% from year over year recession levels but are also up 7.2% from strong Q1 2021 results. Similarly, our carry fund portfolio extended the strong positive trend experienced since the first quarter of 2020. Within our Global Private Equity segment, our corporate private equity funds appreciated by 12% in the quarter, driven by strong gains in our U.S., Europe and Asia buyout portfolio, our real estate funds appreciated by 11% in the quarter, continuing their attractive performance, and our natural resources funds appreciated by 9% in the quarter, boosted by the effect of rising commodity prices on our energy-focused investments. In our Global Credit segment, our carry funds, which represent approximately 17% of the total Global Credit remaining fair value, appreciated by 8% in the second quarter, reflecting continued positive portfolio company performance. Our Investment Solutions funds appreciated by 12%, though our primary and secondary fund of funds generally reflect investment fair values on a one-quarter lag. The portion of our traditional carry funds attributable to publicly traded companies is 18% of fair value as of June 30, 2021, compared to 15% as of December 31, 2020 and 6% as of December 31, 2019. While our publicly traded investments have performed well to date overall, this shift may result in an increasing correlation to public market performance and a significant concentration of investment gains in individual investments for certain funds. To the extent that there is volatility in public equity markets and/or the prices of our publicly-traded portfolio companies, there may be elevated volatility in our performance revenue accrual in the coming quarters. For example, as of June 30, 2021, approximately 40% of our net accrued performance revenues were generated by Carlyle Partners VI, L.P. (“CP VI”), which has over 65% of its remaining fair value in publicly-traded portfolio companies.
Interest and Other Income. Interest and other income increased $5.2 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily as result of increases from the reimbursement of certain costs incurred on behalf of Carlyle funds and interest income from investments in CLO subordinated notes.
Interest and other income decreased $1.8 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily as result of decreases from the reimbursement of certain costs incurred on behalf of Carlyle funds and interest income from investments in CLO subordinated notes.
Interest and Other Income of Consolidated Funds. Interest and other income of Consolidated Funds increased $6.9 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $15.0
million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Substantially all of the increase in interest and other income of Consolidated Funds relates to increased interest income from CLOs.
Our CLOs generate interest income primarily from investments in bonds and loans inclusive of amortization of discounts and generate other income from consent and amendment fees. Substantially all interest and other income of the CLOs and other consolidated funds together with interest expense of our CLOs and net investment gains (losses) of Consolidated Funds is attributable to the related funds’ limited partners or CLO investors. Accordingly, such amounts have no material impact on net income attributable to the Company.
Expenses
Total expenses increased $526.5 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $1.9 billion for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The following table provides the components of the changes in total expenses for the three and six months ended June 30, 2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Total Expenses, June 30, 2020 | $ | 924.5 | | | $ | 854.7 | |
Increases (Decreases): | | | |
Increase in total compensation and benefits | 494.4 | | | 1,831.0 | |
Increase in general, administrative and other expenses | 28.9 | | | 51.0 | |
Increase in interest and other expenses of Consolidated Funds | 7.2 | | | 4.0 | |
Increase in other non-operating income | (3.6) | | | (3.2) | |
All other changes | (0.4) | | | (1.3) | |
Total increase | 526.5 | | | 1,881.5 | |
Total Expenses, June 30, 2021 | $ | 1,451.0 | | | $ | 2,736.2 | |
Total Compensation and Benefits. Total compensation and benefits increased $494.4 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $1.8 billion for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, due to the following:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Increase in cash-based compensation and benefits | $ | 19.3 | | | $ | 43.5 | |
Increase in equity-based compensation | 16.7 | | | 20.0 | |
Increase in performance allocations and incentive fee related compensation | 458.4 | | | 1,767.5 | |
Increase in total compensation and benefits | $ | 494.4 | | | $ | 1,831.0 | |
Cash-based Compensation and Benefits. Cash-based compensation and benefits increased $19.3 million, or 9%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $43.5 million, or 10.4%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to the following:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Increase in headcount and bonuses | $ | 10.8 | | | $ | 25.5 | |
| | | |
| | | |
| | | |
| | | |
Contingent earnout associated with Carlyle Aviation Partners acquisition(1) | 8.5 | | | 18.0 | |
| | | |
Total increase in cash-based compensation and benefits | $ | 19.3 | | | $ | 43.5 | |
(1) The Carlyle Aviation Partners acquisition included an earn-out of up to $150.0 million, under which we have paid $49.9 million through June 30, 2021. For additional information, refer to “—Liquidity and Capital Resources—Contingent Cash Payments For Business Acquisitions and Strategic Investments.”
Equity-based Compensation. Equity-based compensation increased $16.7 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $20.0 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to a larger number of unvested restricted stock units with a higher weighted average grant date fair value. During the three months ended June 30, 2021, we also recorded an increase in equity-based compensation related to 2021 performance-based awards to reflect the impact of positive year-to-date performance on the number of shares projected to vest under these awards. During the six months ended June 30, 2021, we granted 7.0 million long-term strategic restricted stock units to certain senior professionals, the majority of which are subject to vesting based on the achievement of annual performance targets over four years, with a larger proportion of the awards vesting based on the 2024 performance year. As a result, the number of restricted stock units granted in 2021 is higher than in 2020, which, combined with a higher share price than in prior periods, will result in higher equity-based compensation expense in the coming years.
Performance allocations and incentive fee related compensation expense. Performance allocations and incentive fee related compensation expense increased $458.4 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $1.8 billion for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Performance allocations and incentive fee related compensation as a percentage of performance allocations and incentive fees was 48% for both the three and six months ended June 30, 2021 and 45% and 37% for the three and six months ended June 30, 2020, respectively. Performance allocations and incentive fee related compensation as a percentage of performance allocations and incentive fees fluctuates depending on the mix of funds contributing to performance allocations and incentive fees in a given period. For our largest segment, Global Private Equity, our performance allocations and incentive fee related compensation expense as a percentage of performance allocations and incentive fees is generally around 45%. Performance allocations from our Investment Solutions segment pay a higher ratio of performance allocations and incentive fees as compensation, primarily as a result of the terms of our acquisition of AlpInvest. Conversely, performance allocations from the Legacy Energy funds in our Global Private Equity segment are primarily allocated to Carlyle because the investment teams for the Legacy Energy funds are employed by Riverstone and not Carlyle.
General, Administrative and Other Expenses. General, administrative and other expenses increased $28.9 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $51.0 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
| | | |
CCC litigation cost recovery in 2020 (1) | $ | — | | | $ | 29.9 | |
Right-of-use asset impairment(1) | 26.8 | | | 26.8 | |
| | | |
| | | |
| | | |
Lower intangible asset amortization | (0.3) | | | (0.6) | |
Higher depreciation and amortization | 0.3 | | | 1.4 | |
Higher (lower) professional fees, including corporate conversion costs | 0.2 | | | (16.2) | |
| | | |
Higher (lower) travel and conference expenses | 1.4 | | | (10.6) | |
Foreign exchange adjustments(2) | 0.1 | | | 23.4 | |
Other changes | 0.4 | | | (3.1) | |
Total increase in general, administrative and other expenses | $ | 28.9 | | | $ | 51.0 | |
(1) General, administrative and other expenses included the positive impact of a $29.9 million recovery of litigation costs during the six months ended June 30, 2020 and $26.8 million right-of-use asset impairment during the six months ended June 30, 2021. See Note 7 to our unaudited condensed consolidated financial statements.
(2) Foreign exchange adjustments for the six months ended June 30, 2021 as compared to six months ended June 30, 2020 are primarily driven by the revaluation in our European CLOs investments.
In connection with the April 1, 2021 sale of MRE, we entered into a sublease of certain office space in New York which resulted in a $26.8 million right-of-use asset impairment charge during the three and six months ended June 30, 2021. We expect general, administrative and other costs to benefit from lower rent expense and leasehold improvement amortization in future years as a result of the sublease.
Interest and Other Expenses of Consolidated Funds. Interest and other expenses of Consolidated Funds increased $7.2 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and increased $4.0 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to higher interest expense on the consolidated CLOs.
The CLOs incur interest expense on their loans payable and incur other expenses consisting of trustee fees, rating agency fees and professional fees. Substantially all interest and other income of our CLOs together with interest expense of our CLOs and net investment gains (losses) of Consolidated Funds is attributable to the related funds’ limited partners or CLO investors. Accordingly, such amounts have no material impact on net income attributable to the Company.
Other Non-operating Expenses (Income). For the three and six months ended June 30, 2021, this includes a $5.0 million gain on the sale of our interest in MRE.
Net Investment Gains of Consolidated Funds. For the three months ended June 30, 2021, net investment losses of Consolidated Funds were $2.6 million as compared to net investment gains of $50.3 million for the three months ended June 30, 2020. For six months ended June 30, 2021, net investment gains of Consolidated Funds were $9.7 million as compared to net investment losses of $62.8 million for the six months ended June 30, 2020. For both the three and six months ended June 30, 2021 and 2020, net investment gains (losses) comprise the activity of the consolidated CLOs and certain other funds. For the consolidated CLOs, the amount reflects the net gain or loss on the fair value adjustment of both the assets and liabilities. The six months ended June 30, 2020 include significant losses on the CLO assets and gains on the CLO liabilities resulting from the rapid decline in asset prices and widening of credit spreads. The components of net investment gains (losses) of Consolidated Funds for the respective periods are:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Realized gains (losses) | $ | 12.5 | | | $ | (39.8) | | | $ | 17.2 | | | $ | (40.3) | |
Net change in unrealized gains (losses) | 1.0 | | | 590.2 | | | 85.6 | | | (342.0) | |
Total gains (losses) | 13.5 | | | 550.4 | | | 102.8 | | | (382.3) | |
Gains (losses) from liabilities of CLOs | (16.1) | | | (500.1) | | | (93.1) | | | 319.5 | |
| | | | | | | |
Total net investment gains (losses) of Consolidated Funds | $ | (2.6) | | | $ | 50.3 | | | $ | 9.7 | | | $ | (62.8) | |
Provision (Benefit) for Income Taxes. The Company’s provision (benefit) for income taxes was $306.2 million and $52.3 million for the three months ended June 30, 2021 and 2020, respectively, and $579.6 million and $(27.7) million for the six months ended June 30, 2021 and 2020, respectively. During the six months ended June 30, 2020, the provision for income taxes reflects a tax benefit of $118.0 million related to the net loss recorded during the period, net of the $90.3 million expense related to Conversion (see Note 9 to the accompanying unaudited condensed consolidated financial statements for more information regarding the impact of Conversion). The Company’s effective tax rate was approximately 24% and 20% for the three months ended June 30, 2021 and 2020, respectively, and 24% and 5% for the six months ended June 30, 2021 and 2020, respectively. The effective tax rate for the six months ended June 30, 2021 is primarily comprised of the 21% U.S. federal corporate income tax rate plus U.S. state and foreign corporate income taxes, partially offset by non-controlling interests. U.S. federal taxes relate to both current and deferred taxes, as we fully utilized our remaining net operating loss carryforwards during the three months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2020 differs from the statutory rate primarily due to the income tax expense resulting from the Conversion offsetting the tax benefit from the net loss recorded in the period.
Net Income Attributable to Non-controlling Interests in Consolidated Entities. Net income attributable to non-controlling interests in consolidated entities was $21.5 million for the three months ended June 30, 2021 as compared to net income of $58.6 million for the three months ended June 30, 2020. Net income attributable to non-controlling interests in consolidated entities was $43.1 million for the six months ended June 30, 2021 as compared to net loss of $38.4 million for the six months ended June 30, 2020. These amounts primarily reflect the net income attributable to non-controlling interests in carried interest, giveback obligations, and cash held for carried interest distributions. This balance also includes the net earnings or losses of the Consolidated Funds for each period, which are substantially all allocated to the related funds’ limited partners or CLO investors.
Net Income Attributable to The Carlyle Group Inc. Common Stockholders. The net income (loss) attributable to The Carlyle Group Inc. common stockholders was $925.0 million for the three months ended June 30, 2021 as compared to $145.9 million for the three months ended June 30, 2020. The net income (loss) attributable to The Carlyle Group Inc. common stockholders was $1.8 billion for the six months ended June 30, 2021, a $2.3 billion increase from a net loss of $466.1 million for the six months ended June 30, 2020, reflecting strong portfolio appreciation in the first half of 2021 as compared to depreciation at the onset of the pandemic in the first half of 2020.
Non-GAAP Financial Measures
The following tables set forth information in the format used by management when making resource deployment decisions and in assessing performance of our segments. These non-GAAP financial measures are presented for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016. The tables below show our total segment Economic Net Income which is the sum of Fee Related Earnings, Net Performance Fees, Investment Income (Loss), and Equity-based compensation expense (excluding equity-based compensation grants issued in May 2012 upon the completion of the initial public offering or grants issued in acquisitions or strategic investments).2020. Our Non-GAAP financial measures exclude the effects of unrealized performance allocations net of related compensation expense, unrealized principal investment income, consolidated funds, acquisition-relatedacquisition and disposition-related items including amortization and any impairment charges of acquired intangible assets and contingent consideration taking the form of earn-outs, charges associated with equity-based compensation, grants issued in May 2012 upon completion of the initial public offering or grants issued in acquisitions or strategic investments, changes in the tax receivable agreement liability, corporate actions and infrequently occurring or unusual events.
The following table shows our total segment Economic Net Income, Fee Related EarningsDE and Distributable EarningsFRE for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Total Segment Revenues | $ | 919.0 | | | $ | 582.2 | | | $ | 1,531.5 | | | $ | 1,163.3 | |
Total Segment Expenses | 523.6 | | | 383.8 | | | 921.2 | | | 789.9 | |
Distributable Earnings | $ | 395.4 | | | $ | 198.4 | | | $ | 610.3 | | | $ | 373.4 | |
(-) Realized Net Performance Revenues | 237.4 | | | 70.9 | | | 313.4 | | | 119.1 | |
(-) Realized Principal Investment Income | 37.8 | | | 22.1 | | | 67.8 | | | 38.0 | |
(+) Net Interest | 23.0 | | | 21.9 | | | 43.1 | | | 39.8 | |
(=) Fee Related Earnings | $ | 143.2 | | | $ | 127.3 | | | $ | 272.2 | | | $ | 256.1 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Total Segment Revenues | $ | 547.5 |
| | $ | 539.5 |
| | $ | 2,407.7 |
| | $ | 1,523.1 |
|
Total Segment Expenses | 344.8 |
| | 486.0 |
| | 1,504.8 |
| | 1,222.8 |
|
Economic Net Income | $ | 202.7 |
| | $ | 53.5 |
| | $ | 902.9 |
| | $ | 300.3 |
|
(-) Net Performance Fees | 147.0 |
| | 142.3 |
| | 840.5 |
| | 333.0 |
|
(-) Investment Income (Loss) | (35.3 | ) | | 13.3 |
| | 6.5 |
| | 35.8 |
|
(+) Equity-based Compensation | 30.4 |
| | 32.9 |
| | 97.2 |
| | 95.2 |
|
(+) Reserve for Litigation and Contingencies | (25.0 | ) | | 100.0 |
| | (25.0 | ) | | 100.0 |
|
(=) Fee Related Earnings | $ | 96.4 |
| | $ | 30.8 |
| | $ | 128.1 |
| | $ | 126.7 |
|
(+) Realized Net Performance Fees | 216.9 |
| | 186.3 |
| | 434.3 |
| | 489.7 |
|
(+) Realized Investment Income (Loss) | (53.4 | ) | | 11.1 |
| | (48.2 | ) | | 27.9 |
|
(=) Distributable Earnings | $ | 259.9 |
| | $ | 228.2 |
| | $ | 514.2 |
| | $ | 644.3 |
|
The following table sets forth our total segment revenues for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 278.4 |
| | $ | 260.4 |
| | $ | 791.2 |
| | $ | 820.0 |
|
Portfolio advisory fees, net | 4.1 |
| | 3.8 |
| | 13.0 |
| | 12.8 |
|
Transaction fees, net | 6.1 |
| | 1.4 |
| | 15.0 |
| | 24.3 |
|
Total fund level fee revenues | 288.6 |
| | 265.6 |
| | 819.2 |
| | 857.1 |
|
Performance fees | | | | | | | |
Realized | 411.0 |
| | 380.9 |
| | 846.7 |
| | 919.2 |
|
Unrealized | (125.6 | ) | | (125.9 | ) | | 712.7 |
| | (305.9 | ) |
Total performance fees | 285.4 |
| | 255.0 |
| | 1,559.4 |
| | 613.3 |
|
Investment income (loss) | | | | | | | |
Realized | (53.4 | ) | | 11.1 |
| | (48.2 | ) | | 27.9 |
|
Unrealized | 18.1 |
| | 2.2 |
| | 54.7 |
| | 7.9 |
|
Total investment income (loss) | (35.3 | ) | | 13.3 |
| | 6.5 |
| | 35.8 |
|
Interest income | 5.4 |
| | 2.5 |
| | 11.2 |
| | 8.0 |
|
Other income | 3.4 |
| | 3.1 |
| | 11.4 |
| | 8.9 |
|
Total Segment Revenues | $ | 547.5 |
| | $ | 539.5 |
| | $ | 2,407.7 |
| | $ | 1,523.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 409.8 | | | $ | 386.4 | | | $ | 802.0 | | | $ | 767.9 | |
Portfolio advisory and transaction fees, net and other | 15.6 | | | 18.3 | | | 35.3 | | | 25.1 | |
Total fund level fee revenues | 425.4 | | | 404.7 | | | 837.3 | | | 793.0 | |
Realized performance revenues | 454.0 | | | 152.2 | | | 622.4 | | | 323.8 | |
Realized principal investment income | 37.8 | | | 22.1 | | | 67.8 | | | 38.0 | |
Interest income | 1.8 | | | 3.2 | | | 4.0 | | | 8.5 | |
Total Segment Revenues | $ | 919.0 | | | $ | 582.2 | | | $ | 1,531.5 | | | $ | 1,163.3 | |
The following table sets forth our total segment expenses for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Cash-based compensation and benefits | $ | 217.4 | | | $ | 210.1 | | | $ | 429.6 | | | $ | 413.9 | |
Realized performance revenue related compensation | 216.6 | | | 81.3 | | | 309.0 | | | 204.7 | |
Total compensation and benefits | 434.0 | | | 291.4 | | | 738.6 | | | 618.6 | |
General, administrative, and other indirect expenses | 55.6 | | | 58.1 | | | 117.2 | | | 106.4 | |
Depreciation and amortization expense | 9.2 | | | 9.2 | | | 18.3 | | | 16.6 | |
Interest expense | 24.8 | | | 25.1 | | | 47.1 | | | 48.3 | |
Total Segment Expenses | $ | 523.6 | | | $ | 383.8 | | | $ | 921.2 | | | $ | 789.9 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Direct base compensation | $ | 132.5 |
| | $ | 107.1 |
| | $ | 344.2 |
| | $ | 337.4 |
|
Indirect base compensation | 44.8 |
| | 36.9 |
| | 133.4 |
| | 115.1 |
|
Equity-based compensation | 30.4 |
| | 32.9 |
| | 97.2 |
| | 95.2 |
|
Performance fee related | | | | | | | |
Realized | 194.1 |
| | 194.6 |
| | 412.4 |
| | 429.5 |
|
Unrealized | (55.7 | ) | | (81.9 | ) | | 306.5 |
| | (149.2 | ) |
Total compensation and benefits | 346.1 |
| | 289.6 |
| | 1,293.7 |
| | 828.0 |
|
General, administrative, and other indirect expenses | (26.5 | ) | | 173.6 |
| | 139.5 |
| | 326.7 |
|
Depreciation and amortization expense | 8.2 |
| | 7.2 |
| | 23.2 |
| | 21.8 |
|
Interest expense | 17.0 |
| | 15.6 |
| | 48.4 |
| | 46.3 |
|
Total Segment Expenses | $ | 344.8 |
| | $ | 486.0 |
| | $ | 1,504.8 |
| | $ | 1,222.8 |
|
Income (loss) before provision for income taxes is the U.S. GAAP financial measure most comparable to economic net income, fee related earnings,Distributable Earnings and distributable earnings.Fee Related Earnings. The following table is a reconciliation of income (loss) before provision for income taxes to economicDistributable Earnings and to Fee Related Earnings.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Income (loss) before provision for income taxes | $ | 1,252.7 | | | $ | 256.8 | | | $ | 2,417.0 | | | $ | (532.2) | |
Adjustments: | | | | | | | |
Net unrealized performance revenues | (844.0) | | | (587.4) | | | (1,690.4) | | | (58.5) | |
Unrealized principal investment (income) loss(1) | (78.8) | | | 459.5 | | | (210.1) | | | 724.2 | |
Adjusted unrealized principal investment (income) loss from investment in Fortitude Re(2) | — | | | 81.6 | | | — | | | 104.4 | |
Equity-based compensation(3) | 50.3 | | | 34.6 | | | 85.2 | | | 66.3 | |
Acquisition or disposition-related charges (credits), including amortization of intangibles | 11.3 | | | 7.1 | | | 30.3 | | | 10.1 | |
| | | | | | | |
Tax expense (benefit) associated with certain foreign performance fee revenues | (3.4) | | | 0.7 | | | (9.4) | | | 11.9 | |
Net (income) loss attributable to non-controlling interests in consolidated entities | (21.5) | | | (58.6) | | | (43.1) | | | 38.4 | |
Right-of-use asset impairment | 26.8 | | | — | | | 26.8 | | | — | |
| | | | | | | |
Other adjustments including severance and C-Corp. conversion costs in 2020 | 2.0 | | | 4.1 | | | 4.0 | | | 8.8 | |
(=) Distributable Earnings | $ | 395.4 | | | $ | 198.4 | | | $ | 610.3 | | | $ | 373.4 | |
(-) Realized net performance revenues(4) | 237.4 | | | 70.9 | | | 313.4 | | | 119.1 | |
(-) Realized principal investment income(4) | 37.8 | | | 22.1 | | | 67.8 | | | 38.0 | |
(+) Net Interest | 23.0 | | | 21.9 | | | 43.1 | | | 39.8 | |
(=) Fee Related Earnings | $ | 143.2 | | | $ | 127.3 | | | $ | 272.2 | | | $ | 256.1 | |
(1) Adjustments to unrealized principal investment income (loss) during the three and six months ended June 30, 2020 are inclusive of $300.9 million and $211.8 million of unrealized gains, respectively, resulting from changes in the fair value of embedded derivatives related to certain reinsurance contracts included in Fortitude Re’s U.S. GAAP financial statements prior to the contribution of our investment in Fortitude Holdings to Carlyle FRL on June 2, 2020. At the time of the contribution of our investment to Carlyle FRL, we began accounting for our investment under the equity method based on our net asset value in the fund, which is an investment company that accounts for its investment in Fortitude Holdings at fair value. This resulted in an unrealized loss in principal investment income (loss) of $620.7 million during the three and six months ended June 30, 2020.
(2) Adjusted unrealized principal investment income (loss) from the investment in Fortitude Re represents 19.9% of Fortitude Holdings’ estimated net income (loss), excluding the unrealized gains (losses) related to fee related earnings,embedded derivatives, prior to the contribution of our investment in Fortitude Holdings to Carlyle FRL on June 2, 2020.
(3) Equity-based compensation includes amounts presented in principal investment income and to distributable earnings.
general, administrative and other expenses in our U.S. GAAP statement of operations.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Income (loss) before provision for income taxes | $ | 165.9 |
| | $ | (49.7 | ) | | $ | 737.3 |
| | $ | 33.4 |
|
Adjustments: | | | | | | | |
Equity-based compensation issued in conjunction with the initial public offering, acquisitions and strategic investments | 58.3 |
| | 50.6 |
| | 183.8 |
| | 175.3 |
|
Acquisition related charges, including amortization of intangibles and impairment | 7.2 |
| | 27.7 |
| | 25.2 |
| | 67.0 |
|
Other non-operating expense (income) | — |
| | (3.7 | ) | | 0.1 |
| | 0.8 |
|
Tax provision associated with performance fees | (1.7 | ) | | (2.0 | ) | | (7.0 | ) | | (16.1 | ) |
Net (income) loss attributable to non-controlling interests in consolidated entities | (27.6 | ) | | 29.1 |
| | (47.4 | ) | | 29.8 |
|
Severance and other adjustments | 0.6 |
| | 1.5 |
| | 10.9 |
| | 10.1 |
|
Economic Net Income | $ | 202.7 |
| | $ | 53.5 |
| | $ | 902.9 |
| | $ | 300.3 |
|
(-) Net performance fees(1) | 147.0 |
| | 142.3 |
| | 840.5 |
| | 333.0 |
|
(-) Investment income (loss)(1) | (35.3 | ) | | 13.3 |
| | 6.5 |
| | 35.8 |
|
(+) Equity-based compensation | 30.4 |
| | 32.9 |
| | 97.2 |
| | 95.2 |
|
(+) Reserve for Litigation and Contingencies | (25.0 | ) | | 100.0 |
| | (25.0 | ) | | 100.0 |
|
(=) Fee Related Earnings | $ | 96.4 |
| | $ | 30.8 |
| | $ | 128.1 |
| | $ | 126.7 |
|
(+) Realized performance fees, net of related compensation(1) | 216.9 |
| | 186.3 |
| | 434.3 |
| | 489.7 |
|
(+) Realized investment income (loss)(1) | (53.4 | ) | | 11.1 |
| | (48.2 | ) | | 27.9 |
|
(=) Distributable Earnings | $ | 259.9 |
| | $ | 228.2 |
| | $ | 514.2 |
| | $ | 644.3 |
|
90
| |
(1) | – See reconciliation to most directly comparable U.S. GAAP measure below:
|
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| Carlyle Consolidated | | Adjustments (2) | | Total Reportable Segments |
| (Dollars in millions) |
Performance fees | | | | | |
Realized | $ | 411.8 |
| | $ | (0.8 | ) | | $ | 411.0 |
|
Unrealized | (126.2 | ) | | 0.6 |
| | (125.6 | ) |
Total performance fees | 285.6 |
| | (0.2 | ) | | 285.4 |
|
Performance fee related compensation expense | | | | | |
Realized | 189.4 |
| | 4.7 |
| | 194.1 |
|
Unrealized | (51.8 | ) | | (3.9 | ) | | (55.7 | ) |
Total performance fee related compensation expense | 137.6 |
| | 0.8 |
| | 138.4 |
|
Net performance fees | | | | | |
Realized | 222.4 |
| | (5.5 | ) | | 216.9 |
|
Unrealized | (74.4 | ) | | 4.5 |
| | (69.9 | ) |
Total net performance fees | $ | 148.0 |
| | $ | (1.0 | ) | | $ | 147.0 |
|
Investment income (loss) | | | | | |
Realized | $ | 15.5 |
| | $ | (68.9 | ) | | $ | (53.4 | ) |
Unrealized | 21.7 |
| | (3.6 | ) | | 18.1 |
|
Investment income (loss) | $ | 37.2 |
| | $ | (72.5 | ) | | $ | (35.3 | ) |
| | | | | |
| Nine Months Ended September 30, 2017 |
| Carlyle Consolidated | | Adjustments (2) | | Total Reportable Segments |
| (Dollars in millions) |
Performance fees | | | | | |
Realized | $ | 852.7 |
| | $ | (6.0 | ) | | $ | 846.7 |
|
Unrealized | 658.1 |
| | 54.6 |
| | 712.7 |
|
Total performance fees | 1,510.8 |
| | 48.6 |
| | 1,559.4 |
|
Performance fee related compensation expense | | | | | |
Realized | 401.9 |
| | 10.5 |
| | 412.4 |
|
Unrealized | 309.9 |
| | (3.4 | ) | | 306.5 |
|
Total performance fee related compensation expense | 711.8 |
| | 7.1 |
| | 718.9 |
|
Net performance fees | | | | | |
Realized | 450.8 |
| | (16.5 | ) | | 434.3 |
|
Unrealized | 348.2 |
| | 58.0 |
| | 406.2 |
|
Total net performance fees | $ | 799.0 |
| | $ | 41.5 |
| | $ | 840.5 |
|
Investment income (loss) | | | | | |
Realized | $ | 42.0 |
| | $ | (90.2 | ) | | $ | (48.2 | ) |
Unrealized | 100.5 |
| | (45.8 | ) | | 54.7 |
|
Investment income (loss) | $ | 142.5 |
| | $ | (136.0 | ) | | $ | 6.5 |
|
(4) See reconciliation to most directly comparable U.S. GAAP measure below:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Carlyle Consolidated | | Adjustments (5) | | Total Reportable Segments |
| (Dollars in millions) |
Performance revenues | $ | 2,080.7 | | | $ | (1,626.7) | | | $ | 454.0 | |
Performance revenues related compensation expense | 994.0 | | | (777.4) | | | 216.6 | |
Net performance revenues | $ | 1,086.7 | | | $ | (849.3) | | | $ | 237.4 | |
| | | | | |
Principal investment income (loss) | $ | 137.7 | | | $ | (99.9) | | | $ | 37.8 | |
| | | | | |
| Six Months Ended June 30, 2021 |
| Carlyle Consolidated | | Adjustments (5) | | Total Reportable Segments |
| (Dollars in millions) |
Performance revenues | $ | 3,866.8 | | | $ | (3,244.4) | | | $ | 622.4 | |
Performance revenues related compensation expense | 1,860.6 | | | (1,551.6) | | | 309.0 | |
Net performance revenues | $ | 2,006.2 | | | $ | (1,692.8) | | | $ | 313.4 | |
| | | | | |
Principal investment income (loss) | $ | 316.8 | | | $ | (249.0) | | | $ | 67.8 | |
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Carlyle Consolidated | | Adjustments (2) | | Total Reportable Segments |
| (Dollars in millions) |
Performance fees | | | | | |
Realized | $ | 383.4 |
| | $ | (2.5 | ) | | $ | 380.9 |
|
Unrealized | (168.7 | ) | | 42.8 |
| | (125.9 | ) |
Total performance fees | 214.7 |
| | 40.3 |
| | 255.0 |
|
Performance fee related compensation expense | | | | | |
Realized | 189.0 |
| | 5.6 |
| | 194.6 |
|
Unrealized | (78.1 | ) | | (3.8 | ) | | (81.9 | ) |
Total performance fee related compensation expense | 110.9 |
| | 1.8 |
| | 112.7 |
|
Net performance fees | | | | | |
Realized | 194.4 |
| | (8.1 | ) | | 186.3 |
|
Unrealized | (90.6 | ) | | 46.6 |
| | (44.0 | ) |
Total net performance fees | $ | 103.8 |
| | $ | 38.5 |
| | $ | 142.3 |
|
Investment income (loss) | | | | | |
Realized | $ | 40.7 |
| | $ | (29.6 | ) | | $ | 11.1 |
|
Unrealized | 29.8 |
| | (27.6 | ) | | 2.2 |
|
Total investment income (loss) | $ | 70.5 |
| | $ | (57.2 | ) | | $ | 13.3 |
|
| | | | | |
| Nine Months Ended September 30, 2016 |
| Carlyle Consolidated | | Adjustments (2) | | Total Reportable Segments |
| (Dollars in millions) |
Performance fees | | | | | |
Realized | $ | 905.1 |
| | $ | 14.1 |
| | $ | 919.2 |
|
Unrealized | (334.3 | ) | | 28.4 |
| | (305.9 | ) |
Total performance fees | 570.8 |
| | 42.5 |
| | 613.3 |
|
Performance fee related compensation expense | | | | | |
Realized | 423.0 |
| | 6.5 |
| | 429.5 |
|
Unrealized | (146.1 | ) | | (3.1 | ) | | (149.2 | ) |
Total performance fee related compensation expense | 276.9 |
| | 3.4 |
| | 280.3 |
|
Net performance fees | | | | | |
Realized | 482.1 |
| | 7.6 |
| | 489.7 |
|
Unrealized | (188.2 | ) | | 31.5 |
| | (156.7 | ) |
Total net performance fees | $ | 293.9 |
| | $ | 39.1 |
| | $ | 333.0 |
|
Investment income (loss) | | | | | |
Realized | $ | 92.2 |
| | $ | (64.3 | ) | | $ | 27.9 |
|
Unrealized | 34.0 |
| | (26.1 | ) | | 7.9 |
|
Total investment income (loss) | $ | 126.2 |
| | $ | (90.4 | ) | | $ | 35.8 |
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| Carlyle Consolidated | | Adjustments (5) | | Total Reportable Segments |
| (Dollars in millions) |
Performance revenues | $ | 1,191.8 | | | $ | (1,039.6) | | | $ | 152.2 | |
Performance revenues related compensation expense | 535.6 | | | (454.3) | | | 81.3 | |
Net performance revenues | $ | 656.2 | | | $ | (585.3) | | | $ | 70.9 | |
| | | | | |
Principal investment income (loss) | $ | (512.6) | | | $ | 534.7 | | | $ | 22.1 | |
| | | | | |
| Six Months Ended June 30, 2020 |
| Carlyle Consolidated | | Adjustments (5) | | Total Reportable Segments |
| (Dollars in millions) |
Performance revenues | $ | 254.2 | | | $ | 69.6 | | | $ | 323.8 | |
Performance revenues related compensation expense | 93.1 | | | 111.6 | | | 204.7 | |
Net performance revenues | $ | 161.1 | | | $ | (42.0) | | | $ | 119.1 | |
| | | | | |
Principal investment income (loss) | $ | (765.9) | | | $ | 803.9 | | | $ | 38.0 | |
| |
(2) | Adjustments to performance fees and investment income (loss) relate to (i) amounts earned from the Consolidated Funds, which were eliminated in the U.S. GAAP consolidation but were included in the Non-GAAP results, (ii) amounts attributable to non-controlling interests in consolidated entities, which were excluded from the Non-GAAP results, (iii) the reclassification of NGP performance fees, which are included in investment income in the U.S. GAAP financial statements, and (iv) the reclassification of certain tax expenses associated with performance fees. |
(5) Adjustments to performance revenues and principal investment income (loss) relate to (i) unrealized performance allocations net of related compensation expense and unrealized principal investment income, which are excluded from our Non-GAAP results, (ii) amounts earned from the Consolidated Funds, which were eliminated in the U.S. GAAP consolidation but were included in the Non-GAAP results, (iii) amounts attributable to non-controlling interests in consolidated entities, which were excluded from the Non-GAAP results, (iv) the reclassification of NGP performance revenues, which are included in investment income in the U.S. GAAP financial statements, (v) the reclassification of certain incentive fees from business development companies, which are included in fund management fees in the segment results, and (vi) the reclassification of tax expenses associated with certain foreign performance revenues. Adjustments to principal investment income (loss) also include the reclassification of earnings for the investment in NGP Management and its affiliates to the appropriate operating captions for the Non-GAAP results, the exclusion of charges associated with the investment in NGP Management and its affiliates that are excluded from the Non-GAAP results and adjustments(see Note 4 to reflect the Partnership’s share of Urbplan net losses, until Urbplan was deconsolidated during the three months ended September 30, 2017, as investment losses for the Non-GAAP results. Adjustments are also included in theseour unaudited condensed consolidated financial statement captions to reflect Carlyle’s economic interests in Claren Road (through January 2017), ESG (through June 2016) and Vermillion.statements).
Economic Net Income and
91
Distributable Earnings for our reportable segments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Global Private Equity | $ | 337.6 | | | $ | 156.5 | | | $ | 515.8 | | | $ | 291.3 | |
| | | | | | | |
Global Credit | 29.6 | | | 28.1 | | | 52.7 | | | 59.9 | |
Investment Solutions | 28.2 | | | 13.8 | | | 41.8 | | | 22.2 | |
Distributable Earnings | $ | 395.4 | | | $ | 198.4 | | | $ | 610.3 | | | $ | 373.4 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Economic Net Income | | | | | | | |
Corporate Private Equity | $ | 92.1 |
| | $ | 63.0 |
| | $ | 647.3 |
| | $ | 153.4 |
|
Real Assets | 7.8 |
| | 3.8 |
| | 117.9 |
| | 144.0 |
|
Global Market Strategies | 88.3 |
| | (10.8 | ) | | 104.3 |
| | (4.3 | ) |
Investment Solutions | 14.5 |
| | (2.5 | ) | | 33.4 |
| | 7.2 |
|
Economic Net Income | $ | 202.7 |
| | $ | 53.5 |
| | $ | 902.9 |
| | $ | 300.3 |
|
Distributable Earnings | | | | | | | |
Corporate Private Equity | $ | 207.1 |
| | $ | 208.6 |
| | $ | 415.3 |
| | $ | 548.2 |
|
Real Assets | (40.9 | ) | | 10.3 |
| | (25.5 | ) | | 68.8 |
|
Global Market Strategies | 87.5 |
| | 3.7 |
| | 104.2 |
| | 11.2 |
|
Investment Solutions | 6.2 |
| | 5.6 |
| | 20.2 |
| | 16.1 |
|
Distributable Earnings | $ | 259.9 |
| | $ | 228.2 |
| | $ | 514.2 |
| | $ | 644.3 |
|
Segment Analysis
Discussed below is our DE FRE and ENIFRE for our segments for the periods presented. Our segment information is reflected in the manner used by our senior management to make operating and compensation decisions, assess performance and allocate resources.
For segment reporting purposes, revenues and expenses are presented on a basis that deconsolidates our Consolidated Funds. As a result, segment revenues from management fees, realized performance feesrevenues and realized principal investment income (loss) are different than those presented on a consolidated U.S. GAAP basis because fund management feesthese revenues recognized in certain segments are received from Consolidated Funds and are eliminated in consolidation when presented on a consolidated U.S. GAAP basis. Furthermore, segment expenses are different than related amounts presented on a consolidated U.S. GAAP basis due to the exclusion of fund expenses that are paid by the Consolidated Funds. Segment revenue and expenses are also different than those presented on a consolidated U.S. GAAP basis because we present our segment revenues and expenses related to Claren Road and ESG based on our economic interest in those entities. Effective January 1, 2016 and through January 31, 2017 (the date we transferred our ownership interests to its principals), our segment revenue and expenses related to Claren Road are based on our approximate 63% economic interest in that entity as a result of a reallocation of interest from a departing founder. Further, our economic interest in ESG was 55% through June 30, 2016. Also, ENI excludes expenses associated with equity-based compensation that was issued in our initial public offering or issued in acquisitions and strategic investments.
Global Private Equity
The following table presents our results of operations for our CorporateGlobal Private Equity segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 263.4 | | | $ | 262.5 | | | $ | 523.6 | | | $ | 531.2 | |
Portfolio advisory and transaction fees, net and other | 6.2 | | | 3.1 | | | 16.8 | | | 7.3 | |
Total fund level fee revenues | 269.6 | | | 265.6 | | | 540.4 | | | 538.5 | |
Realized performance revenues | 428.9 | | | 116.0 | | | 563.0 | | | 181.2 | |
Realized principal investment income | 24.0 | | | 16.3 | | | 47.7 | | | 26.5 | |
Interest income | 0.5 | | | 0.5 | | | 0.7 | | | 2.3 | |
Total revenues | 723.0 | | | 398.4 | | | 1,151.8 | | | 748.5 | |
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Cash-based compensation and benefits | 133.6 | | | 130.6 | | | 262.7 | | | 260.3 | |
Realized performance revenues related compensation | 193.6 | | | 51.8 | | | 253.8 | | | 81.5 | |
Total compensation and benefits | 327.2 | | | 182.4 | | | 516.5 | | | 341.8 | |
General, administrative, and other indirect expenses | 36.4 | | | 37.6 | | | 77.8 | | | 74.8 | |
Depreciation and amortization expense | 6.1 | | | 6.1 | | | 12.2 | | | 10.9 | |
Interest expense | 15.7 | | | 15.8 | | | 29.5 | | | 29.7 | |
Total expenses | 385.4 | | | 241.9 | | | 636.0 | | | 457.2 | |
Distributable Earnings | $ | 337.6 | | | $ | 156.5 | | | $ | 515.8 | | | $ | 291.3 | |
(-) Realized Net Performance Revenues | 235.3 | | | 64.2 | | | 309.2 | | | 99.7 | |
(-) Realized Principal Investment Income | 24.0 | | | 16.3 | | | 47.7 | | | 26.5 | |
(+) Net Interest | 15.2 | | | 15.3 | | | 28.8 | | | 27.4 | |
(=) Fee Related Earnings | $ | 93.5 | | | $ | 91.3 | | | $ | 187.7 | | | $ | 192.5 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 118.3 |
| | $ | 122.9 |
| | $ | 351.7 |
| | $ | 376.9 |
|
Portfolio advisory fees, net | 3.6 |
| | 2.9 |
| | 11.9 |
| | 11.2 |
|
Transaction fees, net | 5.3 |
| | 1.4 |
| | 14.2 |
| | 24.3 |
|
Total fund level fee revenues | 127.2 |
| | 127.2 |
| | 377.8 |
| | 412.4 |
|
Performance fees | | | | | | | |
Realized | 345.4 |
| | 311.1 |
| | 668.8 |
| | 775.2 |
|
Unrealized | (193.2 | ) | | (124.2 | ) | | 465.0 |
| | (496.2 | ) |
Total performance fees | 152.2 |
| | 186.9 |
| | 1,133.8 |
| | 279.0 |
|
Investment income (loss) | | | | | | | |
Realized | 6.5 |
| | 24.1 |
| | 15.6 |
| | 46.6 |
|
Unrealized | 4.1 |
| | (9.6 | ) | | 22.9 |
| | (12.7 | ) |
Total investment income | 10.6 |
| | 14.5 |
| | 38.5 |
| | 33.9 |
|
Interest income | 1.8 |
| | 0.9 |
| | 3.7 |
| | 2.7 |
|
Other income | 1.6 |
| | 1.3 |
| | 4.2 |
| | 4.0 |
|
Total revenues | 293.4 |
| | 330.8 |
| | 1,558.0 |
| | 732.0 |
|
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Direct base compensation | 65.3 |
| | 52.7 |
| | 175.4 |
| | 165.8 |
|
Indirect base compensation | 18.3 |
| | 17.8 |
| | 55.0 |
| | 55.6 |
|
Equity-based compensation | 14.5 |
| | 19.8 |
| | 47.3 |
| | 56.0 |
|
Performance fee related | | | | | | | |
Realized | 147.7 |
| | 143.5 |
| | 295.4 |
| | 345.4 |
|
Unrealized | (76.1 | ) | | (57.8 | ) | | 221.1 |
| | (219.9 | ) |
Total compensation and benefits | 169.7 |
| | 176.0 |
| | 794.2 |
| | 402.9 |
|
General, administrative, and other indirect expenses | 20.5 |
| | 81.4 |
| | 83.9 |
| | 144.3 |
|
Depreciation and amortization expense | 4.1 |
| | 3.4 |
| | 11.5 |
| | 10.2 |
|
Interest expense | 7.0 |
| | 7.0 |
| | 21.1 |
| | 21.2 |
|
Total expenses | 201.3 |
| | 267.8 |
| | 910.7 |
| | 578.6 |
|
Economic Net Income | $ | 92.1 |
| | $ | 63.0 |
| | $ | 647.3 |
| | $ | 153.4 |
|
(-) Net Performance Fees | 80.6 |
| | 101.2 |
| | 617.3 |
| | 153.5 |
|
(-) Investment Income | 10.6 |
| | 14.5 |
| | 38.5 |
| | 33.9 |
|
(+) Equity-based Compensation | 14.5 |
| | 19.8 |
| | 47.3 |
| | 56.0 |
|
(+) Reserve for Litigation and Contingencies | (12.5 | ) | | 49.8 |
| | (12.5 | ) | | 49.8 |
|
(=) Fee Related Earnings | $ | 2.9 |
| | $ | 16.9 |
| | $ | 26.3 |
| | $ | 71.8 |
|
(+) Realized Net Performance Fees | 197.7 |
| | 167.6 |
| | 373.4 |
| | 429.8 |
|
(+) Realized Investment Income | 6.5 |
| | 24.1 |
| | 15.6 |
| | 46.6 |
|
(=) Distributable Earnings | $ | 207.1 |
| | $ | 208.6 |
| | $ | 415.3 |
| | $ | 548.2 |
|
Three Months Ended SeptemberJune 30, 20172021 Compared to the Three Months Ended SeptemberJune 30, 20162020 and NineSix Months Ended SeptemberJune 30, 20172021 Compared to the NineSix Months Ended SeptemberJune 30, 2016
2020
Distributable Earnings
Distributable Earnings decreased $1.5increased $181.1 million for the three months ended SeptemberJune 30, 20172021 as compared to the three months ended SeptemberJune 30, 20162020 and decreased $132.9increased $224.5 million for the ninesix months ended SeptemberJune 30, 20172021 as compared to the ninesix months ended SeptemberJune 30, 2016.2020. The following table provides the components of the changes in distributable earningsDistributable Earnings for the three and ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| |
| (Dollars in millions) |
Distributable Earnings, June 30, 2020 | $ | 156.5 | | | $ | 291.3 | |
Increases (decreases): | | | |
Increase (decrease) in fee related earnings | 2.2 | | | (4.8) | |
Increase in realized net performance revenues | 171.1 | | | 209.5 | |
Increase in realized principal investment income | 7.7 | | | 21.2 | |
(Decrease) increase in net interest | 0.1 | | | (1.4) | |
Total increase | 181.1 | | | 224.5 | |
Distributable Earnings, June 30, 2021 | $ | 337.6 | | | $ | 515.8 | |
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Distributable earnings, September 30, 2016 | $ | 208.6 |
| $ | 548.2 |
|
Increases (decreases): | | |
Increase (decrease) in realized net performance fees | 30.1 |
| (56.4 | ) |
Decrease in realized investment income | (17.6 | ) | (31.0 | ) |
Decrease in fee related earnings | (14.0 | ) | (45.5 | ) |
Total decrease | (1.5 | ) | (132.9 | ) |
Distributable earnings, September 30, 2017 | $ | 207.1 |
| $ | 415.3 |
|
Realized Net Performance Fees.Revenues. Realized net performance feesrevenues increased $30.1$171.1 million for the three months ended SeptemberJune 30, 20172021 as compared to the three months ended SeptemberJune 30, 20162020 and decreased $56.4increased $209.5 million for the ninesix months ended SeptemberJune 30, 20172021 as compared to the ninesix months ended SeptemberJune 30, 2016. The increase2020, driven by exit activity in realized net performance fees for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 was primarily due to larger realizations from our U.S. buyout funds in carry in 2017 as compared to 2016, partially offset by lower realizations from our Europe buyout funds in 2017 as compared to 2016. The decrease in realized net performance fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to lower realizations from our Europe buyout funds in carry in 2017 as compared to 2016, partially offset by larger realizations from our U.S. and Asia buyout funds, in 2017 as compared to 2016.well as our U.S. real estate and financial services funds. During the six months ended June 30, 2021 we realized performance revenues for the first time on our eighth U.S. real estate fund, our fourth Asia buyout fund, and our third Japan buyout fund. Realized net performance feesrevenues were primarily generated by the following funds for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016:2020.
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, | | Six Months Ended June 30, |
2021 | | 2020 | | 2021 | | 2020 |
CP VI | | CETP II | | CP VI | | CP IV |
CAP IV | | CGFSP II | | CAP IV | | CGFSP I |
CRP V | | | | CRP V | | CERF |
CRP VII | | | | CGFSP II | | |
CRP VIII | | | | CRP VII | | |
| | | | CRP VIII | | |
| | | | CJP III | | |
|
| | | | |
Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | 2016 | | 2017 | 2016 |
CP V | CP V | | CP V | CP V |
CEP III | CEP III | | CEP III | CEP III |
CETP II | CGFSP I | | CAP III | CP IV |
| CP IV | | CGFSP I | CGFSP I |
| CJP | | CETP II | CAGP II |
| | | | CAP III |
| | | | CJP |
Realized Principal Investment Income. Realized principal investment income decreased $17.6was $24.0 million for the three months ended SeptemberJune 30, 20172021 as compared to the three months ended September 30, 2016 and decreased $31.0 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease in realized principal investment income for both the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to lower realized gains in our investments in U.S. and Europe buyout funds, partially offset by realized gains on U.S. growth funds and the financial services funds.
Fee Related Earnings
Fee related earnings decreased $14.0of $16.3 million for the three months ended SeptemberJune 30, 20172020, primarily due to higher realized gains from our investments in U.S. buyout, U.S. real estate and international energy funds, partially offset by lower realized gains from investments in our Europe buyout and Europe growth funds.
Realized principal investment income was $47.7 million for the six months ended June 30, 2021 as compared to realized principal investment income of $26.5 million for the six months ended June 30, 2020, primarily due to higher realized gains from investments in our U.S. buyout, financial services, U.S. real estate and international energy funds, as well as realized gains compared to realized losses in 2020 from our investments in our U.S. growth funds, partially offset by lower realized gains from our investments in our Europe growth and Asia buyout funds.
Fee Related Earnings
Fee Related Earnings increased $2.2 million for the three months ended June 30, 2021 as compared to three months ended June 30, 2020 and decreased $4.8 million for the six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016 and decreased $45.5 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.2020. The following table provides the components of the changes in fee related earningsFee Related Earnings for the three and ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| |
| (Dollars in millions) |
Fee Related Earnings, June 30, 2020 | $ | 91.3 | | | $ | 192.5 | |
Increases (decreases): | | | |
Increase in fee revenues | 4.0 | | | 1.9 | |
Increase in cash-based compensation and benefits | (3.0) | | | (2.4) | |
CCC litigation cost recovery in 2020(1) | — | | | (20.3) | |
Decrease in general, administrative and other indirect expenses | 1.2 | | | 17.3 | |
All other changes | — | | | (1.3) | |
Total increase (decrease) | 2.2 | | | (4.8) | |
Fee Related Earnings, June 30, 2021 | $ | 93.5 | | | $ | 187.7 | |
(1) General, administrative and other indirect expenses during the six months ended June 30, 2020 included the allocated portion of the cost recovery associated with the CCC litigation costs. See Note 7 to our unaudited condensed consolidated financial statements. |
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Fee related earnings, September 30, 2016 | $ | 16.9 |
| $ | 71.8 |
|
Increases (decreases): | | |
Decrease in fee revenues | — |
| (34.6 | ) |
Increase in direct and indirect base compensation | (13.1 | ) | (9.0 | ) |
Increase in general, administrative and other indirect expenses | (1.4 | ) | (1.9 | ) |
All other changes | 0.5 |
| — |
|
Total decrease | (14.0 | ) | (45.5 | ) |
Fee related earnings, September 30, 2017 | $ | 2.9 |
| $ | 26.3 |
|
Fee Revenues. Total fee revenues were flatincreased $4.0 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $1.9 million for the six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016 and decreased $34.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016,2020, due to the following:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Higher (lower) fund management fees | $ | 0.9 | | | $ | (7.6) | |
Higher portfolio advisory and transaction fees, net and other | 3.1 | | | 9.5 | |
Total increase in fee revenues | $ | 4.0 | | | $ | 1.9 | |
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
Lower fund management fees | $ | (4.6 | ) | $ | (25.2 | ) |
Higher (lower) transaction fees | 3.9 |
| (10.1 | ) |
Higher portfolio advisory fees | 0.7 |
| 0.7 |
|
Total decrease in fee revenues | $ | — |
| $ | (34.6 | ) |
The increase in total fee revenues for the three months ended June 30, 2021 as compared to three months ended June 30, 2020 was primarily due to higher management fees on CJP IV, which activated management fees in Q4 2020, as well as CRSEF, which had catch-up management fees of $3.1 million from its final closing in three months ended June 30, 2021, and CPI and CEP V. This increase was partially offset by lower management fees for funds on which management fees are based on invested capital and have had realizations over the last twelve months.
The decrease in fund management fees for both the three and ninesix months ended SeptemberJune 30, 20172021 as compared to both the three and ninesix months ended SeptemberJune 30, 20162020 was primarily due to CIEP II, which had catch-up management fees of $6.3 million in Q2 2020, and lower assets under management from sales offees for funds on which management fees are based on invested capital and have had realizations over the last twelve months. This decrease was partially offset by higher management fees for CJP IV, CRSEF, which had catch-up management fees in Q2 2021 mentioned above, as well as CPI and CEP V.
The increases in portfolio advisory and transaction fees, net and other for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020 was primarily due to transaction fees related to investments during 2016 for CPin CJP IV and CEP V, our first financial services fund (“CGFSP I”), our third Europe buyout fund (“CEP III”),as well as portfolio fees related to investments in CEOF II and our second Asia buyout fund (“CAP II”).
CIEP II.
The total weighted-average management fee rate increased from 1.30% at Septemberrates as of June 30, 2016 to 1.32% at September 30, 2017. The modest increase in the total weighted-average management fee rate reflects the increased weighted impact of funds in the original investment period with fees based on commitments, which charge higher fee rates, compared to those funds with fees based on invested equity or fair value.2021 and 2020 were 1.25% and 1.26%. Fee-earning assets under management were $35.6$90.5 billion and $37.8$88.8 billion as of SeptemberJune 30, 20172021 and 2016,2020, respectively, reflecting a decreasean increase of $2.2$1.7 billion.
The increase in transaction feesCash-based compensation and benefits expense. Cash-based compensation and benefits expense increased $3.0 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $2.4 million for the
six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016 was primarily from significant investments in one of our U.S buyout funds in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The decrease in transaction fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily from a significant investment in one of our U.S. buyout funds in the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2017.
Direct and indirect base compensation expense. Direct and indirect base compensation expense increased $13.1 million, or 19%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, and increased $9.0 million, or 4%, for the nine months ended September 30, 2017 as compared to the nine months ended September
30, 2016. The increase in both periods was2020, primarily due to increased headcount and an increase inhigher projected year-end bonuses.
General, administrative and other indirect expenses. General, administrative and other indirect expenses increased $1.4decreased $17.3 million, excluding the impact of litigation cost recoveries in 2020, for the threesix months ended SeptemberJune 30, 20172021 as compared to the threesix months ended SeptemberJune 30, 2016,2020, primarily due to higher negative foreign currency adjustments and real estate costs, partially offset by lower professional fees.
General, administrative and other indirect expenses increased $1.9 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to higher negative foreign currency adjustments and real estate costs, partially offset by lower professional fees and travel and entertainment expenses as a $2.0 million decrease in external costs associated with fundraising activities in nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.
Fundraising and related costs in the three and nine months ended September 30, 2017 were modest. However, we expect that tworesult of our large buyout funds will have substantial first closestravel restrictions during the fourth quarter of 2017 that will drive a significant increase in fundraising and related costs that will be reflected in higher compensation expense and general, administrative and other indirect expenses. These two buyout funds are expected to activate fees in the middle of 2018 at which time we would expect an increase in management fee revenue.
Economic Net Income
Economic net income increased $29.1 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $493.9 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the components of the changes in economic net income for the three and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Economic net income, September 30, 2016 | $ | 63.0 |
| $ | 153.4 |
|
Increases (decreases): | | |
(Decrease) increase in net performance fees | (20.6 | ) | 463.8 |
|
(Decrease) increase in investment income | (3.9 | ) | 4.6 |
|
Decrease in equity-based compensation | 5.3 |
| 8.7 |
|
Decrease in fee related earnings | (14.0 | ) | (45.5 | ) |
Decrease in reserve for litigation and contingencies | 62.3 |
| 62.3 |
|
Total increase | 29.1 |
| 493.9 |
|
Economic net income, September 30, 2017 | $ | 92.1 |
| $ | 647.3 |
|
Performance Fees. Performance Fees (realized and unrealized) decreased $34.7 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $854.8 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease in performance fees for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, despite the overall increase in appreciation in the same period, is primarily attributable to a decrease in performance fees earned by CP VI, as the fund was in the catch-up phase in 2016, thereby resulting in higher performance fees earned in 2016 as compared to 2017. The decrease was also due to lower appreciation on this fund in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to higher appreciation on certain of our U.S. and Asia buyout funds.
Performance fees are from the following types of funds:
|
| | | | | | | | | | | | | | | |
| Performance Fees |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) | | | | |
Buyout funds | $ | 148.6 |
| | $ | 205.3 |
| | $ | 1,097.1 |
| | $ | 296.1 |
|
Growth Capital funds | 3.6 |
| | (18.4 | ) | | 36.7 |
| | (17.1 | ) |
Total | $ | 152.2 |
| | $ | 186.9 |
| | $ | 1,133.8 |
| | $ | 279.0 |
|
The $152.2 million of performance fees for the three months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•CP VI of $74.2 million,
•CP V of $33.3 million,
•CETP III of $22.3 million,
•CGFSP II of $17.2 million,
•CAP II of $10.7 million, and
•CEOF of $(34.2) million.
The $186.9 million of performance fees for the three months ended September 30, 2016 was driven by performance fees recognized from the following funds:
•CP VI of $183.4 million,
•CGFSP of $13.6 million,
•CJIP III of $10.8 million,
•CAP III of $(22.4) million, and
•CEOF of $(12.2) million.
The $1,133.8 million of performance fees for the nine months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•CP VI of $471.5 million,
•CP V of $284.9 million,
•CAP IV of $221.7 million,
•CGFSP II of $46.9 million,
•CETP II of $30.1 million,
•CETP III of $28.0 million,
•CEOF of $(22.7) million, and
•CP IV of $(22.5) million.
The $279.0 million of performance fees for the nine months ended September 30, 2016 was driven by performance fees recognized from the following funds:
•CP VI of $184.8 million,
•CP V of $79.2 million,
•CBPF of $24.9 million,
•CGFSP of $14.6 million,
•CJIP III of $10.8 million,
•CAP III of $(27.1) million, and
•CEOF of $(15.1) million.
Performance fees of $152.2 million and $186.9 million are inclusive of performance fees reversed of approximately $57.6 million and $51.9 million for the three months ended September 30, 2017 and 2016, respectively. Performance fees of $1,133.8 million and $279.0 million are inclusive of performance fees reversed of approximately $72.1 million and $68.8 million for the nine months ended September 30, 2017 and 2016, respectively. Additionally, during the nine months ended September 30,
2016, the Partnership paid $47.3 million to satisfy a giveback obligation related to CAP II. Substantially all of the giveback obligation was paid by current and former senior Carlyle professionals.
The appreciation (depreciation) in remaining value of assets for this segment by type of fund are as follows:
|
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
Buyout funds | 3% | 3% | | 24% | 9% |
Growth Capital funds | 6% | —% | | 17% | —% |
Total | 4% | 3% | | 23% | 8% |
Net performance fees as a percentage of total performance fees are as follows:
|
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
| (Dollars in millions) |
Net Performance Fees | $80.6 | $101.2 | | $617.3 | $153.5 |
| | | | | |
Percentage of Total Performance Fees | 53% | 54% | | 54% | 55% |
Unrealized performance fees reflect the difference between total performance fees and realized performance fees. The recognition of realized performance fees results in a reversal of accumulated unrealized performance fees, generally resulting in minimal impact on total performance fees. Because unrealized performance fees are reversed upon a realization event, in periods where the Partnership generates significant realized performance fees unrealized performance fees may be negative even in periods of portfolio appreciation.
Total investment income. Total investment income (realized and unrealized) for the three months ended September 30, 2017 was $10.6 million as compared to total investment income of $14.5 million for the three months ended September 30, 2016. The decrease in total investment income from the three months ended September 30, 2016 to the three months ended September 30, 2017 relates primarily to lower realizations in our investments in U.S. and Europe buyout funds for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.
Total investment income (realized and unrealized) for the nine months ended September 30, 2017 was $38.5 million as compared to total investment income of $33.9 million for the nine months ended September 30, 2016. The increase in total investment income from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 related primarily to higher appreciation in our investments in the buyout and growth funds, particularly on investments in our Asia buyout funds for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. These increases to total investment income wereCOVID-19 pandemic, partially offset by lower realized gains in our investments in U.S. and Europe buyout funds as well as our investments in Europe growth funds.negative foreign currency adjustments.
Equity-based compensation. Equity-based compensation was $14.5 million for the three months ended September 30, 2017, a decrease of $5.3 million from $19.8 million for the three months ended September 30, 2016.
Equity-based compensation was $47.3 million for the nine months ended September 30, 2017, a decrease of $8.7 million from $56.0 million for the nine months ended September 30, 2016.
Reserve for Litigation and Contingencies. Corporate Private Equity's (“CPE”) share of the reserve for litigation and contingencies decreased $62.3 million for both the three and nine months ended September 30, 2017. The decrease was primarily related to CPE's share of the $25 million reserve reversal related to the CCC litigation recognized in 2017, while CPE recognized its share of the $100 million reserve in 2016 related to a commodities legal matter.
Fee-earning AUM as of and for the Three and NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
Fee-earning AUM is presented below for each period together with the components of change during each respective period.
The table below breaks out Fee-earning AUM by its respective components at each period.
| | | | | | | | | | | |
| As of June 30, |
| 2021 | | 2020 |
Global Private Equity | (Dollars in millions) |
Components of Fee-earning AUM (1) | | | |
Fee-earning AUM based on capital commitments | $ | 54,502 | | | $ | 52,530 | |
Fee-earning AUM based on invested capital | 29,406 | | | 31,409 | |
Fee-earning AUM based on net asset value | 3,817 | | | 2,475 | |
Fee-earning AUM based on lower of cost or fair value | 2,752 | | | 2,378 | |
Total Fee-earning AUM | $ | 90,477 | | | $ | 88,792 | |
Weighted Average Management Fee Rates (2) | | | |
All Funds | 1.25 | % | | 1.26 | % |
Funds in Investment Period | 1.37 | % | | 1.39 | % |
(1)For additional information concerning the components of Fee-earning AUM, see “—Fee-earning Assets under Management.” |
| | | | | | | |
| As of September 30, |
| 2017 | | 2016 |
Corporate Private Equity | (Dollars in millions) |
Components of Fee-earning AUM (1) | | | |
Fee-earning AUM based on capital commitments | $ | 26,180 |
| | $ | 25,813 |
|
Fee-earning AUM based on invested capital | 7,726 |
| | 10,227 |
|
Fee-earning AUM based on lower of cost or fair value | 1,697 |
| | 1,745 |
|
Total Fee-earning AUM | $ | 35,603 |
| | $ | 37,785 |
|
Weighted Average Management Fee Rates (2) | | | |
All Funds | 1.32 | % | | 1.30 | % |
Funds in Investment Period | 1.44 | % | | 1.43 | % |
(2)Represents the aggregate effective management fee rate of each fund in the segment, weighted by each fund’s Fee-earning AUM, as of the end of each period presented. | |
(1) | For additional information concerning the components of Fee-earning AUM, see “—Fee-earning Assets under Management.” |
| |
(2) | Represents the aggregate effective management fee rate of each fund in the segment, weighted by each fund’s Fee-earning AUM, as of the end of each period presented. |
The table below provides the period to period rollforward of Fee-earning AUM.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Global Private Equity | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 90,559 | | | $ | 91,979 | | | $ | 91,571 | | | $ | 94,811 | |
Inflows (1) | 966 | | | 804 | | | 1,602 | | | 1,604 | |
Outflows (including realizations) (2) | (1,493) | | | (3,911) | | | (2,476) | | | (6,963) | |
Market Activity & Other (3) | 316 | | | (434) | | | 412 | | | (570) | |
Foreign Exchange (4) | 129 | | | 354 | | | (632) | | | (90) | |
Balance, End of Period | $ | 90,477 | | | $ | 88,792 | | | $ | 90,477 | | | $ | 88,792 | |
(1)Inflows represents limited partner capital raised by our carry funds or separately managed accounts for which management fees based on commitments were activated during the period, and the fee-earning commitments invested in vehicles for which management fees are based on invested capital. Inflows exclude fundraising amounts during the period for which fees have not yet been activated, which are referenced as Pending Fee-earning AUM.
(2)Outflows represents the impact of realizations from vehicles with management fees based on remaining invested capital at cost or fair value, changes in basis for funds where the investment period, weighted-average investment period or commitment fee period has expired during the period, and reductions for funds that are no longer calling for fees. Realizations for funds earning management fees based on commitments during the period do not affect Fee-earning AUM.
(3)Market Activity & Other represents realized and unrealized gains (losses) on portfolio investments in our carry funds based on the lower of cost or fair value.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Corporate Private Equity | (Dollars in millions) | | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 36,216 |
| | $ | 38,938 |
| | $ | 36,327 |
| | $ | 40,926 |
|
Inflows, including Fee-paying Commitments (1) | 303 |
| | 9 |
| | 830 |
| | 601 |
|
Outflows, including Distributions (2) | (1,167 | ) | | (935 | ) | | (2,299 | ) | | (3,900 | ) |
Market Appreciation/(Depreciation) (3) | 21 |
| | (339 | ) | | 12 |
| | (352 | ) |
Foreign Exchange and other (4) | 230 |
| | 112 |
| | 733 |
| | 510 |
|
Balance, End of Period | $ | 35,603 |
| | $ | 37,785 |
| | $ | 35,603 |
| | $ | 37,785 |
|
| |
(1) | Inflows represent limited partner capital raised and capital invested by carry funds outside the original investment period. |
| |
(2) | Outflows represent distributions from funds outside the investment period and changes in fee basis for our carry funds where the original investment period has expired. |
| |
(3) | Market Appreciation/(Depreciation) represents realized and unrealized gains (losses) on portfolio investments in our carry funds based on the lower of cost or fair value. |
| |
(4) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of period end. |
(4)Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Fee-earning AUM was $35.6$90.5 billion at SeptemberJune 30, 2017,2021, generally flat to March 31, 2021, as realizations of $1.5 billion in funds which charge fees based on invested capital were offset by $1.0 billion of inflows from new fee-paying commitments raised in CAP Growth II and CRSEF and capital deployment for funds that charge management fees on invested capital, as well as $0.4 billion of market activity and positive foreign exchange activity from the translation of our EUR-denominated funds’ AUM to USD. Investment and distribution activity has no impact for funds still in the original investment period where Fee-earning AUM is based on commitments.
Fee-earning AUM was $90.5 billion at June 30, 2021, a decrease of $1.1 billion, or approximately 1%, compared to $91.6 billion at December 31, 2020. The decrease was driven by outflows of $2.5 billion primarily due to dispositions in funds which charge fees based on invested capital, as well as $0.6 billion in negative foreign exchange activity from the translation of our EUR-denominated funds’ AUM to USD. Partially offsetting the decrease were inflows of $1.6 billion primarily from new fee-paying commitments raised in CAP Growth II and CRSEF as well as investments in other funds which charge fees based on invested capital.
Fee-earning AUM was $90.5 billion at June 30, 2021, an increase of $1.7 billion, or approximately 2%, compared to $36.2$88.8 billion at June 30, 2017.2020. The decreaseincrease was driven by inflows of $5.4 billion primarily from new fee-paying commitments raised in CJP IV, CAP Growth II, and CRSEF, as well as investments in other funds which charge fees based on invested capital, $0.7 billion of market appreciation and $0.6 billion of positive foreign exchange activity from the translation of our EUR-denominated funds’ AUM to USD. Partially offsetting the increase were outflows of $1.2$5.0 billion primarily due to dispositions in CP V and CEP III. This decrease was partially offset by inflows of $0.3 billion from new investments made by CGP and foreign exchange gains of $0.2 billion primarily due to the translation of Fee-earning AUM in our Europe buyout and growth funds
from EUR to USD. Investment and distribution activity by funds still in the investment period does not impact Fee-earning AUM as these funds arewhich charge fees based on commitments.
Fee-earning AUM was $35.6 billion at September 30, 2017, a decrease of $0.7 billion, or approximately 2% compared to $36.3 billion at December 31, 2016. The decrease was driven by outflows of $2.3 billion primarily due to dispositions in CP V. This was offset by inflows of $0.8 billion primarily related to new investments made by CGP and new commitments to CAGP V, and foreign exchange gains of $0.7 billion primarily due to the translation of Fee-earning AUM in our Europe buyout and growth funds from EUR to USD.
Fee-earning AUM was $35.6 billion at September 30, 2017, a decrease of $2.2 billion, or approximately 6%, compared to $37.8 billion at September 30, 2016. Driving the decrease were outflows of $3.9 billion primarily driven by dispositions in our US, Europe, and Asia buyout funds, as well as other funds outside of their original investment period. Partially offsetting the decrease were inflows of $1.4 billion primarily related to new investments made by CGP, in addition to new fee-paying commitments raised by CAGP V.
Fee-earning AUM was $37.8 billion at September 30, 2016, a decrease of $1.1 billion, or approximately 3%, compared to $38.9 billion at June 30, 2016. The decrease was driven by outflows of $0.9 billion from distributions in CAP II, CP V and several other funds outside of the original investment period, and market depreciation of $0.3 billion primarily attributable to CAP II.
Fee-earning AUM was $37.8 billion at September 30, 2016, a decrease of $3.1 billion, or approximately 8%, compared to $40.9 billion at December 31, 2015. The decrease was driven by outflows of $3.9 billion from distributions in CP V and several other funds outside of the original investment period, partially offset by $0.6 billion of inflows primarily attributable to equity invested by funds outside of the original investment period and $0.5 billion of foreign exchange gain primarily from our Europe and Japan buyout funds.capital.
Total AUM as of and for the Three and NineSix Months Ended SeptemberJune 30, 20172021
The table below provides the period to period rollforwards of Available Capital and Fair Value of Capital, and the resulting rollforward of Total AUM.
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (Dollars in millions) |
Global Private Equity | | | |
Total AUM Rollforward | | | |
Balance, Beginning of Period | $ | 137,451 | | | $ | 131,780 | |
Inflows (1) | 6,747 | | | 8,144 | |
Outflows (including realizations) (2) | (4,415) | | | (9,195) | |
Market Activity & Other (3) | 10,202 | | | 20,258 | |
Foreign Exchange (4) | 163 | | | (839) | |
Balance, End of Period | $ | 150,148 | | | $ | 150,148 | |
(1) Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects translation at the average quarterly rate, while the separately reported Fundraising metric is translated at the spot rate for each individual closing. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| Available Capital | | Fair Value of Capital | | Total AUM | | Available Capital | | Fair Value of Capital | | Total AUM |
| (Dollars in millions) | | (Dollars in millions) |
Corporate Private Equity | | | | | | | | | | | |
Balance, Beginning of Period | $ | 15,995 |
| | $ | 38,328 |
| | $ | 54,323 |
| | $ | 17,499 |
| | $ | 33,365 |
| | $ | 50,864 |
|
Commitments (1) | 791 |
| | — |
| | 791 |
| | 1,302 |
| | — |
| | 1,302 |
|
Capital Called, net (2) | (3,947 | ) | | 4,009 |
| | 62 |
| | (6,811 | ) | | 6,826 |
| | 15 |
|
Distributions (3) | 265 |
| | (1,244 | ) | | (979 | ) | | 842 |
| | (5,074 | ) | | (4,232 | ) |
Market Appreciation/(Depreciation) (4) | — |
| | 1,251 |
| | 1,251 |
| | — |
| | 6,799 |
| | 6,799 |
|
Foreign Exchange and other (5) | 116 |
| | 179 |
| | 295 |
| | 388 |
| | 607 |
| | 995 |
|
Balance, End of Period | $ | 13,220 |
| | $ | 42,523 |
| | $ | 55,743 |
| | $ | 13,220 |
| | $ | 42,523 |
| | $ | 55,743 |
|
(2) Outflows includes distributions net of recallable or recyclable amounts in our carry funds, related co-investment vehicles, separately managed accounts, and the NGP Predecessor Funds, gross redemptions in our open-end funds, and the expiration of available capital. | |
(1) | Represents capital raised by our carry funds, net of expired available capital. |
| |
(2) | Represents capital called by our carry funds, net of fund fees and expenses. Equity invested amounts may vary from capital called due to timing differences between acquisition and capital call dates. |
| |
(3) | Represents distributions from our carry funds, net of amounts recycled. Distributions are based on when proceeds are actually distributed to investors, which may differ from when they are realized. |
| |
(4) | Market Appreciation/(Depreciation) represents realized and unrealized gains (losses) on portfolio investments. |
| |
(5) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
(3) Market Activity & Other generally represents realized and unrealized gains (losses) on portfolio investments in our carry funds, related co-investment vehicles, separately managed accounts, and the NGP Predecessor Funds, as well as the impact of fees, expenses and non-investment income, and other changes in AUM.
(4) Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Total AUM was $55.7$150.1 billion at SeptemberJune 30, 2017,2021, an increase of $1.4$12.6 billion or approximately 3%, compared to $54.3$137.5 billion as of June 30, 2017. ThisMarch 31, 2021. The increase was driven by $1.3 billion of market appreciation due to a 4% increase in our private portfolio of carry funds for the period, resulting in overall segment appreciation of 4% for the period. The carry funds driving appreciation$10.2 billion for the period, included $0.4driven by appreciation of $3.0 billion in CP VI, $0.7 billion in CEOF II, $0.7 billion in CP VII, and $0.5 billion in CAP IV. Total AUM also increased as a result of $6.7 billion of fundraising, largely attributable to CP VI, $0.2 billion attributable to CEP IV, and $0.2 billion attributable to CP V. Also drivingthe first closing in CRP IX. Partially offsetting the increase were $0.8
outflows of $4.4 billion primarily from distributions of new commitments raised in CGFSP III and various external coinvestment entities, as well as $0.3 billion of foreign exchange gains primarily due to the translation of AUMinvestment proceeds in our Europe buyoutU.S. Buyout, Asia Buyout and growth funds from EUR to USD. The increase was partially offset by distributions of $1.2 billion, of which $0.3 billion were recallable, primarily in our US, Asia, and Europe buyoutU.S. Real Estate funds.
Total AUM was $55.7$150.1 billion at SeptemberJune 30, 2017,2021, an increase of $4.8$18.3 billion or approximately 9%, compared to $50.9$131.8 billion as of December 31, 2016. This2020. The increase was driven by $6.8 billion of market appreciation due to a 25% increase in our public portfolio of carry funds and a 22% increase in our private portfolio of carry funds for the period, resulting in overall segment appreciation of 23% for the period. The carry funds driving appreciation$20.3 billion for the period, included $1.8 billion attributable to CP VI, $1.5 billion attributable to CP V and $1.0 billion attributable to CAP IV. Also driving the increase were $1.3 billion of new commitments raised primarily in CGFSP III and various external coinvestment entities, as well as $1.0$8.1 billion of foreign exchange gains due to the translation of AUM in our Europe buyout and growth funds from EUR to USD. The increase wasfundraising, partially offset by outflows of $9.2 billion primarily from distributions of $5.1 billion, of which $0.8 billion were recallable, primarily in our US, Asia, and Europe buyout funds.investment proceeds.
Fund Performance Metrics
Fund performance information for our investment funds that generally have at least $1.0 billion in capital commitments, cumulative equity invested or total value as of September 30, 2017, which we refer to as our “significant funds” is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance of The Carlyle Group L.P. and is also not necessarily indicative of the future performance of any particular fund. An investment in The Carlyle Group L.P. is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The following tables reflect the performance of our significant funds in our Corporate Private Equity business. Please see “— Our Family of Funds” for a legend of the fund acronyms listed below.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS | | REALIZED/PARTIALLY REALIZED INVESTMENTS(5) |
| | | | | As of September 30, 2017 | | As of September 30, 2017 |
| Fund Inception Date(1) | | Committed Capital | | Cumulative Invested Capital(2) | | Total Fair Value(3) | | MOIC(4) | | Gross IRR (7)(12) | | Net IRR (8)(12) | | Cumulative Invested Capital(2) | | Total Fair Value(3) | | MOIC (4) | | Gross IRR(7) |
Corporate Private Equity | (Reported in Local Currency, in Millions) | | (Reported in Local Currency, in Millions) |
Fully Invested/Committed Funds(6) | | | | | | | | | | | | | | | | | | | | |
CP II | 10/1994 | | $ | 1,331.1 |
| | $ | 1,362.4 |
| | $ | 4,072.2 |
| | 3.0x | | 34 | % | | 25 | % | | $ | 1,362.4 |
| | $ | 4,072.2 |
| | 3.0x | | 34 | % |
CP III | 2/2000 | | $ | 3,912.7 |
| | $ | 4,031.6 |
| | $ | 10,146.9 |
| | 2.5x | | 27 | % | | 21 | % | | $ | 4,031.6 |
| | $ | 10,146.9 |
| | 2.5x | | 27 | % |
CP IV | 12/2004 | | $ | 7,850.0 |
| | $ | 7,612.6 |
| | $ | 17,977.4 |
| | 2.4x | | 16 | % | | 13 | % | | $ | 7,612.6 |
| | $ | 17,977.4 |
| | 2.4x | | 16 | % |
CP V | 5/2007 | | $ | 13,719.7 |
| | $ | 13,190.9 |
| | $ | 27,228.2 |
| | 2.1x | | 18 | % | | 14 | % | | $ | 9,201.1 |
| | $ | 24,306.6 |
| | 2.6x | | 26 | % |
CEP I | 12/1997 | | € | 1,003.6 |
| | € | 981.6 |
| | € | 2,126.5 |
| | 2.2x | | 18 | % | | 11 | % | | € | 981.6 |
| | € | 2,126.5 |
| | 2.2x | | 18 | % |
CEP II | 9/2003 | | € | 1,805.4 |
| | € | 2,048.9 |
| | € | 4,121.2 |
| | 2.0x | | 36 | % | | 20 | % | | € | 1,883.8 |
| | € | 4,106.8 |
| | 2.2x | | 43 | % |
CEP III | 12/2006 | | € | 5,294.9 |
| | € | 5,116.1 |
| | € | 11,294.6 |
| | 2.2x | | 19 | % | | 14 | % | | € | 4,284.4 |
| | € | 10,404.5 |
| | 2.4x | | 20 | % |
CAP I | 12/1998 | | $ | 750.0 |
| | $ | 627.7 |
| | $ | 2,521.8 |
| | 4.0x | | 25 | % | | 18 | % | | $ | 627.7 |
| | $ | 2,521.8 |
| | 4.0x | | 25 | % |
CAP II | 2/2006 | | $ | 1,810.0 |
| | $ | 1,628.2 |
| | $ | 3,032.9 |
| | 1.9x | | 11 | % | | 8 | % | | $ | 1,452.4 |
| | $ | 2,830.0 |
| | 1.9x | | 12 | % |
CAP III | 5/2008 | | $ | 2,551.6 |
| | $ | 2,543.2 |
| | $ | 4,672.9 |
| | 1.8x | | 18 | % | | 12 | % | | $ | 2,071.8 |
| | $ | 4,237.2 |
| | 2.0x | | 20 | % |
CJP I | 10/2001 | | ¥ | 50,000.0 |
| | ¥ | 47,291.4 |
| | ¥ | 138,902.1 |
| | 2.9x | | 61 | % | | 37 | % | | ¥ | 47,291.4 |
| | ¥ | 138,902.1 |
| | 2.9x | | 61 | % |
CJP II | 7/2006 | | ¥ | 165,600.0 |
| | ¥ | 141,866.7 |
| | ¥ | 215,181.9 |
| | 1.5x | | 8 | % | | 4 | % | | ¥ | 70,933.1 |
| | ¥ | 130,219.6 |
| | 1.8x | | 12 | % |
CGFSP I | 9/2008 | | $ | 1,100.2 |
| | $ | 1,080.7 |
| | $ | 2,398.4 |
| | 2.2x | | 20 | % | | 14 | % | | $ | 866.9 |
| | $ | 1,834.7 |
| | 2.1x | | 20 | % |
CEOF I | 5/2011 | | $ | 1,119.1 |
| | $ | 1,154.5 |
| | $ | 1,523.4 |
| | 1.3x | | 12 | % | | 8 | % | | $ | 328.4 |
| | $ | 749.7 |
| | 2.3x | | 37 | % |
CETP II | 2/2007 | | € | 521.6 |
| | € | 437.4 |
| | € | 1,245.6 |
| | 2.8x | | 28 | % | | 19 | % | | € | 278.8 |
| | € | 1,140.8 |
| | 4.1x | | 36 | % |
CAGP IV | 6/2008 | | $ | 1,041.4 |
| | $ | 954.1 |
| | $ | 1,416.7 |
| | 1.5x | | 11 | % | | 6 | % | | $ | 439.5 |
| | $ | 778.9 |
| | 1.8x | | 15 | % |
All Other Funds (9) | Various | | | | $ | 4,637.6 |
| | $ | 7,138.0 |
| | 1.5x | | 16 | % | | 7 | % | | $ | 3,676.3 |
| | $ | 5,970.3 |
| | 1.6x | | 18 | % |
Coinvestments and Other (10) | Various | | | | $ | 10,358.3 |
| | $ | 24,025.6 |
| | 2.3x | | 36 | % | | 33 | % | | $ | 6,723.7 |
| | $ | 20,036.2 |
| | 3.0x | | 36 | % |
Total Fully Invested Funds | | $ | 60,991.3 |
| | $ | 131,469.6 |
| | 2.2x | | 26 | % | | 19 | % | | $ | 48,210.4 |
| | $ | 118,831.8 |
| | 2.5x | | 28 | % |
Funds in the Investment Period (6) | | | | | | | | | | | | | | | | | | |
CP VI | 5/2012 | | $ | 13,000.0 |
| | $ | 10,971.3 |
| | $ | 14,482.7 |
| | 1.3x | | 18% |
| | 11% |
| | | | | | | | |
CEP IV | 8/2013 | | € | 3,669.5 |
| | € | 2,659.9 |
| | € | 3,162.3 |
| | 1.2x | | 17% |
| | 7% |
| | | | | | | | |
CAP IV | 11/2012 | | $ | 3,880.4 |
| | $ | 2,946.9 |
| | $ | 4,458.5 |
| | 1.5x | | 27% |
| | 17% |
| | | | | | | | |
CGP | 12/2014 | | $ | 3,588.0 |
| | $ | 1,836.0 |
| | $ | 1,932.0 |
| | 1.1x | | NM |
| | NM |
| | | | | | | | |
CGFSP II | 4/2013 | | $ | 1,000.0 |
| | $ | 768.2 |
| | $ | 1,136.2 |
| | 1.5x | | 24 | % | | 14% |
| | | | | | | | |
CJP III | 8/2013 | | ¥ | 119,505.1 |
| | ¥ | 60,094.5 |
| | ¥ | 98,393.8 |
| | 1.6x | | NM |
| | NM |
| | | | | | | | |
CEOF II | 3/2015 | | $ | 2,400.0 |
| | $ | 893.8 |
| | $ | 1,074.5 |
| | 1.2x | | NM |
| | NM |
| | | | | | | | |
All Other Funds (11) | Various | | | | $ | 1,154.1 |
| | $ | 1,478.9 |
| | 1.3x | | NM |
| | NM |
| | | | | | | | |
Total Funds in the Investment Period | | $ | 22,242.8 |
| | $ | 29,168.1 |
| | 1.3x | | 19 | % | | 11 | % | | $ | 1,234.1 |
| | $ | 3,146.3 |
| | 2.5x | | 60 | % |
TOTAL CORPORATE PRIVATE EQUITY (13) | | $ | 83,234.1 |
| | $ | 160,637.7 |
| | 1.9x | | 26 | % | | 18 | % | | $ | 49,444.5 |
| | $ | 121,978.1 |
| | 2.5x | | 28 | % |
| |
(1) | The data presented herein that provides “inception to date” performance results of our segments relates to the period following the formation of the first fund within each segment. For our Corporate Private Equity segment our first fund was formed in 1990. |
| |
(2) | Represents the original cost of investments since inception of the fund.
|
| |
(3) | Represents all realized proceeds combined with remaining fair value, before management fees, expenses and carried interest.
|
| |
(4) | Multiple of invested capital (“MOIC”) represents total fair value, before management fees, expenses and carried interest, divided by cumulative invested capital. |
| |
(5) | An investment is considered realized when the investment fund has completely exited, and ceases to own an interest in, the investment. An investment is considered partially realized when the total amount of proceeds received in respect of such investment, including dividends, interest or other distributions and/or return of capital, represents at least 85% of invested capital and such investment is not yet fully realized. Because part of our value creation strategy involves pursuing best exit alternatives, we believe information regarding Realized/Partially Realized MOIC and Gross IRR, when considered together with the other investment performance metrics presented, provides investors with meaningful information regarding our |
investment performance by removing the impact of investments where significant realization activity has not yet occurred. Realized/Partially Realized MOIC and Gross IRR have limitations as measures of investment performance, and should not be considered in isolation. Such limitations include the fact that these measures do not include the performance of earlier stage and other investments that do not satisfy the criteria provided above. The exclusion of such investments will have a positive impact on Realized/Partially Realized MOIC and Gross IRR in instances when the MOIC and Gross IRR in respect of such investments are less than the aggregate MOIC and Gross IRR. Our measurements of Realized/Partially Realized MOIC and Gross IRR may not be comparable to those of other companies that use similarly titled measures. We do not present Realized/Partially Realized performance information separately for funds that are still in the investment period because of the relatively insignificant level of realizations for funds of this type. However, to the extent such funds have had realizations, they are included in the Realized/Partially Realized performance information presented for Total Corporate Private Equity.
| |
(6) | Fully Invested funds are past the expiration date of the investment period as defined in the respective limited partnership agreement. In instances where a successor fund has had its first capital call, the predecessor fund is categorized as fully invested.
|
| |
(7) | Gross Internal Rate of Return (“Gross IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value before management fees, expenses and carried interest.
|
| |
(8) | Net Internal Rate of Return (“Net IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value after management fees, expenses and carried interest.
|
| |
(9) | Aggregate includes the following funds: CP I, CMG, CVP I, CVP II, CUSGF III, CEVP, CETP I, CAVP I, CAVP II, CAGP III, CSABF, Mexico, CBPF, and MENA. |
| |
(10) | Includes coinvestments and certain other stand-alone investments arranged by us. |
| |
(11) | Aggregate, which is considered not meaningful, includes the following funds and their respective commencement dates: CSSAF (April 2012) , CPF I (June 2012), CCI (December 2012), CETP III (May 2014), and CAGP V (May 2016). |
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(12) | For funds marked “NM,” IRR may be positive or negative, but is not considered meaningful because of the limited time since initial investment and early stage of capital deployment. For funds marked “Neg,” IRR is negative as of reporting period end.
|
| |
(13) | For purposes of aggregation, funds that report in foreign currency have been converted to U.S. dollars at the reporting period spot rate.
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Fair Value(1) | | Unrealized MOIC(2) | | Total MOIC(3) | | % Invested(4) | | In Accrued Carry/ (Clawback) (5) | | LTM Realized Carry (6) | | Catch-up Rate | | Fee Initiation Date(7) | | Quarters Since Fee Initiation | | Original Investment Period End Date |
| As of September 30, 2017 | | | | | | | | |
Corporate Private Equity | (Reported in Local Currency, in Millions) | | | | | | | | |
CP VI | $ | 12,251.8 |
| | 1.2x | | 1.3x | | 84 | % | | X | |
| | 100 | % | | Jun-13 | | 17 | | May-18 |
CP V | $ | 5,432.2 |
| | 0.7x | | 2.1x | | 96 | % | | X | | X | | 100 | % | | Jun-07 | | 41 | | May-13 |
CAP IV | $ | 3,451.9 |
| | 1.5x | | 1.5x | | 76 | % | | X | |
| | 100 | % | | Jul-13 | | 16 | | Nov-18 |
CEP IV | € | 2,387.8 |
| | 1.1x | | 1.2x | | 72 | % | |
| |
| | 100 | % | | Sep-14 | | 12 | | Aug-19 |
CGP | $ | 1,934.0 |
| | 1.0x | | 1.1x | | 51 | % | |
| |
| | 100 | % | | Jan-15 | | 10 | | Dec-20 |
CEP III | € | 1,381.4 |
| | 1.3x | | 2.2x | | 97 | % | | X | | X | | 100 | % | | Jul-07 | | 40 | | Dec-12 |
CAP III | $ | 1,289.5 |
| | 1.9x | | 1.8x | | 100 | % | | X | | X | | 100 | % | | Jun-08 | | 37 | | May-14 |
CEOF I | $ | 975.4 |
| | 1.0x | | 1.3x | | 103 | % | | X | |
| | 80 | % | | Sep-11 | | 24 | | May-17 |
CEOF II | $ | 818.0 |
| | 1.2x | | 1.2x | | 37 | % | | X | |
| | 80 | % | | Nov-15 | | 7 | | Mar-21 |
CJP III | ¥ | 88,293.3 |
| | 1.5x | | 1.6x | | 50 | % | | X | |
| | 100 | % | | Sep-13 | | 16 | | Feb-20 |
CGFSP II | $ | 752.1 |
| | 1.4x | | 1.5x | | 77 | % | | X | |
| | 100 | % | | Jun-13 | | 17 | | Dec-17 |
CAGP IV | $ | 610.7 |
| | 1.2x | | 1.5x | | 92 | % | |
| |
| | 100 | % | | Aug-08 | | 36 | | Jun-14 |
CGFSP I | $ | 578.4 |
| | 2.0x | | 2.2x | | 98 | % | | X | | X | | 100 | % | | Oct-08 | | 35 | | Sep-14 |
CJP II | ¥ | 63,598.8 |
| | 1.2x | | 1.5x | | 86 | % | |
| |
| | 80 | % | | Oct-06 | | 43 | | Jul-12 |
CAP II | $ | 280.9 |
| | 1.4x | | 1.9x | | 90 | % | |
| |
| | 80 | % | | Mar-06 | | 46 | | Feb-12 |
CP IV | $ | 234.2 |
| | 2.4x | | 2.4x | | 97 | % | | X | | X | | 80 | % | | Apr-05 | | 49 | | Dec-10 |
CETP II | € | 109.5 |
| | 0.7x | | 2.8x | | 84 | % | | X | | X | | 100 | % | | Jan-08 | | 38 | | Jul-13 |
All Other Funds (8) | $ | 2,625.3 |
| | 1.1x | | 2.2x | | | | NM | | NM | | | | | | | | |
Coinvestment and Other (9) | $ | 5,357.8 |
| | 1.3x | | 2.3x | | | | NM | | NM | | | | | | | | |
Total Corporate Private Equity (10) | $ | 42,518.2 |
| | 1.2x | | 1.9x | | | |
| |
| | | | | | | | |
| |
(1) | Net asset value of our carry funds. Reflects significant funds with remaining fair value of greater than $100 million.
|
| |
(2) | Unrealized multiple of invested capital (“MOIC”) represents remaining fair market value, before management fees, expenses and carried interest, divided by remaining investment cost.
|
| |
(3) | Total MOIC represents total fair value (realized proceeds combined with remaining fair value), before management fees, expenses and carried interest, divided by cumulative invested capital. For certain funds, represents the original cost of investments net of investment-level recallable proceeds, which is adjusted to reflect recyclability of invested capital for the purpose of calculating the fund MOIC.
|
| |
(4) | Represents cumulative equity invested as of the reporting period divided by total commitments. Amount can be greater than 100% due to the re-investment of recallable distributions to fund investors.
|
| |
(5) | Fund has a net accrued performance fee balance/(giveback obligation) as of the current quarter end, driven by a significant portion of the fund’s asset base.
|
| |
(6) | Fund has generated realized net performance fees/(realized giveback) in the last twelve months.
|
| |
(7) | Represents the date of the first capital contribution for management fees. |
| |
(8) | Aggregate includes the following funds: CMG, CP I, CP II, CP III, CEP I, CEP II, CAP I, CBPF, CJP I, CEVP, CETP I, CETP III, CCI, CAVP I, CAVP II, CAGP III, CAGP V, Mexico, MENA, CSABF, CSSAF, CPF, CVP I, CVP II, and CUSGF III. In Accrued Carry/(Clawback) and LTM Realized Carry not indicated because the indicator does not apply to each fund within the aggregate. |
| |
(9) | Includes co-investments, prefund investments and certain other stand-alone investments arranged by us. In Accrued Carry/(Clawback) and LTM Realized Carry not indicated because the indicator does not apply to each fund within the aggregate.
|
| |
(10) | For purposes of aggregation, funds that report in foreign currency have been converted to U.S. dollars at the reporting period spot rate.
|
Real Assets
For purposes of presenting results of operations for this segment, our earnings from our investments in NGP are presented in the respective operating captions, and the net income or loss from Urbplan allocable to the Partnership (after consideration of amounts allocable to non-controlling interests) is presented within investment income. We disposed of our interests in Urbplan in a transaction in which a third party acquired operational control and all of the economic interests in Urbplan in the three months ended September 30, 2017. With this transaction, we deconsolidated Urbplan from our financial results (see Note 15 to our unaudited condensed consolidated financial statements) and we expect that this will reduce investment losses in the segment going forward. The following table presents our results of operations for our Real Assets segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 71.4 |
| | $ | 60.3 |
| | $ | 185.6 |
| | $ | 192.0 |
|
Portfolio advisory fees, net | 0.4 |
| | — |
| | 0.6 |
| | 0.1 |
|
Transaction fees, net | 0.8 |
| | — |
| | 0.8 |
| | — |
|
Total fund level fee revenues | 72.6 |
| | 60.3 |
| | 187.0 |
| | 192.1 |
|
Performance fees | | | | | | | |
Realized | 20.4 |
| | 19.2 |
| | 73.6 |
| | 79.8 |
|
Unrealized | 60.8 |
| | 2.0 |
| | 200.1 |
| | 165.8 |
|
Total performance fees | 81.2 |
| | 21.2 |
| | 273.7 |
| | 245.6 |
|
Investment income (loss) | | | | | | | |
Realized | (64.6 | ) | | (14.1 | ) | | (72.4 | ) | | (21.4 | ) |
Unrealized | 12.4 |
| | 4.5 |
| | 24.4 |
| | 6.5 |
|
Total investment loss | (52.2 | ) | | (9.6 | ) | | (48.0 | ) | | (14.9 | ) |
Interest | 1.0 |
| | 0.4 |
| | 2.0 |
| | 1.3 |
|
Other income | 0.6 |
| | 0.4 |
| | 1.3 |
| | 1.0 |
|
Total revenues | 103.2 |
| | 72.7 |
| | 416.0 |
| | 425.1 |
|
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Direct base compensation | 24.5 |
| | 17.2 |
| | 61.6 |
| | 55.4 |
|
Indirect base compensation | 14.8 |
| | 8.9 |
| | 45.6 |
| | 28.2 |
|
Equity-based compensation | 8.7 |
| | 7.1 |
| | 26.8 |
| | 20.3 |
|
Performance fee related | | | | | | | |
Realized | 9.2 |
| | 8.7 |
| | 33.4 |
| | 34.8 |
|
Unrealized | 21.6 |
| | (15.7 | ) | | 60.1 |
| | 55.2 |
|
Total compensation and benefits | 78.8 |
| | 26.2 |
| | 227.5 |
| | 193.9 |
|
General, administrative, and other indirect expenses | 10.5 |
| | 37.2 |
| | 52.6 |
| | 70.7 |
|
Depreciation and amortization expense | 1.9 |
| | 1.4 |
| | 5.3 |
| | 4.4 |
|
Interest expense | 4.2 |
| | 4.1 |
| | 12.7 |
| | 12.1 |
|
Total expenses | 95.4 |
| | 68.9 |
| | 298.1 |
| | 281.1 |
|
Economic Net Income | $ | 7.8 |
| | $ | 3.8 |
| | $ | 117.9 |
| | $ | 144.0 |
|
(-) Net Performance Fees | 50.4 |
| | 28.2 |
| | 180.2 |
| | 155.6 |
|
(-) Investment Loss | (52.2 | ) | | (9.6 | ) | | (48.0 | ) | | (14.9 | ) |
(+) Equity-based Compensation | 8.7 |
| | 7.1 |
| | 26.8 |
| | 20.3 |
|
(+) Reserve for Litigation and Contingencies | (5.8 | ) | | 21.6 |
| | (5.8 | ) | | 21.6 |
|
(=) Fee Related Earnings | $ | 12.5 |
| | $ | 13.9 |
| | $ | 6.7 |
| | $ | 45.2 |
|
(+) Realized Net Performance Fees | 11.2 |
| | 10.5 |
| | 40.2 |
| | 45.0 |
|
(+) Realized Investment Loss | (64.6 | ) | | (14.1 | ) | | (72.4 | ) | | (21.4 | ) |
(=) Distributable Earnings | $ | (40.9 | ) | | $ | 10.3 |
| | $ | (25.5 | ) | | $ | 68.8 |
|
Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016 and Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Distributable Earnings
Distributable earnings decreased $51.2 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and decreased $94.3 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the components of the changes in distributable earnings for the three and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Distributable earnings, September 30, 2016 | $ | 10.3 |
| $ | 68.8 |
|
Increases (decreases): | | |
Increase (decrease) in realized net performance fees | 0.7 |
| (4.8 | ) |
Increase in realized investment loss | (50.5 | ) | (51.0 | ) |
Decrease in fee related earnings | (1.4 | ) | (38.5 | ) |
Total decrease | (51.2 | ) | (94.3 | ) |
Distributable earnings, September 30, 2017 | $ | (40.9 | ) | $ | (25.5 | ) |
Realized Net Performance Fees. Realized net performance fees increased $0.7 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and decreased $4.8 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The realized net performance fees for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 were from one of our U.S real estate funds. The decrease in realized net performance fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to lower realization on certain Europe real estate funds, partially offset by higher realization on a certain U.S. real estate fund. Realized net performance fees were primarily generated by the following funds for the three and nine months ended September 30, 2017 and 2016:
|
| | | | |
Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | 2016 | | 2017 | 2016 |
CRP VI | CRP VI | | CRP VI | CRP VI |
|
| | CPOCP | CEREP III - External Coinvest |
|
| | CEREP III - External Coinvest | CRP III |
Realized Investment Loss. Realized investment loss for the three months ended September 30, 2017 was $64.6 million as compared to realized investment loss of $14.1 million for the three months ended September 30, 2016, and realized investment loss for the nine months ended September 30, 2017 was $72.4 million as compared to realized investment loss of $21.4 million for the nine months ended September 30, 2016. The decrease in realized investment loss for both the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily related to the recognition of a $65.0 million realized investment loss in the three months ended September 30, 2017 associated with the disposal of our interests in Urbplan in a transaction in which a third party acquired operational control and all of the economic interests in Urbplan. With this transaction,we deconsolidated Urbplan from our financial results (see Note 15 to the unaudited condensed consolidated financial statements). Additionally, we recognized realized investment losses related to Urbplan of $21.4 million and $32.1 million for the three and nine months ended September 30, 2016.
Fee Related Earnings
Fee related earnings decreased $1.4 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and decreased $38.5 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the components of the changes in fee related earnings for the three and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Fee related earnings, September 30, 2016 | $ | 13.9 |
| $ | 45.2 |
|
Increases (decreases): | | |
Increase (decrease) in fee revenues | 12.3 |
| (5.1 | ) |
Increase in direct and indirect base compensation | (13.2 | ) | (23.6 | ) |
Increase in general, administrative and other indirect expenses | (0.7 | ) | (9.3 | ) |
Increase in interest expense | (0.1 | ) | (0.6 | ) |
All other changes | 0.3 |
| 0.1 |
|
Total decrease | (1.4 | ) | (38.5 | ) |
Fee related earnings, September 30, 2017 | $ | 12.5 |
| $ | 6.7 |
|
Fee Revenues. Fee revenues increased $12.3 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and decreased $5.1 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, due to the following:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2017 v. 2016 |
| (Dollars in Millions) |
Higher (lower) fund management fees | $ | 11.1 |
| $ | (6.4 | ) |
Higher transaction fees | 0.8 |
| 0.8 |
|
Higher portfolio advisory fees | 0.4 |
| 0.5 |
|
Total increase (decrease) in fee revenues | $ | 12.3 |
| $ | (5.1 | ) |
The increase in fund management fees for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily reflects increased management fees from our eighth real estate fund (“CRP VIII”), which had its first closing earlier in 2017, and NGP XII as well as a $1.3 million increase in catch-up management fees for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. While there were $1.3 million of catch-up management fees for the three months ended September 30, 2017, there were no catch-up management fees for the three months ended September 30, 2016.
The decrease in fund management fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily reflects a $8.6 million decrease in catch-up management fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. While there were no significant catch-up management fees for the nine months ended September 30, 2017, catch-up management fees of $8.6 million for the nine months ended September 30, 2016 were primarily due to subsequent closes in 2016 for our second power fund (“CPP II”) and our first international energy fund (“CIEP I”). This decrease was partially offset by increased management fees from CRP VIII, which had its first closing earlier in 2017.
The weighted average management fee rate for funds in the investment period decreased to 1.30% at September 30, 2017 from 1.44% at September 30, 2016 due to new funds, primarily CRP VIII, being raised with lower management fee rates than our other funds in the original investment period. The total weighted average management fee was 1.21% at September 30, 2017, a decline from 1.24% at September 30, 2016.
Direct and indirect base compensation expense. Direct and indirect base compensation expense increased $13.2 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, primarily due to an increase in projected year-end bonuses, and higher compensation associated with fundraising activities of $3.9 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.
Direct and indirect base compensation expense increased $23.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to higher compensation associated with fundraising activities of $15.2 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, and an increase in projected year-end bonuses.
General, administrative and other indirect expenses. General, administrative and other indirect expenses increased $0.7 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The primary drivers of the increase were increased real estate costs, foreign currency losses recorded in the three months ended September 30, 2017, as well as increased external costs associated with fundraising activities of $1.0 million. This increase was partially offset by lower professional fees.
General, administrative and other indirect expenses increased $9.3 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The primary drivers of the increase were foreign currency losses recorded in the nine months ended September 30, 2017 as compared to foreign currency gains recorded in the nine months ended September 30, 2016, increased real estate costs, and increased external costs associated with fundraising activities of $3.2 million. This increase was partially offset by lower professional fees.
Economic Net Income
Economic net income increased $4.0 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and decreased $26.1 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the components of the changes in economic net income for the three and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Economic net income, September 30, 2016 | $ | 3.8 |
| $ | 144.0 |
|
Increases (decreases): | | |
Increase in net performance fees | 22.2 |
| 24.6 |
|
Increase in investment loss | (42.6 | ) | (33.1 | ) |
Increase in equity-based compensation | (1.6 | ) | (6.5 | ) |
Decrease in fee related earnings | (1.4 | ) | (38.5 | ) |
Decrease in reserve for litigation and contingencies | 27.4 |
| 27.4 |
|
Total increase (decrease) | 4.0 |
| (26.1 | ) |
Economic net income, September 30, 2017 | $ | 7.8 |
| $ | 117.9 |
|
Performance Fees. Performance fees (realized and unrealized) increased $60.0 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily due to higher appreciation from certain of our real estate and natural resources funds, partially offset by a decrease in performance fees generated by the NGP funds. Performance fees (realized and unrealized) increased $28.1 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to higher appreciation from our NGP funds, partially offset by a decrease in performance fees generated by the real estate funds.
Performance fees are from the following types of funds:
|
| | | | | | | | | | | | | | | |
| Performance Fees |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Real Estate funds | $ | 33.2 |
| | $ | (16.0 | ) | | $ | 164.5 |
| | $ | 199.9 |
|
Natural Resources funds | 45.2 |
| | 37.5 |
| | 106.1 |
| | 45.9 |
|
Legacy Energy funds | 2.8 |
| | (0.3 | ) | | 3.1 |
| | (0.2 | ) |
Total | $ | 81.2 |
| | $ | 21.2 |
| | $ | 273.7 |
| | $ | 245.6 |
|
The $81.2 million of performance fees for the three months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•CIEP of $36.7 million,
•CRP VII of $14.4 million,
•CRP V of $8.0 million,
•NGP XI of $6.8 million, and
•CRP III of $6.7 million.
The $21.2 million of performance fees for the three months ended September 30, 2016 was driven primarily by performance fees recognized from the following funds:
•NGP XI of $30.5 million,
•CRP VII of $18.3 million,
•CRP VI of $6.9 million,
•NGP X of $6.2 million,
•CRP V of $(51.7) million, and
•CRP III of $(10.3) million.
The $273.7 million of performance fees for the nine months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•CRP VII of $75.8 million,
•NGP XI of $62.0 million,
•CRP V of $51.6 million,
•CIEP of $36.9 million, and
•CRP III of $24.9 million.
The $245.6 million of performance fees for the nine months ended September 30, 2016 was driven primarily by performance fees recognized from the following funds:
•CRP VII of $74.2 million,
•CRP V of $45.4 million,
•NGP XI of $37.4 million,
•CRP VI of $34.9 million,
•CRP III of $17.6 million, and
•NGP X of $9.0 million.
Performance fees of $81.2 million and $21.2 million are inclusive of performance fees reversed of approximately $1.0 million and $62.3 million for the three months ended September 30, 2017 and 2016, respectively. Performance fees of $273.7 million and $245.6 million are inclusive of performance fees reversed of approximately $9.4 million and $4.6 million for the nine months ended September 30, 2017 and 2016, respectively.
The appreciation (depreciation) in remaining value of assets for this segment by type of fund are as follows:
|
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
Real Estate funds | 3% | —% | | 15% | 16% |
Natural Resources funds | 5% | 12% | | 20% | 24% |
Legacy Energy funds | (3)% | 1% | | 5% | 1% |
Total | 2% | 4% | | 14% | 13% |
Net performance fees for the three months ended September 30, 2017 were $50.4 million, representing an increase of $22.2 million from $28.2 million in net performance fees for the three months ended September 30, 2016. The increase was primarily due to increased performance fees from the real estate and natural resources funds, partially offset by decreased performance fees from the NGP funds, for which there is no performance fee related compensation expense. Net performance fees for the nine months ended September 30, 2017 were $180.2 million, representing an increase of $24.6 million from $155.6 million in net performance fees for the nine months ended September 30, 2016. The increase was primarily due to increased performance fees from the NGP funds, for which there is no performance fee related compensation expense, partially offset by decreased performance fees from the real estate funds.
Performance fees earned from the Legacy Energy funds and from NGP funds are primarily allocated to Carlyle and are not otherwise shared or allocated with our investment professionals since the investment teams are employed by Riverstone and NGP, respectively, and not Carlyle. Accordingly, performance fee compensation as a percentage of performance fees is generally not a comparable measurement for Real Assets from period to period.
Total Investment Loss. Total investment loss (realized and unrealized) for the three months ended September 30, 2017 was $52.2 million as compared to total investment loss of $9.6 million for the three months ended September 30, 2016, and total investment loss (realized and unrealized) for the nine months ended September 30, 2017 was $48.0 million as compared to total investment loss of $14.9 million for the nine months ended September 30, 2016. The increase in total investment loss for both the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to the recognition of a $65.0 million realized investment loss in the three months ended September 30, 2017 associated with the disposal of our interests in Urbplan in a transaction in which a third party acquired operational control and all of the economic interests in Urbplan. With this transaction, we deconsolidated Urbplan from our financial results (see Note 15 to the unaudited condensed consolidated financial statements). These increases in total investment loss were partially offset by higher appreciation on investments in our U.S. and Europe real estate funds for both the three and nine months ended September 30, 2017 as compared to the same periods of 2016.
Equity-based Compensation. Equity-based compensation was $8.7 million for the three months ended September 30, 2017, an increase of $1.6 million from $7.1 million for the three months ended September 30, 2016 and was $26.8 million for the nine months ended September 30, 2017, an increase of $6.5 million from $20.3 million for the nine months ended September 30, 2016. The increase for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 is primarily attributable to equity-based compensation expense in connection with the March 2017 agreement with NGP (see Note 5 to the unaudited condensed consolidated financial statements).
Reserve for Litigation and Contingencies. Real Assets' (“RA”) share of the reserve for litigation and contingencies decreased $27.4 million for both the three and nine months ended September 30, 2017. The decrease was primarily related to RA's share of the $25 million reserve reversal related to the CCC litigation recognized in 2017, while RA recognized its share of the $100 million reserve in 2016 related to a commodities legal matter.
Fee-earning AUM as of and for the Three and Nine Months Ended September 30, 2017 and 2016
Fee-earning AUM is presented below for each period together with the components of change during each respective period.
The table below breaks out Fee-earning AUM by its respective components at each period.
|
| | | | | | | |
| As of September 30, |
| 2017 | | 2016 |
Real Assets | (Dollars in millions) |
Components of Fee-earning AUM (1) | | | |
Fee-earning AUM based on capital commitments | $ | 17,714 |
| | $ | 12,918 |
|
Fee-earning AUM based on invested capital (2) | 11,154 |
| | 15,150 |
|
Fee-earning AUM based on net asset value | 622 |
| | 127 |
|
Fee-earning AUM based on lower of cost or fair value and other (3) | 330 |
| | 710 |
|
Total Fee-earning AUM (4) | $ | 29,820 |
| | $ | 28,905 |
|
Weighted Average Management Fee Rates (5) | | | |
All Funds | 1.21 | % | | 1.24 | % |
Funds in Investment Period | 1.30 | % | | 1.44 | % |
| |
(1) | For additional information concerning the components of Fee-earning AUM, See “—Fee-earning Assets under Management.” |
| |
(2) | Includes amounts committed to or reserved for investments for certain real estate funds. |
| |
(3) | Includes certain funds that are calculated on gross asset value. |
| |
(4) | Energy II, Energy III, Energy IV, and Renew II (collectively, the “Legacy Energy Funds”), are managed with Riverstone Holdings LLC and its affiliates. Affiliates of both Carlyle and Riverstone act as investment advisers to each of the Legacy Energy Funds. Carlyle has a minority representation on the management committees of Energy IV and Renew II. Carlyle and Riverstone each hold half of the seats on the management committees of Energy II and Energy III, but the investment period for these funds has expired and the remaining investments in such funds are being disposed of in the ordinary course of business. As of September 30, 2017, the Legacy Energy Funds had, in the aggregate, approximately $5.2 billion in AUM and $3.8 billion in Fee-earning AUM. We are no longer raising capital for the Legacy Energy Funds and expect these balances to continue to decrease over time as the funds wind down. NGP VII, NGP VIII, NGP IX, or in the case of NGP M&R, NGP ETP I, and NGP ETP II, certain affiliated entities (collectively, the “NGP management fee funds”) and NGP X, NGP GAP, NGP XI, and NGP XII (referred to herein as “carry funds”), are managed by NGP Energy Capital Management. As of September 30, 2017, the NGP management fee funds and carry funds had, in the aggregate, approximately $10.7 billion in AUM and $9.6 billion in Fee-earning AUM. |
| |
(5) | Represents the aggregate effective management fee rate of each fund in the segment, weighted by each fund’s Fee-earning AUM, as of the end of each period presented. Calculation reflects Carlyle’s 10% interest in management fees earned by the Legacy Energy funds and 55% interest in management fees earned by the NGP management fee funds and carry funds. Accounts based on gross asset base generally have an effective management fee rate of 0.5% or less. |
The table below provides the period to period rollforward of Fee-earning AUM. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Real Assets | (Dollars in millions) | | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 26,236 |
| | $ | 30,422 |
| | $ | 27,487 |
| | $ | 30,905 |
|
Inflows, including Fee-paying Commitments (1) | 5,033 |
| | 186 |
| | 5,504 |
| | 1,161 |
|
Outflows, including Distributions (2) | (1,315 | ) | | (1,589 | ) | | (3,153 | ) | | (3,089 | ) |
Market Appreciation/(Depreciation) (3) | 20 |
| | 6 |
| | 45 |
| | 14 |
|
Foreign Exchange and other (4) | (154 | ) | | (120 | ) | | (63 | ) | | (86 | ) |
Balance, End of Period | $ | 29,820 |
| | $ | 28,905 |
| | $ | 29,820 |
| | $ | 28,905 |
|
| |
(1) | Inflows represent limited partner capital raised and capital invested by funds outside the investment period. |
| |
(2) | Outflows represent distributions from funds outside the investment period and changes in fee basis for our carry funds where the investment period has expired. |
| |
(3) | Market Appreciation/(Depreciation) represents realized and unrealized gains (losses) on portfolio investments in our carry funds based on the lower of cost or fair value and net asset value. |
| |
(4) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
Fee-earning AUM was $29.8 billion at September 30, 2017, an increase of $3.6 billion, or approximately 14%, compared to $26.2 billion at June 30, 2017. The increase was driven by inflows of $5.0 billion, primarily from new fee-paying commitments raised in CRP VIII. The increase was partially offset by outflows of $1.3 billion, primarily related to distribution activity in the Legacy Energy funds and other funds outside the original investment period. Changes in fair value have no material impact on Fee-earning AUM for Real Assets as substantially all of the funds generate management fees based on either commitments or invested capital at cost, neither of which is impacted by fair value movements. Investment and distribution activity by funds still in the original investment period do not impact Fee-earning AUM as these funds are based on commitments and not invested capital.
Fee-earning AUM was $29.8 billion at September 30, 2017, an increase of $2.3 billion, or approximately 8%, compared to $27.5 billion at December 31, 2016. This increase was driven by inflows of $5.5 billion, primarily related to new limited partner capital invested in CPI and new fee-paying commitments to CRP VIII. The increase was partially offset by outflows of $3.2 billion primarily related to distribution activity in the Legacy Energy funds, NGP management fee funds, and US real estate funds, as well as other funds outside the original investment period.
Fee-earning AUM was $29.8 billion at September 30, 2017, an increase of $0.9 billion, or 3%, compared to $28.9 billion at September 30, 2016. This increase was driven by inflows of $5.9 billion, primarily due to new fee-paying commitments to CRP VIII and new limited partner capital invested in CPI. The increase was offset by outflows of $4.9 billion, including dispositions in various funds with fees based on invested capital, primarily in our NGP carry and management fee funds, Legacy Energy funds, and in our Asia, Europe, and US real estate funds.
Fee-earning AUM was $28.9 billion at September 30, 2016, a decrease of $1.5 billion, or approximately 5%, compared to $30.4 billion at June 30, 2016. This decrease was driven by outflows of $1.6 billion, primarily related to distribution activity in our funds outside the original investment period. The decrease was partially offset by inflows of $0.2 billion, primarily related to new limited partner commitments in CPI and purchases by funds outside the original investment period.
Fee-earning AUM was $28.9 billion at September 30, 2016, a decrease of $2.0 billion, or 6%, compared to $30.9 billion at December 31, 2015. The decrease is related to outflows of $3.1 billion primarily attributable to dispositions in various funds with fees based on invested capital. The decrease was partially offset by inflows of $1.2 billion, primarily related to new limited partner commitments in CPP II and CPI, and purchases by funds outside the original investment period.
Total AUM as of and for the Three and Nine Months Ended September 30, 2017
The table below provides the period to period rollforwards of Available Capital and Fair Value of Capital, and the resulting rollforward of Total AUM.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| Available Capital | | Fair Value of Capital | | Total AUM | | Available Capital | | Fair Value of Capital | | Total AUM |
| (Dollars in millions) | | (Dollars in millions) |
Real Assets | | | | | | | | | | | |
Balance, Beginning of Period | $ | 14,636 |
| | $ | 24,308 |
| | $ | 38,944 |
| | $ | 11,573 |
| | $ | 22,679 |
| | $ | 34,252 |
|
Commitments (1) | 1,987 |
| | — |
| | 1,987 |
| | 6,333 |
| | — |
| | 6,333 |
|
Capital Called, net (2) | (1,034 | ) | | 926 |
| | (108 | ) | | (2,548 | ) | | 2,279 |
| | (269 | ) |
Distributions (3) | 277 |
| | (1,696 | ) | | (1,419 | ) | | 497 |
| | (3,759 | ) | | (3,262 | ) |
Market Appreciation/(Depreciation) (4) | — |
| | 334 |
| | 334 |
| | — |
| | 2,610 |
| | 2,610 |
|
Foreign Exchange and other (5) | 3 |
| | 27 |
| | 30 |
| | 14 |
| | 90 |
| | 104 |
|
Balance, End of Period | $ | 15,869 |
| | $ | 23,899 |
| | $ | 39,768 |
| | $ | 15,869 |
| | $ | 23,899 |
| | $ | 39,768 |
|
| |
(1) | Represents capital raised by our carry funds and the NGP management fee funds, net of expired available capital. |
| |
(2) | Represents capital called by our carry funds and the NGP management fee funds, net of fund fees and expenses. Equity invested amounts may vary from capital called due to timing differences between acquisition and capital call dates. |
| |
(3) | Represents distributions from our carry funds and the NGP management fee funds, net of amounts recycled. Distributions are based on when proceeds are actually distributed to investors, which may differ from when they are realized. |
| |
(4) | Market Appreciation/(Depreciation) represents realized and unrealized gains (losses) on portfolio investments. |
| |
(5) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
Total AUM was $39.8 billion at September 30, 2017, an increase of $0.9 billion, or approximately 2%, compared to $38.9 billion at June 30, 2017. The increase was driven by new commitments of $2.0 billion resulting from new funds raised primarily in CRP VIII and NGP XII, as well as market appreciation of $0.3 billion. Carry fund market appreciation of 2% was driven by a 6% in our public portfolio and a 1% increase in our private portfolio. The carry funds driving appreciation for the period included $0.1 billion attributable to CIP, $0.1 billion attributable to NGP XI, and $0.1 billion attributable to CIEP . This increase was partially offset by distributions of $1.7 billion, of which $0.3 billion were recallable, primarily in our US real estate and Legacy Energy funds.
Total AUM was $39.8 billion at September 30, 2017, an increase of $5.5 billion, or approximately 16%, compared to $34.3 billion at December 31, 2016. The increase was driven by new commitments of $6.3 billion resulting from new funds raised primarily in CRP VIII, NGP XII, and CPI, as well as market appreciation of $2.6 billion. Carry fund market appreciation of 14% was driven by a 15% increase in our private portfolio and a 12% increase in our public portfolio. The carry funds driving appreciation for the period included $0.8 billion attributable to NGP XI, $0.4 billion attributable to CRP VII, and $0.2 billion attributable to CIEP . This increase was partially offset by distributions of $3.8 billion, of which $0.5 billion were recallable, primarily in our US and Europe real estate funds, Legacy Energy funds, and NGP carry and management fee funds.
Fund Performance Metrics
Fund performance information for our carryinvestment funds that generally have at least $1.0 billion in capital commitments, cumulative equity invested or total value as of SeptemberJune 30, 2017,2021, which we refer to as our “significant funds,”funds” is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance of The Carlyle Group L.P.Inc. and is also not necessarily indicative of the future performance of any particular fund. An investment in The Carlyle Group L.P.Inc. is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The following tables reflect the performance of our significant funds in our Real AssetsGlobal Private Equity business. Please see “— Our Family of Funds” for a legend of the fund acronyms listed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS | | REALIZED/PARTIALLY REALIZED INVESTMENTS(5) |
| | | | | As of June 30, 2021 | | As of June 30, 2021 |
Fund (Fee Initiation Date/Stepdown Date)(19) | | Committed Capital | Cumulative Invested Capital(1) | Percent Invested | Realized Value(2) | Remaining Fair Value(3) | MOIC (4) | Gross IRR (6)(12) | Net IRR (7)(12) | Net Accrued Carry/(Clawback) (8) | | Total Fair Value(9) | MOIC (4) | Gross IRR (6)(12) |
Corporate Private Equity | | | |
CP VII (May 2018 / May 2024) | | $ | 18,510 | | $ | 13,466 | | 73% | $ | 544 | | $ | 15,937 | | 1.2x | 20% | 9% | $ | 175 | | | $ | 905 | | 2.6x | 56% |
CP VI (May 2013 / May 2018) | | $ | 13,000 | | $ | 13,078 | | 101% | $ | 10,490 | | $ | 20,879 | | 2.4x | 23% | 18% | $ | 1,558 | | | $ | 14,133 | | 2.6x | 28% |
CP V (Jun 2007 / May 2013) | | $ | 13,720 | | $ | 13,238 | | 96% | $ | 26,225 | | $ | 2,229 | | 2.1x | 18% | 14% | $ | 211 | | | $ | 27,121 | | 2.5x | 24% |
CEP V (Oct 2018 / Sep 2024) | | € | 6,436 | | € | 2,987 | | 46% | € | 12 | | € | 3,353 | | 1.1x | NM | NM | $ | — | | | n/a | n/a | n/a |
CEP IV (Sep 2014 / Oct 2018) | | € | 3,752 | | € | 3,758 | | 100% | € | 2,816 | | € | 3,539 | | 1.7x | 17% | 11% | $ | 261 | | | € | 2,673 | | 2.2x | 27% |
CEP III (Jul 2007 / Dec 2012) | | € | 5,295 | | € | 5,177 | | 98% | € | 10,997 | | € | 698 | | 2.3x | 19% | 14% | $ | 61 | | | € | 11,563 | | 2.5x | 20% |
CEP II (Sep 2003 / Sep 2007) | | € | 1,805 | | € | 2,048 | | 113% | € | 4,113 | | € | 26 | | 2.0x | 36% | 20% | $ | 4 | | | € | 4,123 | | 2.2x | 43% |
CAP V (Jun 2018 / Jun 2024) | | $ | 6,554 | | $ | 3,412 | | 52% | $ | 724 | | $ | 4,307 | | 1.5x | 57% | 31% | $ | 120 | | | $ | 923 | | 1.9x | 164% |
CAP IV (Jul 2013 / Jun 2018) | | $ | 3,880 | | $ | 4,044 | | 104% | $ | 4,168 | | $ | 3,924 | | 2.0x | 20% | 14% | $ | 328 | | | $ | 4,677 | | 3.3x | 35% |
CAP III (Jun 2008 / Jul 2013) | | $ | 2,552 | | $ | 2,543 | | 100% | $ | 4,417 | | $ | 419 | | 1.9x | 17% | 12% | $ | 43 | | | $ | 4,417 | | 2.1x | 19% |
CJP IV (Oct 2020 / Oct 2026) | | ¥ | 258,000 | | ¥ | 24,472 | | 9% | ¥ | — | | ¥ | 26,919 | | 1.1x | NM | NM | $ | — | | | n/a | n/a | n/a |
CJP III (Sep 2013 / Aug 2020) | | ¥ | 119,505 | | ¥ | 91,192 | | 76% | ¥ | 96,501 | | ¥ | 80,862 | | 1.9x | 20% | 12% | $ | 49 | | | ¥ | 117,140 | | 3.1x | 33% |
CJP II (Oct 2006 / Jul 2013) | | ¥ | 165,600 | | ¥ | 141,867 | | 86% | ¥ | 205,301 | | ¥ | 4,680 | | 1.5x | 7% | 4% | $ | — | | | ¥ | 203,831 | | 1.5x | 7% |
CGFSP III (Dec 2017 / Dec 2023) | | $ | 1,005 | | $ | 870 | | 87% | $ | 13 | | $ | 1,227 | | 1.4x | 34% | 21% | $ | 29 | | | n/a | n/a | n/a |
CGFSP II (Jun 2013 / Dec 2017) | | $ | 1,000 | | $ | 943 | | 94% | $ | 1,602 | | $ | 525 | | 2.3x | 26% | 19% | $ | 39 | | | $ | 1,600 | | 2.3x | 28% |
CEOF II (Nov 2015 / Mar 2020) | | $ | 2,400 | | $ | 2,103 | | 88% | $ | 500 | | $ | 2,964 | | 1.6x | 18% | 12% | $ | 114 | | | $ | 728 | | 2.3x | 43% |
CEOF I (Sep 2011 / Nov 2015) | | $ | 1,119 | | $ | 1,174 | | 105% | $ | 1,505 | | $ | 281 | | 1.5x | 12% | 8% | $ | 33 | | | $ | 1,359 | | 1.8x | 23% |
CETP IV (Jul 2019 / Jul 2025) | | € | 1,350 | | € | 762 | | 56% | € | — | | € | 993 | | 1.3x | 50% | 25% | $ | 19 | | | n/a | n/a | n/a |
CETP III (Jul 2014 / Jul 2019) | | € | 657 | | € | 602 | | 92% | € | 1,063 | | € | 741 | | 3.0x | 46% | 33% | $ | 60 | | | € | 1,064 | | 4.5x | 53% |
CGP II (Dec 2020 / Jan 2025) | | $ | 1,840 | | $ | 175 | | 10% | $ | — | | $ | 184 | | 1.1x | NM | NM | $ | — | | | n/a | n/a | n/a |
CGP (Jan 2015 / Mar 2021) | | $ | 3,588 | | $ | 2,933 | | 82% | $ | 389 | | $ | 3,358 | | 1.3x | 6% | 5% | $ | 39 | | | $ | 444 | | 3.0x | 70% |
CAGP IV (Aug 2008 / Dec 2014) | | $ | 1,041 | | $ | 954 | | 92% | $ | 1,123 | | $ | 120 | | 1.3x | 7% | 2% | $ | — | | | $ | 1,122 | | 1.3x | 7% |
All Other Active Funds & Vehicles(10) | | | $ | 17,052 | | n/a | $ | 16,891 | | $ | 11,224 | | 1.6x | 13% | 10% | $ | 66 | | | $ | 17,148 | | 2.1x | 17% |
Fully Realized Funds & Vehicles(11) | | | $ | 23,441 | | n/a | $ | 59,581 | | $ | — | | 2.5x | 28% | 21% | $ | 3 | | | $ | 59,581 | | 2.5x | 28% |
TOTAL CORPORATE PRIVATE EQUITY(13) | $ | 119,912 | | n/a | $ | 153,400 | | $ | 79,668 | | 1.9x | 26% | 18% | $ | 3,213 | | | $ | 160,058 | | 2.4x | 27% |
Real Estate | | | |
CRP VIII (Aug 2017 / May 2022) | | $ | 5,505 | | $ | 3,524 | | 64% | $ | 1,341 | | $ | 3,602 | | 1.4x | 40% | 20% | $ | 129 | | | $ | 1,351 | | 1.8x | 51% |
CRP VII (Jun 2014 / Dec 2017) | | $ | 4,162 | | $ | 3,789 | | 91% | $ | 4,085 | | $ | 2,070 | | 1.6x | 19% | 12% | $ | 85 | | | $ | 4,072 | | 1.8x | 25% |
CRP VI (Mar 2011 / Jun 2014) | | $ | 2,340 | | $ | 2,167 | | 93% | $ | 3,636 | | $ | 284 | | 1.8x | 27% | 18% | $ | 4 | | | $ | 3,535 | | 2.0x | 31% |
CRP V (Nov 2006 / Mar 2011) | | $ | 3,000 | | $ | 3,318 | | 111% | $ | 5,276 | | $ | 697 | | 1.8x | 12% | 9% | $ | 120 | | | $ | 5,908 | | 1.8x | 13% |
CRP IV (Jan 2005 / Nov 2006) | | $ | 950 | | $ | 1,216 | | 128% | $ | 1,954 | | $ | 15 | | 1.6x | 7% | 4% | $ | — | | | $ | 1,952 | | 1.7x | 7% |
CPI (May 2016 / n/a) | | $ | 5,743 | | $ | 3,580 | | 62% | $ | 792 | | $ | 3,891 | | 1.3x | 16% | 14% | $ | 31 | | | $ | 469 | | 1.7x | NM |
CEREP III (Jun 2007 / May 2012) | | € | 2,230 | | € | 2,053 | | 92% | € | 2,447 | | € | 47 | | 1.2x | 4% | 1% | $ | — | | | € | 2,447 | | 1.2x | 4% |
All Other Active Funds & Vehicles(14) | | | $ | 3,361 | | n/a | $ | 3,038 | | $ | 2,169 | | 1.5x | 10% | 8% | $ | 8 | | | $ | 2,763 | | 1.7x | 11% |
Fully Realized Funds & Vehicles(15) | | | $ | 5,228 | | n/a | $ | 6,913 | | $ | 2 | | 1.3x | 13% | 6% | $ | — | | | $ | 6,915 | | 1.3x | 13% |
TOTAL REAL ESTATE(13) | $ | 28,615 | | n/a | $ | 29,934 | | $ | 12,786 | | 1.5x | 12% | 8% | $ | 376 | | | $ | 29,864 | | 1.6x | 13% |
Natural Resources | | | |
CIEP II (Apr 2019 / Apr 2025) | | $ | 2,286 | | $ | 841 | | 37% | $ | 203 | | $ | 806 | | 1.2x | NM | NM | $ | 5 | | | n/a | n/a | n/a |
CIEP I (Sep 2013 / Jun 2019) | | $ | 2,500 | | $ | 2,339 | | 94% | $ | 960 | | $ | 2,476 | | 1.5x | 15% | 8% | $ | 33 | | | $ | 1,467 | | 2.2x | 23% |
CPP II (Sep 2014 / Apr 2021) | | $ | 1,527 | | $ | 1,269 | | 83% | $ | 324 | | $ | 1,381 | | 1.3x | 11% | 6% | $ | — | | | n/a | n/a | n/a |
CGIOF (Dec 2018 / Sep 2023) | | $ | 2,201 | | $ | 914 | | 42% | $ | 90 | | $ | 743 | | 0.9x | NM | NM | $ | — | | | $ | 37 | | 2.1x | NM |
NGP XII (Jul 2017 / Jul 2022) | | $ | 4,278 | | $ | 2,311 | | 54% | $ | 99 | | $ | 2,746 | | 1.2x | 10% | 5% | $ | — | | | n/a | n/a | n/a |
NGP XI (Oct 2014 / Jul 2017) | | $ | 5,325 | | $ | 4,961 | | 93% | $ | 1,951 | | $ | 4,039 | | 1.2x | 6% | 4% | $ | — | | | $ | 1,930 | | 1.2x | 22% |
NGP X (Jan 2012 / Dec 2014) | | $ | 3,586 | | $ | 3,346 | | 93% | $ | 3,062 | | $ | 476 | | 1.1x | 2% | Neg | $ | — | | | $ | 2,938 | | 1.2x | 8% |
All Other Active Funds & Vehicles(17) | | | $ | 3,146 | | n/a | $ | 1,357 | | $ | 2,810 | | 1.3x | 12% | 10% | $ | 8 | | | $ | 1,494 | | 2.2x | 26% |
Fully Realized Funds & Vehicles(18) | | | $ | 1,190 | | n/a | $ | 1,435 | | $ | 1 | | 1.2x | 3% | 1% | $ | — | | | $ | 1,436 | | 1.2x | 3% |
TOTAL NATURAL RESOURCES | $ | 20,318 | | n/a | $ | 9,482 | | $ | 15,476 | | 1.2x | 7% | 3% | $ | 46 | | | $ | 39,166 | | 1.6x | 11% |
| | | | | | | | | | | | | | |
Legacy Energy Funds(16) | | | $ | 16,741 | | n/a | $ | 23,759 | | $ | 413 | | 1.4x | 12% | 6% | $ | (4) | | | $ | 23,605 | | 1.5x | 14% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS | | REALIZED/PARTIALLY REALIZED INVESTMENTS(5) |
| | | | | As of September 30, 2017 | | As of September 30, 2017 |
| Fund Inception Date(1) | | Committed Capital | | Cumulative Invested Capital(2) | | Total Fair Value(3) | | MOIC(4) | | Gross IRR (7)(12) | | Net IRR (8)(12) | | Cumulative Invested Capital(2) | | Total Fair Value(3) | | MOIC(4) | | Gross IRR (7)(12) |
Real Assets | | | | | (Reported in Local Currency, in Millions) | | (Reported in Local Currency, in Millions) |
Fully Invested/Committed Funds(6) | | | | | | | | | | | | | | | | | | |
CRP III | 11/2000 | | $ | 564.1 |
| | $ | 522.5 |
| | $ | 1,838.2 |
| | 3.5x | | 44 | % | | 30 | % | | $ | 522.5 |
| | $ | 1,838.2 |
| | 3.5x | | 44 | % |
CRP IV | 12/2004 | | $ | 950.0 |
| | $ | 1,198.5 |
| | $ | 1,935.7 |
| | 1.6x | | 8 | % | | 5 | % | | $ | 984.8 |
| | $ | 1,659.3 |
| | 1.7x | | 10 | % |
CRP V | 11/2006 | | $ | 3,000.0 |
| | $ | 3,293.5 |
| | $ | 5,520.4 |
| | 1.7x | | 12 | % | | 9 | % | | $ | 2,988.2 |
| | $ | 5,163.6 |
| | 1.7x | | 14 | % |
CRP VI | 9/2010 | | $ | 2,340.0 |
| | $ | 2,108.0 |
| | $ | 3,914.5 |
| | 1.9x | | 29 | % | | 20 | % | | $ | 1,529.5 |
| | $ | 3,128.7 |
| | 2.0x | | 34 | % |
CRP VII | 3/2014 | | $ | 4,161.6 |
| | $ | 2,840.4 |
| | $ | 3,733.8 |
| | 1.3x | | 22% |
| | 12% |
| | $ | 117.0 |
| | $ | 216.1 |
| | 1.8x | | 38% |
|
CEREP I | 3/2002 | | € | 426.6 |
| | € | 517.0 |
| | € | 698.6 |
| | 1.4x | | 14% |
| | 7% |
| | € | 517.0 |
| | € | 698.6 |
| | 1.4x | | 14% |
|
CEREP II | 4/2005 | | € | 762.7 |
| | € | 833.8 |
| | € | 128.1 |
| | 0.2x | | Neg |
| | Neg |
| | € | 798.2 |
| | € | 133.9 |
| | 0.2x | | Neg |
|
CEREP III | 5/2007 | | € | 2,229.5 |
| | € | 2,054.2 |
| | € | 2,438.8 |
| | 1.2x | | 4 | % | | 1 | % | | € | 1,622.7 |
| | € | 2,093.2 |
| | 1.3x | | 6 | % |
CIP | 9/2006 | | $ | 1,143.7 |
| | $ | 1,069.8 |
| | $ | 1,426.7 |
| | 1.3x | | 6 | % | | 3 | % | | $ | 857.0 |
| | $ | 1,041.3 |
| | 1.2x | | 4 | % |
NGP X | 1/2012 | | $ | 3,586.0 |
| | $ | 3,262.7 |
| | $ | 4,043.1 |
| | 1.2x | | 8 | % | | 5 | % | | $ | 1,333.9 |
| | $ | 2,431.1 |
| | 1.8x | | 26 | % |
NGP XI | 6/2014 | | $ | 5,325.0 |
| | $ | 3,308.4 |
| | $ | 4,556.4 |
| | 1.4x | | 36 | % | | 31 | % | | $ | 228.8 |
| | $ | 471.2 |
| | 2.1x | | 159 | % |
Energy II | 7/2002 | | $ | 1,100.0 |
| | $ | 1,334.8 |
| | $ | 3,131.2 |
| | 2.3x | | 81 | % | | 55 | % | | $ | 1,334.8 |
| | $ | 3,131.2 |
| | 2.3x | | 94 | % |
Energy III | 10/2005 | | $ | 3,800.0 |
| | $ | 3,569.7 |
| | $ | 5,426.4 |
| | 1.5x | | 9 | % | | 6 | % | | $ | 2,873.9 |
| | $ | 5,046.0 |
| | 1.8x | | 17 | % |
Energy IV | 12/2007 | | $ | 5,979.1 |
| | $ | 6,232.7 |
| | $ | 8,105.0 |
| | 1.3x | | 8 | % | | 5 | % | | $ | 4,064.6 |
| | $ | 5,920.4 |
| | 1.5x | | 19 | % |
Renew II | 3/2008 | | $ | 3,417.5 |
| | $ | 2,809.4 |
| | $ | 4,143.3 |
| | 1.5x | | 9 | % | | 5 | % | | $ | 1,555.3 |
| | $ | 2,411.1 |
| | 1.6x | | 13 | % |
All Other Funds(9) | Various | | | | $ | 2,939.5 |
| | $ | 3,281.9 |
| | 1.1x | | 4 | % | | Neg |
| | $ | 2,662.1 |
| | $ | 3,019.7 |
| | 1.1x | | 5 | % |
Coinvestments and Other(10) | Various | | | | $ | 5,739.6 |
| | $ | 9,440.4 |
| | 1.6x | | 16 | % | | 13 | % | | $ | 4,112.9 |
| | $ | 7,439.6 |
| | 1.8x | | 20 | % |
Total Fully Invested Funds | | $ | 44,247.7 |
| | $ | 64,350.6 |
| | 1.5x | | 12 | % | | 8 | % | | $ | 28,632.5 |
| | $ | 46,370.0 |
| | 1.6x | | 17 | % |
Funds in the Investment Period(6) | |
| |
| |
| |
| |
| |
| |
| |
| |
|
CRP VIII | 5/2017 | | $ | 4,310.8 |
| | $ | 74.4 |
| | $ | 73.3 |
| | 1.0x | | NM |
| | NM |
| |
| |
| |
| |
|
CIEP I | 9/2013 | | $ | 2,500.0 |
| | $ | 501.3 |
| | $ | 919.8 |
| | 1.8x | | NM |
| | NM |
| |
|
| |
|
| |
| |
|
|
CPP II | 6/2014 | | $ | 1,526.9 |
| | $ | 643.9 |
| | $ | 683.2 |
| | 1.1x | | NM |
| | NM |
| |
| |
| |
| |
|
CPI | 5/2016 | | $ | 1,144.0 |
| | $ | 816.2 |
| | $ | 906.8 |
| | 1.1x | | NM |
| | NM |
| |
|
| |
|
| |
| |
|
|
All Other Funds(11) | Various | | | | $ | 583.0 |
| | $ | 590.4 |
| | 1.0x | | NM |
| | NM |
| |
|
| |
|
| |
| |
|
|
Total Funds in the Investment Period | | $ | 2,618.7 |
| | $ | 3,173.4 |
| | 1.2x | | 18 | % | | 5 | % | | $ | — |
| | $ | — |
| | n/a | | NM |
|
TOTAL Real Assets(13) | | $ | 46,866.5 |
| | $ | 67,524.0 |
| | 1.4x | | 12 | % | | 8 | % | | $ | 28,632.5 |
| | $ | 46,370.0 |
| | 1.6x | | 17 | % |
(1)Represents the original cost of investments since inception of the fund.
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(1) | The data presented herein that provides “inception to date” performance results of our segments relates to the period following the formation of the first fund within each segment. For our Corporate Private Equity segment our first fund was formed in 1990. For our Real Assets segment our first fund was formed in 1997. For our Global Market Strategies segment our first carry fund was formed in 2004. |
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(2) | Represents the original cost of investments since inception of the fund. |
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(3) | Represents all realized proceeds combined with remaining fair value, before management fees, expenses and carried interest.
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(4) | Multiple of invested capital (“MOIC”) represents total fair value, before management fees, expenses and carried interest, divided by cumulative invested capital. |
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(5) | (2)Represents all realized proceeds since inception of the fund. (3)Represents remaining fair value, before management fees, expenses and carried interest, and may include remaining escrow values for realized investments. (4)Multiple of invested capital (“MOIC”) represents total fair value, before management fees, expenses and carried interest, divided by cumulative invested capital. (5)An investment is considered realized when the investment fund has completely exited, and ceases to own an interest in, the investment. An investment is considered partially realized when the total amount of proceeds received in respect of such investment, including dividends, interest or other distributions and/or return of capital, represents at least 85% of invested capital and such investment is not yet fully realized. Because part of our value creation strategy involves pursuing best exit alternatives, we believe information regarding Realized/Partially Realized MOIC and Gross IRR, when considered together with the other investment performance metrics presented, provides investors with meaningful information regarding our investment performance by removing the impact of investments where significant realization activity has not yet occurred. Realized/Partially Realized MOIC and Gross IRR have limitations as measures of investment performance, and should not be considered in isolation. Such limitations include the fact that these measures do not include the performance of earlier stage and other investments that do not satisfy the criteria provided above. The exclusion of such investments will have a positive impact on Realized/Partially Realized MOIC and Gross IRR in instances when the MOIC and Gross IRR in respect of such investments are less than the aggregate MOIC and Gross IRR. Our measurements of Realized/Partially Realized MOIC and Gross IRR, when considered together with the other investment performance metrics presented, provides investors with meaningful information regarding our investment performance by removing the impact of investments where significant realization activity has not yet occurred. Realized/Partially Realized MOIC and Gross IRR have limitations as measures of investment performance, and should not be considered in isolation. Such limitations include the fact that these measures do not include the performance of earlier stage and other investments that do not satisfy the criteria provided above. The exclusion of such investments will have a positive impact on Realized/Partially Realized MOIC and Gross IRR in instances when the MOIC and Gross IRR in respect of such investments are less than the aggregate MOIC and Gross IRR. Our measurements of Realized/Partially Realized MOIC and |
Gross IRR may not be comparable to those of other companies that use similarly titled measures. We do
(6)Gross Internal Rate of Return (“Gross IRR”) represents an annualized time-weighted return on Limited Partner invested capital, based on contributions, distributions and unrealized fair value as of the reporting date, before the impact of management fees, partnership expenses and carried interest. For fund vintages 2017 and after, Gross IRR includes the impact of interest expense related to the funding of investments on fund lines of credit. Gross IRR is calculated based on the timing of Limited Partner cash flows, which may differ to varying degrees from the timing of actual investment cash flows for the fund. Subtotal Gross IRR aggregations for multiple funds are calculated based on actual cash flow dates for each fund and represent a theoretical time-weighted return for a Limited Partner who invested sequentially in each fund.
(7)Net Internal Rate of Return (“Net IRR”) represents an annualized time-weighted return on Limited Partner invested capital, based on contributions, distributions and unrealized fair value as of the reporting date, after the impact of all management fees, partnership expenses and carried interest, including current accruals. Net IRR is calculated based on the timing of Limited Partner cash flows, which may differ to varying degrees from the timing of actual investment cash flows for the fund. Fund level IRRs are based on aggregate Limited Partner cash flows, and this blended return may differ from that of individual Limited Partners. As a result, certain funds may generate accrued performance revenues with a blended Net IRR that is below the preferred return hurdle for that fund. Subtotal Net IRR aggregations for multiple funds are calculated based on actual cash flow dates for each fund and represent a theoretical time-weighted return for a Limited Partner who invested sequentially in each fund.
(8)Represents the net accrued performance fee balance/(giveback obligation) as of the current quarter end.
(9)Represents all realized proceeds combined with remaining fair value, before management fees, expenses and carried interest.
(10)Aggregate includes the following funds, as well as all active co-investments, separately managed accounts (SMAs), and stand-alone investments arranged by us: CVP II, MENA, CCI, CSSAF I, CSABF, CPF, CAP Growth I, and CBPF II.
(11)Aggregate includes the following funds, as well as related co-investments, separately managed accounts (SMAs), and certain other stand-alone investments arranged by us: CP I, CP II, CP III, CP IV, CEP I, CAP I, CAP II, CBPF I, CJP I, CMG, CVP I, CUSGF III, CGFSP I, CEVP I, CETP I, CETP II, CAVP I, CAVP II, CAGP III and Mexico.
(12)For funds marked “NM,” IRR may be positive or negative, but is not present Realized/Partially Realized performance information separately for funds that are still in the investment periodconsidered meaningful because of the relatively insignificant levellimited time since initial investment and early stage of realizations forcapital deployment. For funds marked “Neg,” IRR is considered meaningful but is negative as of this type. However, to the extent such funds have had realizations, they are included in the Realized/Partially Realized performance information presented for Total Real Assets.
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(6) | Fully Invested funds are past the expiration date of the investment period as defined in the respective limited partnership agreement. In instances where a successor fund has had its first capital call, the predecessor fund is categorized as fully invested.
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(7) | Gross Internal Rate of Return (“Gross IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value before management fees, expenses and carried interest.
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(8) | Net Internal Rate of Return (“Net IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value after management fees, expenses and carried interest.
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(9) | Aggregate includes the following funds: CRP I, CRP II, CAREP I, CAREP II, CRCP I, CPOCP, Energy I and Renew I.
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(10) | Includes coinvestments and certain other stand-alone investments arranged by us. |
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(11) | Aggregate includes NGP GAP, CCR, and NGP XII. Return is not considered meaningful, as the investment period commenced in December 2013 for NGP GAP, October 2016 for CCR, and July 2017 for NGP XII.
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(12) | For funds marked “NM,” IRR may be positive or negative, but is not considered meaningful because of the limited time since initial investment and early stage of capital deployment. For funds marked “Neg,” IRR is negative as of reporting period end.
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(13) | For purposes of aggregation, funds that report in foreign currency have been converted to U.S. dollars at the reporting period spot rate.
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reporting period end.
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| | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Fair Value(1) | | Unrealized MOIC(2) | | Total MOIC(3) | | % Invested(4) | | In Accrued Carry/ (Clawback) (5) | | LTM Realized Carry (6) | | Catch-up Rate | | Fee Initiation Date(7) | | Quarters Since Fee Initiation | | Original Investment Period End Date |
| As of September 30, 2017 | | | | | | | | |
Real Assets | (Reported in Local Currency, in Millions) | | | | | | | | |
NGP XI | $ | 4,089.3 |
| | 1.3x | | 1.4x | | 62 | % | | X | |
| | 80 | % | | Feb-15 | | 10 | | Oct-19 |
CRP VII | $ | 3,470.0 |
| | 1.3x | | 1.3x | | 68 | % | | X | |
| | 80 | % | | Jun-14 | | 13 | | Mar-19 |
Energy IV | $ | 2,754.7 |
| | 1.2x | | 1.3x | | 104 | % | | (X) | |
| | 80 | % | | Feb-08 | | 38 | | Dec-13 |
NGP X | $ | 1,727.5 |
| | 0.9x | | 1.2x | | 91 | % | |
| |
| | 80 | % | | Jan-12 | | 22 | | May-17 |
Renew II | $ | 1,696.9 |
| | 1.4x | | 1.5x | | 82 | % | | (X) | |
| | 80 | % | | Mar-08 | | 38 | | May-14 |
CRP V | $ | 1,191.8 |
| | 2.1x | | 1.7x | | 110 | % | | X | |
| | 50 | % | | Nov-06 | | 43 | | Nov-11 |
CIEP I | $ | 870.9 |
| | 1.8x | | 1.8x | | 20 | % | | X | |
| | 80 | % | | Oct-13 | | 15 | | Sep-19 |
CRP VI | $ | 794.6 |
| | 1.4x | | 1.9x | | 90 | % | | X | | X | | 50 | % | | Mar-11 | | 26 | | Mar-16 |
CRP IV | $ | 742.0 |
| | 2.7x | | 1.6x | | 126 | % | |
| |
| | 50 | % | | Jan-05 | | 50 | | Dec-09 |
CPI | $ | 621.7 |
| | 1.1x | | 1.1x | | n/a |
| | X | |
| | 50 | % | | May-16 | | 5 | | Apr-21 |
CRP III | $ | 462.6 |
| | 137.8x | | 3.5x | | 93 | % | | X | | X | | 50 | % | | Mar-01 | | 66 | | May-05 |
CPP II | $ | 431.8 |
| | 1.0x | | 1.1x | | 42 | % | |
| |
| | 80 | % | | Sep-14 | | 12 | | Apr-21 |
CEREP III | € | 310.0 |
| | 0.7x | | 1.2x | | 92 | % | |
| |
| | 67 | % | | Jun-07 | | 41 | | May-11 |
CIP | $ | 337.1 |
| | 1.9x | | 1.3x | | 94 | % | |
| |
| | 80 | % | | Oct-06 | | 43 | | Sep-12 |
Energy III | $ | 303.6 |
| | 0.4x | | 1.5x | | 94 | % | |
| | (X) | | 80 | % | | Nov-05 | | 47 | | Oct-11 |
All Other Funds (8) | $ | 298.1 |
| | 0.9x | | 1.2x | | | | NM | | NM | | | | | | | | |
Coinvestment and Other (9) | $ | 2,160.2 |
| | 1.5x | | 1.6x | | | | NM | | NM | | | | | | | | |
Total Real Assets (10) | $ | 22,318.6 |
| | 1.3x | | 1.4x | | | |
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| | | | | | | | |
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(1) | Net asset value of our carry funds. Reflects significant funds with remaining fair value of greater than $100 million.
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(2) | Unrealized multiple of invested capital (“MOIC”) represents remaining fair market value, before management fees, expenses and carried interest, divided by remaining investment cost.
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(3) | Total MOIC represents total fair value (realized proceeds combined with remaining fair value), before management fees, expenses and carried interest, divided by cumulative invested capital. For certain funds, represents the original cost of investments net of investment-level recallable proceeds, which is adjusted to reflect recyclability of invested capital for the purpose of calculating the fund MOIC.
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(4) | Represents cumulative equity invested as of the reporting period divided by total commitments. Amount can be greater than 100% due to the re-investment of recallable distributions to fund investors.
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(5) | Fund has a net accrued performance fee balance/(giveback obligation) as of the current quarter end, driven by a significant portion of the fund’s asset base.
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(6) | Fund has generated realized net performance fees/(realized giveback) in the last twelve months.
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(7) | Represents the date of the first capital contribution for management fees. |
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(8) | Aggregate includes the following funds: CRP I, CRP II, CRCP I, CRP VIII, CEREP I, CEREP II, CAREP I, CAREP II, CCR, CPOCP I, NGP GAP, NGP XII, Energy I, Energy II and Renew I. In Accrued Carry/(Clawback) and LTM Realized Carry not indicated because the indicator does not apply to each fund within the aggregate. |
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(9) | Includes co-investments, prefund investments and certain other stand-alone investments arranged by us. In Accrued Carry/(Clawback) and LTM Realized Carry not indicated because the indicator does not apply to each fund within the aggregate. |
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(10) | For purposes of aggregation, funds that report in foreign currency have been converted to U.S. dollars at the reporting period spot rate. |
Global Market Strategies
Global Market Strategies is now focused on building our global credit business. We conducted a review in 2016 of the segment in order to realign and reorganize certain of the segment’s operations. We have exited our hedge fund business (ESG in 2016 and Claren Road in January 2017) and, as a result of settlements reached during 2017 with investors in two commodities investment vehicles managed by Vermillion, we have completed the exit of the commodities investment advisory business and other hedge fund investment advisory businesses that we had acquired from 2010 to 2014. In the near to mid term, this segment will incur additional expenses to build the credit business and raise additional capital.
(13)For purposes of presenting our results of operationsaggregation, funds that report in foreign currency have been converted to U.S. dollars at the reporting period spot rate.
(14)Aggregate includes the following funds, as well as all active co-investments, separately managed accounts (SMAs), and stand-alone investments arranged by us: CCR and CER.
(15)Aggregate includes the following funds, as well as related co-investments, separately managed accounts (SMAs), and certain other stand-alone investments arranged by us: CRP I, CRP II, CRP III, CRCP I, CAREP I, CAREP II, CEREP I, and CEREP II.
(16)Aggregate includes the following Legacy Energy funds and related co-investments: Energy I, Energy II, Energy III, Energy IV, Renew I, and Renew II.
(17)Aggregate includes the following funds, as well as all active co-investments, separately managed accounts (SMAs), and stand-alone investments arranged by us: NGP GAP, CPOCP, CRSEF, and NGP RP.
(18)Aggregate includes the following funds, as well as related co-investments, separately managed accounts (SMAs), and certain other stand-alone investments arranged by us: CIP.
(19)The fund stepdown date represents the contractual stepdown date under the respective fund agreements for this segment, we include only our economic interests infunds on which the results of operations of Claren Road (through January 2017) and ESG (through June 2016). fee basis stepdown has not yet occurred.
Global Credit
The following table presents our results of operations for our Global Market StrategiesCredit segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 86.1 | | | $ | 78.3 | | | $ | 166.1 | | | $ | 151.3 | |
Portfolio advisory and transaction fees, net and other | 9.4 | | | 15.2 | | | 18.2 | | | 17.8 | |
Total fund level fee revenues | 95.5 | | | 93.5 | | | 184.3 | | | 169.1 | |
Realized performance revenues | — | | | 5.5 | | | 0.1 | | | 26.5 | |
Realized principal investment income | 9.8 | | | 5.3 | | | 15.7 | | | 10.4 | |
Interest income | 1.2 | | | 2.6 | | | 3.2 | | | 5.7 | |
Total revenues | 106.5 | | | 106.9 | | | 203.3 | | | 211.7 | |
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Cash-based compensation and benefits | 55.6 | | | 54.5 | | | 109.3 | | | 103.6 | |
Realized performance revenues related compensation | — | | | 2.5 | | | — | | | 12.2 | |
Total compensation and benefits | 55.6 | | | 57.0 | | | 109.3 | | | 115.8 | |
General, administrative, and other indirect expenses | 13.0 | | | 13.1 | | | 24.8 | | | 18.7 | |
Depreciation and amortization expense | 2.0 | | | 1.8 | | | 3.9 | | | 3.4 | |
Interest expense | 6.3 | | | 6.9 | | | 12.6 | | | 13.9 | |
Total expenses | 76.9 | | | 78.8 | | | 150.6 | | | 151.8 | |
(=) Distributable Earnings | $ | 29.6 | | | $ | 28.1 | | | $ | 52.7 | | | $ | 59.9 | |
(-) Realized Net Performance Revenues | — | | | 3.0 | | | 0.1 | | | 14.3 | |
(-) Realized Principal Investment Income | 9.8 | | | 5.3 | | | 15.7 | | | 10.4 | |
(+) Net Interest | 5.1 | | | 4.3 | | | 9.4 | | | 8.2 | |
(=) Fee Related Earnings | $ | 24.9 | | | $ | 24.1 | | | $ | 46.3 | | | $ | 43.4 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 47.6 |
| | $ | 44.1 |
| | $ | 140.8 |
| | $ | 147.4 |
|
Portfolio advisory fees, net | 0.1 |
| | 0.1 |
| | 0.5 |
| | 0.7 |
|
Transaction fees, net | — |
| | — |
| | — |
| | — |
|
Total fund level fee revenues | 47.7 |
| | 44.2 |
| | 141.3 |
| | 148.1 |
|
Performance fees | | | | | | | |
Realized | 15.0 |
| | 14.3 |
| | 37.8 |
| | 21.5 |
|
Unrealized | 2.6 |
| | 3.1 |
| | 15.5 |
| | 4.6 |
|
Total performance fees | 17.6 |
| | 17.4 |
| | 53.3 |
| | 26.1 |
|
Investment income | | | | | | | |
Realized | 4.7 |
| | 1.1 |
| | 8.6 |
| | 2.7 |
|
Unrealized | — |
| | 7.1 |
| | 4.3 |
| | 14.9 |
|
Total investment income | 4.7 |
| | 8.2 |
| | 12.9 |
| | 17.6 |
|
Interest | 2.0 |
| | 1.1 |
| | 4.6 |
| | 3.7 |
|
Other income | 1.1 |
| | 1.2 |
| | 5.6 |
| | 3.5 |
|
Total revenues | 73.1 |
| | 72.1 |
| | 217.7 |
| | 199.0 |
|
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Direct base compensation | 23.0 |
| | 20.9 |
| | 55.3 |
| | 66.3 |
|
Indirect base compensation | 6.7 |
| | 7.5 |
| | 20.9 |
| | 22.7 |
|
Equity-based compensation | 5.1 |
| | 4.4 |
| | 16.9 |
| | 13.8 |
|
Performance fee related | | | | | | | |
Realized | 7.3 |
| | 6.6 |
| | 18.2 |
| | 8.1 |
|
Unrealized | 0.8 |
| | 1.3 |
| | 6.9 |
| | 2.2 |
|
Total compensation and benefits | 42.9 |
| | 40.7 |
| | 118.2 |
| | 113.1 |
|
General, administrative, and other indirect expenses | (63.6 | ) | | 37.7 |
| | (18.6 | ) | | 77.1 |
|
Depreciation and amortization expense | 1.3 |
| | 1.5 |
| | 3.8 |
| | 4.6 |
|
Interest expense | 4.2 |
| | 3.0 |
| | 10.0 |
| | 8.5 |
|
Total expenses | (15.2 | ) | | 82.9 |
| | 113.4 |
| | 203.3 |
|
Economic Net Income (Loss) | $ | 88.3 |
| | $ | (10.8 | ) | | $ | 104.3 |
| | $ | (4.3 | ) |
(-) Net Performance Fees | 9.5 |
| | 9.5 |
| | 28.2 |
| | 15.8 |
|
(-) Investment Income | 4.7 |
| | 8.2 |
| | 12.9 |
| | 17.6 |
|
(+) Equity-based Compensation | 5.1 |
| | 4.4 |
| | 16.9 |
| | 13.8 |
|
(+) Reserve for Litigation and Contingencies | (4.1 | ) | | 19.0 |
| | (4.1 | ) | | 19.0 |
|
(=) Fee Related Earnings | $ | 75.1 |
| | $ | (5.1 | ) | | $ | 76.0 |
| | $ | (4.9 | ) |
(+) Realized Net Performance Fees | 7.7 |
| | 7.7 |
| | 19.6 |
| | 13.4 |
|
(+) Realized Investment Income | 4.7 |
| | 1.1 |
| | 8.6 |
| | 2.7 |
|
(=) Distributable Earnings | $ | 87.5 |
| | $ | 3.7 |
| | $ | 104.2 |
| | $ | 11.2 |
|
Three Months Ended SeptemberJune 30, 20172021 Compared to the Three Months Ended SeptemberJune 30, 20162020 and NineSix Months Ended SeptemberJune 30, 20172021 Compared to the NineSix Months Ended SeptemberJune 30, 2016
2020
Distributable Earnings
Distributable earningsEarnings increased $83.8$1.5 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and decreased $7.2 million for the six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016 and increased $93.0 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.2020. The following table provides the components of the changes in distributable earningsDistributable Earnings for the three and ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| |
| (Dollars in millions) |
Distributable Earnings, June 30, 2020 | $ | 28.1 | | | $ | 59.9 | |
Increases (decreases): | | | |
Increase in fee related earnings | 0.8 | | | 2.9 | |
Decrease in realized net performance revenues | (3.0) | | | (14.2) | |
Increase in realized principal investment income | 4.5 | | | 5.3 | |
Increase in net interest | (0.8) | | | (1.2) | |
Total increase (decrease) | 1.5 | | | (7.2) | |
Distributable Earnings, June 30, 2021 | $ | 29.6 | | | $ | 52.7 | |
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Distributable earnings, September 30, 2016 | $ | 3.7 |
| $ | 11.2 |
|
Increases (decreases): | | |
Increase in realized net performance fees | — |
| 6.2 |
|
Increase in realized investment income | 3.6 |
| 5.9 |
|
Increase in fee related earnings | 80.2 |
| 80.9 |
|
Total increase | 83.8 |
| 93.0 |
|
Distributable earnings, September 30, 2017 | $ | 87.5 |
| $ | 104.2 |
|
Realized Net Performance Fees.Revenues. Realized net performance fees were flat for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $6.2 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Substantially all of the realized net performance fees were generated by the business development companies, the structured credit funds and our third distressed and corporate opportunities fund (“CSP III”) for both the three and nine months ended September 30, 2017. Net realized performance fees generated by the structured credit funds primarily contributed to realized net performance fees for the three and nine months ended September 30, 2016.
Realized Investment Income. Realized investment income for the three months ended September 30, 2017 was $4.7 million compared to realized investment income of $1.1revenues decreased $3.0 million for the three months ended SeptemberJune 30, 2016. The increase2021 as compared to three months ended June 30, 2020 and decreased $14.2 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to realized net performance revenues generated by our Asia structured credit fund in realizedthe three months ended June 30, 2020 and Carlyle Aviation Partners in the six months ended June 30, 2020.
Realized Principal Investment Income. Realized principal investment income increased $4.5 million for the three months ended SeptemberJune 30, 2017 was2021 as compared to three months ended June 30, 2020 and increased $5.3 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to higher realizations on investments in our structured credit funds.
Realized investment income for the nine months ended September 30, 2017 was $8.6 million compared to realized investment income of $2.7 million for the nine months ended September 30, 2016. The increase in realized investment income for the nine months ended September 30, 2017 was primarily due to higher realizationsgains on investments in our structured credit funds, distressed credit carry funds and BDCs. The increase for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was partially offset by realized losses on investments in Carlyle Global Capital Markets and in our energy credit carry funds.
Fee Related Earnings
Fee related earningsRelated Earnings increased $80.2$0.8 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $2.9 million for the six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016 and increased $80.9 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.2020. The following table provides the components of the changes in fee related earningsFee Related Earnings for the three and ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| |
| (Dollars in millions) |
Fee Related Earnings, June 30, 2020 | $ | 24.1 | | | $ | 43.4 | |
Increases (decreases): | | | |
Increase in fee revenues | 2.0 | | | 15.2 | |
Increase in cash-based compensation and benefits | (1.1) | | | (5.7) | |
CCC litigation cost recovery in 2020(1) | — | | | (6.3) | |
Decrease in general, administrative and other indirect expenses | 0.1 | | | 0.2 | |
| | | |
All other changes | (0.2) | | | (0.5) | |
Total increase | 0.8 | | | 2.9 | |
Fee Related Earnings, June 30, 2021 | $ | 24.9 | | | $ | 46.3 | |
(1) General, administrative and other indirect expenses during the six months ended June 30, 2020 included the allocated portion of the cost recovery associated with the CCC litigation costs. See Note 7 to our unaudited condensed consolidated financial statements. |
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Fee related earnings, September 30, 2016 | $ | (5.1 | ) | $ | (4.9 | ) |
Increases (decreases): | | |
Increase (decrease) in fee revenues | 3.5 |
| (6.8 | ) |
(Increase) decrease in direct and indirect base compensation | (1.3 | ) | 12.8 |
|
Decrease in general, administrative and other indirect expenses | 78.2 |
| 72.6 |
|
All other changes | (0.2 | ) | 2.3 |
|
Total increase | 80.2 |
| 80.9 |
|
Fee related earnings, September 30, 2017 | $ | 75.1 |
| $ | 76.0 |
|
Fee Revenues. Fee revenues increased $3.5$2.0 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $15.2 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, due to the following:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 v. 2020 |
| (Dollars in millions) |
Higher fund management fees | $ | 7.8 | | | $ | 14.8 | |
(Lower) higher portfolio advisory and transaction fees, net and other | (5.8) | | | 0.4 | |
Total increase in fee revenues | $ | 2.0 | | | $ | 15.2 | |
The increase in fund management fees for the three and six months ended June 30, 2021 as compared to the three and six months ended SeptemberJune 30, 20162020 was primarily due to a $4.9driven by the deferral of $3.6 million increase in fundand $7.6 million of subordinated management fees primarily as a resultin certain of increased commitmentsour CLOs during the three and subsequent closings for our fourth distressed fund (“CSP IV”) insix months ended June 30, 2020, respectively, which were subsequently recognized during the firstthird quarter of 2017. This increase was2020, as well as increased management fees from our structured credit funds, opportunistic credit carry funds, interval fund and Carlyle FRL. These increases were partially offset by a decrease of $2.5 million in fundlower management fees related to the separation from the hedge fundsour distressed credit and lower basis on certainour energy credit carry funds.
Fee revenues decreased $6.8 millionThe decrease in portfolio advisory and transaction fees, net and other for the ninethree and six months ended SeptemberJune 30, 20172021 as compared to the ninethree and six months ended SeptemberJune 30, 20162020 was primarily due to a decrease of $28.7 million in fund managementfrom transaction fees related toassociated with Carlyle FRL during the separation from the hedge fundsthree and lower basis on certain carry funds. These decreases weresix months ended June 30, 2020, partially offset by a $23.7 million increase in fund managementhigher underwriting and placement fees primarily as a result of increased commitmentsassociated with Carlyle Global Capital Markets during the three and subsequent closings for CSP IV in the first quarter of 2017.
six months ended June 30, 2021.
The weighted average management fee rate on our carry funds was 1.36%decreased from 1.27% at SeptemberJune 30, 2016 and September2020 to 1.24% at June 30, 2017.2021. The rate stayed the samedecrease was primarily due to the stepdown of CSP IV from commitments to invested capital, partially offset by new fee-paying commitments raised in CSP IVSASOF V with managementa higher effective fee rates close to the segment average.rate.
DirectCash-based compensation and indirect basebenefits expense. Cash-based compensation expense. Direct and indirect base compensationbenefits expense increased $1.3$1.1 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $5.7 million for the six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016, primarily due to an increase in projected year-end bonuses, partially offset by lower headcount from the separation of the hedge fund businesses, which resulted in $3.4 million of lower compensation.
Direct and indirect base compensation expense decreased $12.8 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to lower headcount from the separation of the hedge fund businesses, which resulted in $21.6 million of lower compensation. This decrease was partially offset by an increase in projected year-end bonuses.
We expect that as we add new talent to our growing global credit business, our direct and indirect base compensation expense will increase. However, as this strategy raises incremental capital, we expect the positive impact from additional fee revenue to more than offset our increased compensation levels.
General, administrative and other indirect expenses. General, administrative and other indirect expenses decreased $78.2 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and decreased $72.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to net incremental insurance recoveries of $74 million recognized during the three months ended September 30, 2017 for litigation and contingencies attributable to the Vermillion matter (see Note 9 to the unaudited condensed consolidated financial statements).
Economic Net Income (Loss)
Economic net income (loss) increased $99.1 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $108.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the components of the changes in economic net income (loss) for the three and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Economic net loss, September 30, 2016 | $ | (10.8 | ) | $ | (4.3 | ) |
Increases (decreases): | | |
Increase in net performance fees | — |
| 12.4 |
|
Decrease in investment income | (3.5 | ) | (4.7 | ) |
Increase in equity-based compensation | (0.7 | ) | (3.1 | ) |
Increase in fee related earnings | 80.2 |
| 80.9 |
|
Decrease in reserve for litigation and contingencies | 23.1 |
| 23.1 |
|
Total increase | 99.1 |
| 108.6 |
|
Economic net income, September 30, 2017 | $ | 88.3 |
| $ | 104.3 |
|
Performance Fees. Performance fees (realized and unrealized) for the three and nine months ended September 30, 2017 and 2016 are from the following types of funds:
|
| | | | | | | | | | | | | | | |
| Performance Fees |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Carry funds | $ | 6.0 |
| | $ | 3.1 |
| | $ | 21.8 |
| | $ | 4.2 |
|
Hedge funds | — |
| | — |
| | — |
| | 0.9 |
|
Structured credit funds and business development companies | 11.6 |
| | 14.3 |
| | 31.5 |
| | 21.0 |
|
Performance fees | $ | 17.6 |
| | $ | 17.4 |
| | $ | 53.3 |
| | $ | 26.1 |
|
The $17.6 million of performance fees for the three months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•CLOs and business development companies of $11.6 million, and
•CSP IV of $5.9 million.
The $17.4 million of performance fees for the three months ended September 30, 2016 was driven by performance fees recognized from the following funds:
•CLOs and business development companies of $14.3 million,
•CSP III of $4.7 million,
•CSP II of $1.6 million, and
•Carlyle Mezzanine Partners II, L.P. (“CMP II”) of $(3.2) million.
The $53.3 million of performance fees for the nine months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•CLOs and business development companies of $31.5 million,
•CSP III of $12.2 million,
•CSP IV of $11.2 million,
•CSP II of $4.1 million, and
•CMP II of $(5.8) million.
The $26.1 million of performance fees for the nine months ended September 30, 2016 was driven by performance fees recognized from the following funds:
•CLOs and business development companies of $21.0 million,
•CSP III of $3.2 million,
•CSP II of $2.8 million, and
•CMP II of $(1.8) million.
Performance fees of $17.6 million and $17.4 million are inclusive of performance fees reversed of approximately $0.5 million and $3.4 million for the three months ended September 30, 2017 and 2016, respectively. Performance fees of $53.3 million and $26.1 million are inclusive of performance fees reversed of approximately $5.8 million and $1.8 million for the nine months ended September 30, 2017 and 2016, respectively.
The appreciation (depreciation) in remaining value of assets for this segment's carry funds are as follows:
|
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
Carry funds | —% | —% | | 9% | (13)% |
Net performance fees as a percentage of total performance fees are as follows:
|
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
| (Dollars in millions) |
Net Performance Fees | $9.5 | $9.5 | | $28.2 | $15.8 |
| | | | | |
Percentage of Total Performance Fees | 54% | 55% | | 53% | 61% |
The increase in net performance fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was2020, primarily due to increased performance fees generated from our carry funds and business development companies in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.headcount.
Total Investment Income. Total investment income (realized and unrealized) for the three months ended September 30, 2017 was $4.7 million compared to total investment income of $8.2 million for the three months ended September 30, 2016. The decrease in investment income relates primarily to depreciation on certain U.S. and Euro-denominated collateralized loan obligations for the three months ended September 30, 2017 as compared to appreciation on our U.S.-denominated collateralized loan obligations for the three months ended September 30, 2016.
Total investment income (realized and unrealized) for the nine months ended September 30, 2017 was $12.9 million compared to total investment income of $17.6 million for the nine months ended September 30, 2016. The decrease in investment income relates primarily to lower appreciation on certain U.S. and Euro-denominated collateralized loan obligations for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This decrease is partially offset by appreciation on our carry funds for the nine months ended September 30, 2017 as compared to depreciation on our carry funds for the nine months ended September 30, 2016.
103
Equity-based Compensation. Equity-based compensation was $5.1 million for the three months ended September 30, 2017, an increase of $0.7 million from $4.4 million for the three months ended September 30, 2016.
Equity-based compensation was $16.9 million for the nine months ended September 30, 2017, an increase of $3.1 million from $13.8 million for the nine months ended September 30, 2016.
Reserve for Litigation and Contingencies. Global Market Strategies' (“GMS”) share of the reserve for litigation and contingencies decreased $23.1 million for both the three and nine months ended September 30, 2017. The decrease was primarily related to GMS' share of the $25 million reserve reversal related to the CCC litigation recognized in 2017, while GMS recognized its share of the $100 million reserve in 2016 related to a commodities legal matter.
Fee-earning AUM as of and for the Three and NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
Fee-earning AUM is presented below for each period together with the components of change during each respective period.
The table below breaks out Fee-earning AUM by its respective components at each period.
| | | | | | | | | | | |
| As of June 30, |
| 2021 | | 2020 |
Global Credit | (Dollars in millions) |
Components of Fee-earning AUM (1) | | | |
Fee-earning AUM based on capital commitments | $ | 2,758 | | | $ | 5,018 | |
Fee-earning AUM based on invested capital | 8,025 | | | 5,286 | |
Fee-earning AUM based on collateral balances, at par | 28,111 | | | 25,811 | |
Fee-earning AUM based on net asset value | 1,645 | | | 1,407 | |
Fee-earning AUM based on other (2) | 5,346 | | | 4,308 | |
Total Fee-earning AUM | $ | 45,885 | | | $ | 41,830 | |
Weighted Average Management Fee Rates (3) | | | |
All Funds, excluding CLOs | 1.24 | % | | 1.27 | % |
(1)For additional information concerning the components of Fee-earning AUM, see “—Fee-earning Assets under Management.” |
| | | | | | | |
| As of September 30, |
| 2017 | | 2016 |
Global Market Strategies | (Dollars in millions) |
Components of Fee-earning AUM (1) | | | |
Fee-earning AUM based on capital commitments | $ | 5,026 |
| | $ | 3,389 |
|
Fee-earning AUM based on invested capital | 1,202 |
| | 1,343 |
|
Fee-earning AUM based on collateral balances, at par | 17,647 |
| | 17,677 |
|
Fee-earning AUM based on net asset value | 41 |
| | 4,761 |
|
Fee-earning AUM based on other (2) | 2,096 |
| | 1,797 |
|
Total Fee-earning AUM | $ | 26,012 |
| | $ | 28,967 |
|
Weighted Average Management Fee Rates (3) | | | |
All Funds, excluding CLOs | 1.36 | % | | 1.43 | % |
(2)Includes funds with fees based on gross asset value. | |
(1) | For additional information concerning the components of Fee-earning AUM, see “—Fee-earning Assets under Management.” |
| |
(2) | Includes funds with fees based on gross asset value. |
(3) Represents the aggregate effective management fee rate for carry funds and hedge funds, weighted by each fund’s Fee-earning AUM, as of the end of each period presented. Management fees for CLOs are based on the total par amount of the assets (collateral) and principal balance of the notes in the fund and are not calculated as a percentage of equity and are therefore not included.
The table below provides the period to period rollforward of Fee-earning AUM. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Global Market Strategies | (Dollars in millions) | | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 25,214 |
| | $ | 28,732 |
| | $ | 24,126 |
| | $ | 30,972 |
|
Inflows, including Fee-paying Commitments (1) | 29 |
| | 810 |
| | 1,138 |
| | 1,268 |
|
Outflows, including Distributions (2) | (15 | ) | | (45 | ) | | (161 | ) | | (594 | ) |
Subscriptions, net of Redemptions (3) | — |
| | (373 | ) | | — |
| | (2,266 | ) |
Changes in CLO collateral balances (4) | 332 |
| | (267 | ) | | (17 | ) | | (400 | ) |
Market Appreciation/(Depreciation) (5) | 2 |
| | (169 | ) | | 3 |
| | (571 | ) |
Foreign Exchange and other (6) | 450 |
| | 279 |
| | 923 |
| | 558 |
|
Balance, End of Period | $ | 26,012 |
| | $ | 28,967 |
| | $ | 26,012 |
| | $ | 28,967 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Global Credit | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 43,286 | | | $ | 38,065 | | | $ | 42,133 | | | $ | 37,862 | |
| | | | | | | |
Inflows (1) | 3,244 | | | 3,457 | | | 5,938 | | | 4,517 | |
Outflows (including realizations) (2) | (955) | | | (412) | | | (2,276) | | | (1,310) | |
| | | | | | | |
| | | | | | | |
Market Activity & Other (3) | 247 | | | 61 | | | 369 | | | 270 | |
Foreign Exchange (4) | 63 | | | 659 | | | (279) | | | 491 | |
Balance, End of Period | $ | 45,885 | | | $ | 41,830 | | | $ | 45,885 | | | $ | 41,830 | |
| |
(1) | Inflows represent limited partner capital raised and capital invested by our carry funds outside the investment period. |
| |
(2) | Outflows represent limited partner distributions from our carry funds, changes in fee basis for our carry funds where the investment period has expired, and reductions for funds that are no longer calling fees. |
| |
(3) | Represents subscriptions and redemptions in our hedge funds. |
(1)Inflows represents limited partner capital raised by our carry funds or separately managed accounts for which management fees based on commitments were activated during the period, the fee-earning commitments invested in vehicles for which management fees are based on invested capital, the fee-earning collateral balance of new CLO issuances, as well as gross subscriptions in our vehicles for which management fees are based on net asset value. Inflows exclude fundraising amounts during the period for which fees have not yet been activated, which are referenced as Pending Fee-earning AUM.
| |
(4) | Represents the change in the aggregate Fee-earning collateral balances and principal balances at par of our CLOs/structured products, as of the quarterly cut-off dates. |
| |
(5) | Market Appreciation/ (Depreciation) represents changes in the net asset value of our hedge funds. |
| |
(6) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds and other changes in Total AUM. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
(2)Outflows represents the impact of realizations from vehicles with management fees based on remaining invested capital at cost or fair value, changes in basis for funds where the investment period, weighted-average investment period or commitment fee period has expired during the period, reductions for funds that are no longer calling for fees, gross redemptions in our open-ended funds, and runoff of CLO collateral balances. Realizations for funds earning management fees based on commitments during the period do not affect Fee-earning AUM.
(3)Market Activity & Other represents realized and unrealized gains (losses) on portfolio investments in funds or vehicles based on the lower of cost or fair value or net asset value, as well as activity of funds with fees based on gross asset value.
(4)Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Fee-earning AUM was $26.0 billion at September 30, 2017, an increase of $0.8 billion, or approximately 3%, compared to $25.2$45.9 billion at June 30, 2017. The difference was driven by foreign exchange gains of $0.5 billion primarily due to the translation of Fee-earning AUM in our European CLOs from EUR to USD and increases in our CLO collateral balances of $0.3 billion. Distributions from carry funds still in the investment period do not impact Fee-earning AUM as these funds are based on commitments and not invested capital.
Fee-earning AUM was $26.0 billion at September 30, 2017,2021, an increase of $1.9$2.6 billion or approximately 8%, compared to $24.1$43.3 billion at DecemberMarch 31, 2016. The2021. This increase was driven by net inflows of $1.1$3.2 billion primarily due tofrom investment activity in CCOF II and the closings of one new limited partner commitments raised in CSP IVU.S. CLO and foreign exchange gains of $0.9 billion primarily due to the translation of Fee-earning AUM in our European CLOs from EUR to USD.one new Europe CLO. This increase was partially offset by $0.2outflows of $1.0 billion due to runoff of distributions primarilyCLO collateral balances. Investment and distribution activity has no impact for funds still in our distressed debt carry funds.the original investment period where Fee-earning AUM is based on commitments.
Fee-earning AUM was $26.0$45.9 billion at SeptemberJune 30, 2017, a decrease2021, an increase of $3.0$3.8 billion, or approximately 9%, compared to $42.1 billion at December 31, 2020. The increase was driven by inflows of $5.9 billion primarily related to the raising of additional U.S. and Europe CLOs and investment activity in our credit opportunities funds. This was partially offset by outflows of $2.3 billion primarily due to runoff of our CLO collateral balances and dispositions in other funds with fees tied to invested capital including CCOF I and CEMOF I.
Fee-earning AUM was $45.9 billion at June 30, 2021, an increase of $4.1 billion, or approximately 10%, compared to $29.0$41.8 billion at SeptemberJune 30, 2016. This decrease2020. The increase was driven by divestment activityinflows of $4.4$7.8 billion primarily related to the transferraising of ESGadditional U.S. and Claren Road hedge fund assets back to their founders, as well as net redemptionsEurope CLOs and investment activity in our hedge funds of $0.5 billion, primarily in our hedge funds at Claren Road and ESG.credit opportunities funds. This decrease was partially offset by net inflowsoutflows of $1.8 billion, primarily related to new limited partner commitments raised in CSP IV.
Fee-earning AUM was $29.0 billion at September 30, 2016, an increase of $0.3 billion, or approximately 1%, compared to $28.7 billion at June 30, 2016. This increase was driven by net inflows of $0.8 billion primarily in CSP IV and foreign exchange gains of $0.3 billion in our Euro-denominated CLOs. This increase was partially offset by net redemptions in our hedge funds of $0.4 billion and $0.3 billion of decreases in our CLO collateral balances.
Fee-earning AUM was $29.0 billion at September 30, 2016, a decrease of $2.0 billion, or approximately 6%, compared to $31.0 billion at December 31, 2015. This decrease was driven by net redemptions in our hedge funds of $2.3 billion, primarily in our hedge funds at Claren Road and ESG, net outflows including distributions of $0.6$4.9 billion primarily due to fees no longer being charged on onerunoff of our commodities hedge fundsCLO collateral balances, the stepdown of CSP IV from commitments to invested capital, and distributions bydispositions in other funds with a management fee basis offees tied to invested equity, and $0.6 billion of market depreciation in our hedge funds. This decrease was partially offset by net inflows of $1.3 billion, primarily due to fundraising in CEMOF II and CSP IV.
capital.
Total AUM as of and for the Three and NineSix Months Ended SeptemberJune 30, 2017.2021.
The table below provides the period to period rollforwards of Available Capital and Fair Value of Capital, and the resulting rollforward of Total AUM.
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (Dollars in millions) |
Global Credit | | | |
Total AUM Rollforward | | | |
Balance, Beginning of Period | $ | 58,837 | | | $ | 55,881 | |
Inflows (1) | 2,450 | | | 5,648 | |
Outflows (including realizations) (2) | (1,110) | | | (2,085) | |
Market Activity & Other (3) | 835 | | | 1,927 | |
Foreign Exchange (4) | 69 | | | (290) | |
Balance, End of Period | $ | 61,081 | | | $ | 61,081 | |
(1) Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects translation at the average quarterly rate, while the separately reported Fundraising metric is translated at the spot rate for each individual closing. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| Available Capital | | Fair Value of Capital | | Total AUM | | Available Capital | | Fair Value of Capital | | Total AUM |
| (Dollars in millions) | | (Dollars in millions) |
Global Market Strategies | | | | | | | | | | | |
Balance, Beginning of Period | $ | 7,701 |
| | $ | 23,191 |
| | $ | 30,892 |
| | $ | 6,774 |
| | $ | 22,625 |
| | $ | 29,399 |
|
Commitments (1) | 363 |
| | — |
| | 363 |
| | 1,674 |
| | — |
| | 1,674 |
|
Capital Called, net (2) | (645 | ) | | 623 |
| | (22 | ) | | (1,098 | ) | | 1,196 |
| | 98 |
|
Distributions (3) | 13 |
| | (226 | ) | | (213 | ) | | 76 |
| | (476 | ) | | (400 | ) |
Subscriptions, net of Redemptions (4) | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) |
Changes in CLO collateral balances (5) | — |
| | 377 |
| | 377 |
| | — |
| | 131 |
| | 131 |
|
Market Appreciation/(Depreciation) (6) | — |
| | (2 | ) | | (2 | ) | | — |
| | 138 |
| | 138 |
|
Foreign Exchange and other (7) | — |
| | 480 |
| | 480 |
| | 6 |
| | 836 |
| | 842 |
|
Balance, End of Period (8) | $ | 7,432 |
| | $ | 24,443 |
| | $ | 31,875 |
| | $ | 7,432 |
| | $ | 24,443 |
| | $ | 31,875 |
|
(2) Outflows includes distributions net of recallable or recyclable amounts in our carry funds, related co-investment vehicles, and separately managed accounts, gross redemptions in our open-end funds, runoff of CLO collateral balances, and the expiration of available capital.(3) Market Activity & Other generally represents realized and unrealized gains (losses) on portfolio investments in our carry funds, related co-investment vehicles, and separately managed accounts, as well as the impact of fees, expenses and non-investment income, change in gross asset value for our business development companies and other changes in AUM.
| |
(1) | Represents capital raised by our carry funds, net of expired available capital. |
| |
(2) | Represents capital called by our carry funds and business development companies, net of fund fees and expenses. Equity invested amounts may vary from capital called due to timing differences between acquisition and capital call dates. |
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(3) | Represents distributions from our carry funds and business development companies, net of amounts recycled. Distributions are based on when proceeds are actually distributed to investors, which may differ from when they are realized. |
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(4) | Represents the net result of subscriptions to and redemptions from our hedge funds. |
| |
(5) | Represents the change in the aggregate collateral balance and principal cash and principal notes at par of the CLOs/structured products. |
| |
(6) | Market Appreciation/(Depreciation) represents realized and unrealized gains (losses) on portfolio investments and changes in the net asset value of our hedge funds. |
| |
(7) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds and other changes in AUM. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
| |
(8) | Ending balance is comprised of approximately $19.4 billion from our structured credit funds, $10.4 billion (including $7.4 billion of Available Capital) in our carry funds, and $2.1 billion from our business development company. |
(4) Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end.
Total AUM was $31.9 billion at September 30, 2017, an increase of $1.0 billion, or approximately 3%, compared to $30.9$61.1 billion at June 30, 2017.2021, an increase of $2.3 billion, or approximately 4%, compared to $58.8 billion at March 31, 2021. The increase was driven by foreign exchange$2.5 billion of inflows primarily related to the closing of one new U.S. CLO and one new Europe CLO, as well as fundraising in infrastructure credit, aviation, and credit opportunities, and $0.8
billion of market appreciation and other gainsactivity primarily driven by carry fund appreciation. This increase was partially offset by $1.1 billion of $0.5 billionoutflows primarily due to an increase in the gross asset valuerunoff of our publicly traded BDCCLO and gains on the translation of AUM in our European CLOs from EUR to USD, as well as $0.4 billion of new commitments raised primarily in CSC and CCOF. Also driving the increase were $0.4 billion of gains in our CLOother collateral balances.
Total AUM was $31.9$61.1 billion at SeptemberJune 30, 2017,2021, an increase of $2.5$5.2 billion, or approximately 9%, compared to $29.4$55.9 billion at December 31, 2016.2020. The increase was driven by $1.7$5.6 billion of new commitments raisedinflows primarily in CSC, CCOF,related to the raising of additional U.S. and CSP IV,Europe CLOs, as well as foreign exchangefundraising in infrastructure credit, aviation, and credit opportunities, and $1.9 billion of market appreciation and other gains of $0.8 billionactivity primarily due to the translation of AUM in our European CLOs from EUR to USD.driven by carry fund appreciation. This increase was partially offset by distributions of $0.5$2.1 billion of which $0.1 billion were recallable,outflows primarily in our distressed debt carry funds.
due to runoff of CLO and other collateral balances.
Fund Performance Metrics
Fund performance information for certain of our Global Market StrategiesCredit funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance of The Carlyle Group L.P.Inc. and is also not
necessarily indicative of the future performance of any particular fund. An investment in The Carlyle Group L.P.Inc. is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The following table reflects the performance of carry funds in our Global Market StrategiesCredit business. These tables separately present carry funds that, as of SeptemberJune 30, 2017,2021, had at least $1.0 billion in capital commitments, cumulative equity invested or total equity value. Please see “— Our Family of Funds” for a legend of the fund acronyms listed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | | TOTAL INVESTMENTS |
| | | | | As of June 30, 2021 |
Fund (Fee Initiation Date/Stepdown Date)(11) | | Committed Capital | Cumulative Invested Capital (1) | Percent Invested | Realized Value (2) | Remaining Fair Value (3) | MOIC (4) | Gross IRR (5) (8) | Net IRR (6) (8) | Net Accrued Carry/(Clawback) (7) |
Global Credit Carry Funds | | | | | | | | |
CSP IV (Apr 2016 / Dec 2020) | | $ | 2,500 | | $ | 2,381 | | 95% | $ | 1,156 | | $ | 1,755 | | 1.2x | 20% | 8% | $ | 20 | |
CSP III (Dec 2011 / Aug 2015) | | $ | 703 | | $ | 703 | | 100% | $ | 837 | | $ | 174 | | 1.4x | 20% | 10% | $ | (2) | |
CSP II (Dec 2007 / Jun 2011) | | $ | 1,352 | | $ | 1,352 | | 100% | $ | 2,431 | | $ | 62 | | 1.8x | 17% | 11% | $ | 7 | |
CCOF II (Nov 2020 / Oct 2025) | | $ | 2,491 | | $ | 833 | | 33% | $ | 6 | | $ | 855 | | 1.0x | NM | NM | $ | 2 | |
CCOF I (Nov 2017 / Sep 2022) | | $ | 2,373 | | $ | 3,182 | | 134% | $ | 1,252 | | $ | 2,541 | | 1.2x | 21% | 15% | $ | 48 | |
CEMOF II (Dec 2015 / Jun 2019) | | $ | 2,819 | | $ | 1,699 | | 60% | $ | 786 | | $ | 1,174 | | 1.2x | 6 | 1 | $ | — | |
CEMOF I (Dec 2010 / Dec 2015) | | $ | 1,383 | | $ | 1,606 | | 116% | $ | 894 | | $ | 185 | | 0.7x | Neg | Neg | $ | — | |
CSC (Mar 2017/ n/a) | | $ | 838 | | $ | 1,303 | | 155% | $ | 834 | | $ | 769 | | 1.2x | 18% | 13% | $ | 28 | |
All Other Active Funds & Vehicles(9) | | | $ | 3,526 | | n/a | $ | 2,926 | | $ | 1,178 | | 1.2x | 8% | 3% | $ | 19 | |
Fully Realized Funds & Vehicles(10) | | | $ | 1,447 | | n/a | $ | 1,988 | | $ | — | | 1.4x | 12% | 7% | $ | — | |
TOTAL GLOBAL CREDIT | | | $ | 18,032 | | n/a | $ | 13,111 | | $ | 8,693 | | 1.2x | 11% | 5% | $ | 124 | |
(1)Represents the original cost of investments since the inception of the fund. For CSP II and CSP III, reflects amounts net of investment level recallable proceeds which is adjusted to reflect recyclability of invested capital for the purpose of calculating the fund MOIC.
(2)Represents all realized proceeds since inception of the fund.
(3)Represents remaining fair value, before management fees, expenses and carried interest, and may include remaining escrow values for realized investments.
(4)Multiple of invested capital (“MOIC”) represents total fair value, before management fees, expenses and carried interest, divided by cumulative invested capital.
(5)Gross Internal Rate of Return (“Gross IRR”) represents an annualized time-weighted return on Limited Partner invested capital, based on contributions, distributions and unrealized fair value as of the reporting date, before the impact of management fees, partnership expenses and carried interest. For fund vintages 2017 and after, Gross IRR includes the impact of interest expense related to the funding of investments on fund lines of credit. Gross IRR is calculated based on the timing of Limited Partner cash flows, which may differ to varying degrees from the timing of actual investment cash flows for the fund. Subtotal Gross IRR aggregations for multiple funds are calculated based on actual cash flow dates for each fund and represent a theoretical time-weighted return for a Limited Partner who invested sequentially in each fund.
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| | | | | | | | | | | | | | | | | | | | | |
| | | | | TOTAL INVESTMENTS |
| | | | | As of September 30, 2017 | | As of September 30, 2017 |
| Fund Inception Date(1) | | Committed Capital | | Cumulative Invested Capital(2) | | Total Fair Value(3) | | MOIC(4) | | Gross IRR (5)(10) | | Net IRR (6)(10) |
Global Market Strategies (Carry Funds Only) | (Reported in Local Currency, in Millions) | | | | |
Fully Invested/Committed Funds (7) | | | | | | | | | |
CSP II | 6/2007 | | $ | 1,352.3 |
| | $ | 1,352.3 |
| | $ | 2,468.6 |
| | 1.8x | | 17 | % | | 11 | % |
CSP III | 8/2011 | | $ | 702.8 |
| | $ | 702.8 |
| | $ | 1,155.6 |
| | 1.6x | | 33 | % | | 21 | % |
CEMOF I | 12/2010 | | $ | 1,382.5 |
| | $ | 1,465.0 |
| | $ | 1,254.5 |
| | 0.9x | | Neg |
| | Neg |
|
All Other Funds(8) | | | | | $ | 1,438.5 |
| | $ | 1,999.1 |
| | 1.4x | | 12 | % | | 7 | % |
Coinvestments and Other(9) | | | | | $ | 890.6 |
| | $ | 838.5 |
| | 0.9x | | NM |
| | NM |
|
Total Fully Invested Funds | $ | 5,849.2 |
| | $ | 7,716.2 |
| | 1.3x | | 12 | % | | 6 | % |
Funds in the Investment Period (7) | | | | | | | | | |
CSP IV | 3/2016 | | $ | 2,500.0 |
| | $ | 483.9 |
| | $ | 601.4 |
| | 1.2x | | NM |
| | NM |
|
CEMOF II | 2/2015 | | $ | 2,819.2 |
| | $ | 478.6 |
| | $ | 520.3 |
| | 1.1x | | NM |
| | NM |
|
All Other Funds | | | | | $ | 49.6 |
| | $ | 52.2 |
| | 1.1x | | NM |
| | NM |
|
Total Funds in the Investment Period | | | | | $ | 1,012.1 |
| | $ | 1,173.9 |
| | 1.2x | | NM |
| | NM |
|
TOTAL Global Market Strategies | | | | | $ | 6,861.3 |
| | $ | 8,890.1 |
| | 1.3x | | 12 | % | | 6 | % |
(6)Net Internal Rate of Return (“Net IRR”) represents an annualized time-weighted return on Limited Partner invested capital, based on contributions, distributions and unrealized fair value as of the reporting date, after the impact of all management fees, partnership expenses and carried interest, including current accruals. Net IRR is calculated based on the timing of Limited Partner cash flows, which may differ to varying degrees from the timing of actual investment cash flows for the fund. Fund level IRRs are based on aggregate Limited Partner cash flows, and this blended return may differ from that of individual Limited Partners. As a result, certain funds may generate accrued performance revenues with a blended Net IRR that is below the preferred return hurdle for that fund. Subtotal Net IRR aggregations for multiple funds are calculated based on actual cash flow dates for each fund and represent a theoretical time-weighted return for a Limited Partner who invested sequentially in each fund. | |
(1) | The data presented herein that provides “inception to date” performance results of our segments relates to the period following the formation of the first fund within each segment. For our Global Market Strategies segment our first carry fund was formed in 2004. |
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(2) | Represents the original cost of investments net of investment level recallable proceeds which is adjusted to reflect recyclability of invested capital for the purpose of calculating the fund MOIC. |
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(3) | Represents all realized proceeds combined with remaining fair value, before management fees, expenses and carried interest.
|
| |
(4) | Multiple of invested capital (“MOIC”) represents total fair value, before management fees, expenses and carried interest, divided by cumulative invested capital.
|
| |
(5) | Gross Internal Rate of Return (“Gross IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value before management fees, expenses and carried interest. |
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(6) | Net Internal Rate of Return (“Net IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value after management fees, expenses and carried interest. |
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(7) | Fully Invested funds are past the expiration date of the investment period as defined in the respective limited partnership agreement. In instances where a successor fund has had its first capital call, the predecessor fund is categorized as fully invested. |
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(8) | Aggregate includes the following funds: CMP I, CMP II, CSP I, and CASCOF.
|
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(9) | Includes coinvestments and certain other stand-alone investments arranged by us. |
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(10) | For funds marked “NM,” IRR may be positive or negative, but is not considered meaningful because of the limited time since initial investment and early stage of capital deployment. For funds marked “Neg,” IRR is negative as of reporting period end.
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(7)Represents the net accrued performance fee balance/(giveback obligation) as of the current quarter end.
(8)For funds marked “NM,” IRR may be positive or negative, but is not considered meaningful because of the limited time since initial investment and early stage of capital deployment. For funds marked “Neg,” IRR is considered meaningful but is negative as of reporting period end.
(9)Aggregate includes the following funds, as well as all active co-investments, separately managed accounts (SMAs), and stand-alone investments arranged by us: SASOF II, SASOF III, SASOF IV, and SASOF V.
(10)Aggregate includes the following funds, as well as related co-investments, separately managed accounts (SMAs), and certain other stand-alone investments arranged by us: CSP I, CMP I, CMP II, and CASCOF.
(11)The fund stepdown date represents the contractual stepdown date under the respective fund agreements for funds on which the fee basis stepdown has not yet occurred.
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| Remaining Fair Value(1) | | Unrealized MOIC(2) | | Total MOIC(3) | | % Invested(4) | | In Accrued Carry/ (Clawback) (5) | | LTM Realized Carry (6) | | Catch-up Rate | | Fee Initiation Date(7) | | Quarters Since Fee Initiation | | Original Investment Period End Date |
| As of September 30, 2017 | | | | | | | | |
Global Market Strategies | (Reported in Local Currency, in Millions) | | | | | | | | |
CEMOF I | $ | 687.2 |
| | 0.6x | | 0.9x | | 106 | % | |
| |
| | 100 | % | | Dec-10 | | 27 | | Dec-15 |
CEMOF II | $ | 495.5 |
| | 1.0x | | 1.1x | | 17 | % | |
| |
| | 100 | % | | Dec-15 | | 7 | | Feb-20 |
CSP III | $ | 491.6 |
| | 1.4x | | 1.6x | | 100 | % | | X | | X | | 80 | % | | Dec-11 | | 23 | | Aug-15 |
CSP IV | $ | 296.8 |
| | 1.2x | | 1.2x | | 19 | % | | X | |
| | 100 | % | | Feb-17 | | 2 | | Jun-20 |
All Other Funds (8) | $ | 275.2 |
| | 0.7x | | 1.6x | | | | NM | | NM | | | | | | | | |
Coinvestment and Other (9) | $ | 717.6 |
| | 0.8x | | 0.9x | | | | NM | | NM | | | | | | | | |
Total Global Market Strategies | $ | 2,963.8 |
| | 0.8x | | 1.3x | | | |
| |
| | | | | | | | |
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(1) | Net asset value of our carry funds. Reflects significant funds with remaining fair value of greater than $100 million.
|
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(2) | Unrealized multiple of invested capital (“MOIC”) represents remaining fair market value, before management fees, expenses and carried interest, divided by remaining investment cost.
|
| |
(3) | Total MOIC represents total fair value (realized proceeds combined with remaining fair value), before management fees, expenses and carried interest, divided by cumulative invested capital. For certain funds, represents the original cost of investments net of investment-level recallable proceeds, which is adjusted to reflect recyclability of invested capital for the purpose of calculating the fund MOIC.
|
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(4) | Represents cumulative equity invested as of the reporting period divided by total commitments. Amount can be greater than 100% due to the re-investment of recallable distributions to fund investors.
|
| |
(5) | Fund has a net accrued performance fee balance/(giveback obligation) as of the current quarter end, driven by a significant portion of the fund’s asset base.
|
| |
(6) | Fund has generated realized net performance fees/(realized giveback) in the last twelve months.
|
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(7) | Represents the date of the first capital contribution for management fees. |
| |
(8) | Aggregate includes the following funds: CSP I, CSP II, CMP I, CMP II, CSC, and CASCOF. In Accrued Carry/(Clawback) and LTM Realized Carry not indicated because the indicator does not apply to each fund within the aggregate. |
| |
(9) | Includes co-investments, prefund investments and certain other stand-alone investments arranged by us. In Accrued Carry/(Clawback) and LTM Realized Carry not indicated because the indicator does not apply to each fund within the aggregate. |
Investment Solutions
In February 2016, we decided to restructure our Investment Solutions segment to focus on private market secondaries, primary investments, co-investment and managed account activities and, given the challenging market environment, discontinue our fund of hedge funds and liquid alternative initiatives. As a result, the Partnership has substantially wound down the operations of DGAM.
The following table presents our results of operations for our Investment Solutions(1) segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 60.3 | | | $ | 45.6 | | | $ | 112.3 | | | $ | 85.4 | |
Portfolio advisory and transaction fees, net and other | — | | | — | | | 0.3 | | | — | |
Total fund level fee revenues | 60.3 | | | 45.6 | | | 112.6 | | | 85.4 | |
Realized performance revenues | 25.1 | | | 30.7 | | | 59.3 | | | 116.1 | |
Realized principal investment income | 4.0 | | | 0.5 | | | 4.4 | | | 1.1 | |
Interest income | 0.1 | | | 0.1 | | | 0.1 | | | 0.5 | |
Total revenues | 89.5 | | | 76.9 | | | 176.4 | | | 203.1 | |
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Cash-based compensation and benefits | 28.2 | | | 25.0 | | | 57.6 | | | 50.0 | |
Realized performance revenues related compensation | 23.0 | | | 27.0 | | | 55.2 | | | 111.0 | |
Total compensation and benefits | 51.2 | | | 52.0 | | | 112.8 | | | 161.0 | |
General, administrative, and other indirect expenses | 6.2 | | | 7.4 | | | 14.6 | | | 12.9 | |
Depreciation and amortization expense | 1.1 | | | 1.3 | | | 2.2 | | | 2.3 | |
Interest expense | 2.8 | | | 2.4 | | | 5.0 | | | 4.7 | |
Total expenses | 61.3 | | | 63.1 | | | 134.6 | | | 180.9 | |
(=) Distributable Earnings | $ | 28.2 | | | $ | 13.8 | | | $ | 41.8 | | | $ | 22.2 | |
(-) Realized Net Performance Revenues | 2.1 | | | 3.7 | | | 4.1 | | | 5.1 | |
(-) Realized Principal Investment Income | 4.0 | | | 0.5 | | | 4.4 | | | 1.1 | |
(+) Net Interest | 2.7 | | | 2.3 | | | 4.9 | | | 4.2 | |
(=) Fee Related Earnings | $ | 24.8 | | | $ | 11.9 | | | $ | 38.2 | | | $ | 20.2 | |
(1) On April 1, 2021, we closed on the sale of our interest in Metropolitan Real Estate (“MRE”). Distributable Earnings and Fee Related Earnings attributable to MRE in periods prior to the sale were immaterial to the Investment Solutions segment. The $5.0 million gain on the sale and the $26.8 million right-of-use asset impairment, as a result of the sublease transaction (see Note 7), are not included in DE or FRE. See “Non-GAAP Financial Measures” for the reconciliation of Total DE and FRE to the U.S. GAAP financial statements.
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Segment Revenues | | | | | | | |
Fund level fee revenues | | | | | | | |
Fund management fees | $ | 41.1 |
| | $ | 33.1 |
| | $ | 113.1 |
| | $ | 103.7 |
|
Portfolio advisory fees, net | — |
| | 0.8 |
| | — |
| | 0.8 |
|
Transaction fees, net | — |
| | — |
| | — |
| | — |
|
Total fund level fee revenues | 41.1 |
| | 33.9 |
| | 113.1 |
| | 104.5 |
|
Performance fees | | | | | | | |
Realized | 30.2 |
| | 36.3 |
| | 66.5 |
| | 42.7 |
|
Unrealized | 4.2 |
| | (6.8 | ) | | 32.1 |
| | 19.9 |
|
Total performance fees | 34.4 |
| | 29.5 |
| | 98.6 |
| | 62.6 |
|
Investment income (loss) | | | | | | | |
Realized | — |
| | — |
| | — |
| | — |
|
Unrealized | 1.6 |
| | 0.2 |
| | 3.1 |
| | (0.8 | ) |
Total investment income (loss) | 1.6 |
| | 0.2 |
| | 3.1 |
| | (0.8 | ) |
Interest | 0.6 |
| | 0.1 |
| | 0.9 |
| | 0.3 |
|
Other income | 0.1 |
| | 0.2 |
| | 0.3 |
| | 0.4 |
|
Total revenues | 77.8 |
| | 63.9 |
| | 216.0 |
| | 167.0 |
|
Segment Expenses | | | | | | | |
Compensation and benefits | | | | | | | |
Direct base compensation | 19.7 |
| | 16.3 |
| | 51.9 |
| | 49.9 |
|
Indirect base compensation | 5.0 |
| | 2.7 |
| | 11.9 |
| | 8.6 |
|
Equity-based compensation | 2.1 |
| | 1.6 |
| | 6.2 |
| | 5.1 |
|
Performance fee related | | | | | | | |
Realized | 29.9 |
| | 35.8 |
| | 65.4 |
| | 41.2 |
|
Unrealized | (2.0 | ) | | (9.7 | ) | | 18.4 |
| | 13.3 |
|
Total compensation and benefits | 54.7 |
| | 46.7 |
| | 153.8 |
| | 118.1 |
|
General, administrative, and other indirect expenses | 6.1 |
| | 17.3 |
| | 21.6 |
| | 34.6 |
|
Depreciation and amortization expense | 0.9 |
| | 0.9 |
| | 2.6 |
| | 2.6 |
|
Interest expense | 1.6 |
| | 1.5 |
| | 4.6 |
| | 4.5 |
|
Total expenses | 63.3 |
| | 66.4 |
| | 182.6 |
| | 159.8 |
|
Economic Net Income (Loss) | $ | 14.5 |
| | $ | (2.5 | ) | | $ | 33.4 |
| | $ | 7.2 |
|
(-) Net Performance Fees | 6.5 |
| | 3.4 |
| | 14.8 |
| | 8.1 |
|
(-) Investment Income (Loss) | 1.6 |
| | 0.2 |
| | 3.1 |
| | (0.8 | ) |
(+) Equity-based Compensation | 2.1 |
| | 1.6 |
| | 6.2 |
| | 5.1 |
|
(+) Reserve for Litigation and Contingencies | (2.6 | ) | | 9.6 |
| | (2.6 | ) | | 9.6 |
|
(=) Fee Related Earnings | $ | 5.9 |
| | $ | 5.1 |
| | $ | 19.1 |
| | $ | 14.6 |
|
(+) Realized Net Performance Fees | 0.3 |
| | 0.5 |
| | 1.1 |
| | 1.5 |
|
(+) Realized Investment Income | — |
| | — |
| | — |
| | — |
|
(=) Distributable Earnings | $ | 6.2 |
| | $ | 5.6 |
| | $ | 20.2 |
| | $ | 16.1 |
|
Three Months Ended SeptemberJune 30, 20172021 Compared to the Three Months Ended SeptemberJune 30, 20162020 and NineSix Months Ended SeptemberJune 30, 20172021 Compared to the NineSix Months Ended SeptemberJune 30, 2016
2020
Distributable Earnings
Distributable earningsEarnings increased $0.6$14.4 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $19.6 million for the six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016 and increased $4.1 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.2020. The following table provides the components of the changes in distributable earningsDistributable Earnings for the three and ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| |
| (Dollars in millions) |
Distributable Earnings, June 30, 2020 | $ | 13.8 | | | $ | 22.2 | |
Increases (decreases): | | | |
Increase in fee related earnings | 12.9 | | | 18.0 | |
Decrease in realized net performance revenues | (1.6) | | | (1.0) | |
Increase in realized principal investment income | 3.5 | | | 3.3 | |
Increase in net interest | (0.4) | | | (0.7) | |
Total increase | 14.4 | | | 19.6 | |
Distributable Earnings, June 30, 2021 | $ | 28.2 | | | $ | 41.8 | |
Investment Solutions had realized performance revenues of $59.3 million during the six months ended June 30, 2021. However, most of these realizations are from AlpInvest fund vehicles in which we generally do not retain any carried interest, therefore our net realized performance revenues were $4.1 million during the six months ended June 30, 2021. |
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Distributable earnings, September 30, 2016 | $ | 5.6 |
| $ | 16.1 |
|
Increases (decreases): | | |
Decrease in realized net performance fees | (0.2 | ) | (0.4 | ) |
Increase in fee related earnings | 0.8 |
| 4.5 |
|
Total increase | 0.6 |
| 4.1 |
|
Distributable earnings, September 30, 2017 | $ | 6.2 |
| $ | 20.2 |
|
Fee Related Earnings
Fee related earningsRealized Principal Investment Income. Realized principal investment income increased $0.8$3.5 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and $3.3 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 primarily due to higher realized gains on investments on our secondaries funds.
Fee Related Earnings
Fee Related Earnings increased $12.9 million for the three months ended SeptemberJune 30, 20162021 as compared to three months ended June 30, 2020 and increased $4.5$18.0 million for the ninesix months ended SeptemberJune 30, 20172021 as compared to the ninesix months ended SeptemberJune 30, 2016.2020. The following table provides the components of the changes in fee related earningsFee Related Earnings for the three and ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| |
| (Dollars in millions) |
Fee Related Earnings, June 30, 2020 | $ | 11.9 | | | $ | 20.2 | |
Increases (decreases): | | | |
Increase in fee revenues | 14.7 | | | 27.2 | |
Increase in cash-based compensation and benefits | (3.2) | | | (7.6) | |
CCC litigation cost recovery in 2020(1) | — | | | (3.3) | |
Decrease in general, administrative and other indirect expenses | 1.2 | | | 1.6 | |
All other changes | 0.2 | | | 0.1 | |
Total increase | 12.9 | | | 18.0 | |
Fee Related Earnings, June 30, 2021 | $ | 24.8 | | | $ | 38.2 | |
(1) General, administrative and other indirect expenses during the six months ended June 30, 2020 included the allocated portion of the cost recovery associated with the CCC litigation costs. See Note 7 to our unaudited condensed consolidated financial statements. |
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Fee related earnings, September 30, 2016 | $ | 5.1 |
| $ | 14.6 |
|
Increases (decreases): | | |
Increase in fee revenues | 7.2 |
| 8.6 |
|
Increase in direct and indirect base compensation | (5.7 | ) | (5.3 | ) |
(Increase) decrease in general, administrative and other indirect expenses | (1.0 | ) | 0.8 |
|
All other changes | 0.3 |
| 0.4 |
|
Total increase | 0.8 |
| 4.5 |
|
Fee related earnings, September 30, 2017 | $ | 5.9 |
| $ | 19.1 |
|
Fee Revenues. Total fee revenues increased $7.2$14.7 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $27.2 million for the six months ended June 30, 2021 as compared to the threesix months
ended SeptemberJune 30, 2016 and increased $8.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016,2020 primarily due to increased management fees from our private equity fund vehicles as a resultdriven by the activation of closingsmanagement fees on our latest secondaries fund in the second quarter of new2020 and our latest coinvestment fund vehicles, which have a higher average management fee rate than older fund vehicles,in the second quarter of 2021, as well as $1.2$4.4 million ofin catch-up management fees in the the nine months ended September 30, 2017. Fee revenues also benefited from favorable foreign currency adjustments during both the three and nine months ended September 30, 2017. This increase isfees. These increases were partially offset by the wind downimpact of DGAM and the related redemptions from its fundsale of hedge funds,MRE on April 1, 2021, which decreased our fee revenues by $0.5 million and $5.4 million for the three and nine months ended September 30, 2017, respectively, as compared to the three and nine months ended September 30, 2016.
Direct and indirect base compensation expense. Direct and indirect base compensation expense increased $5.7had management fees of $5.9 million for the three months ended SeptemberJune 30, 2017 as compared to the three months ended September 30, 2016, primarily due to an increase in projected year-end bonuses2020.
Cash-based compensation and increasedbenefits expense. Cash-based compensation associated with fundraising activities of $1.6 million.
Direct and indirect base compensationbenefits expense increased $5.3 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to an increase in projected year-end bonuses and increased compensation associated with fundraising activities of $3.0 million.
General, administrative and other indirect expenses. General, administrative and other indirect expenses increased $1.0$3.2 million for the three months ended SeptemberJune 30, 20172021 as compared to three months ended June 30, 2020 and increased $7.6 million for the six months ended June 30, 2021 as compared to the threesix months ended SeptemberJune 30, 2016,2020 primarily due to negative foreign currency adjustments, partially offset by lower professional fees.increased headcount and higher projected year-end bonuses.
General, administrative and other indirect expenses decreased $0.8 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to lower professional fees and real estate costs. These decreases were partially offset by negative foreign currency adjustments and increased external costs associated with fundraising activities.
Economic Net Income (Loss)
Economic net income (loss) increased $17.0 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $26.2 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The following table provides the components of the changes in economic net income (loss) for the three and nine months ended September 30, 2017:
|
| | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (Dollars in Millions) |
Economic net income (loss), September 30, 2016 | $ | (2.5 | ) | $ | 7.2 |
|
Increases (decreases): | | |
Increase in net performance fees | 3.1 |
| 6.7 |
|
Increase in investment income | 1.4 |
| 3.9 |
|
Increase in equity-based compensation | (0.5 | ) | (1.1 | ) |
Increase in fee related earnings | 0.8 |
| 4.5 |
|
Decrease in reserve for litigation and contingencies | 12.2 |
| 12.2 |
|
Total increase | 17.0 |
| 26.2 |
|
Economic net income, September 30, 2017 | $ | 14.5 |
| $ | 33.4 |
|
Performance Fees. Performance fees (realized and unrealized) for the three and nine months ended September 30, 2017 and 2016 are from the following types of funds:
|
| | | | | | | | | | | | | | | |
| Performance Fees |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (Dollars in millions) |
Private equity fund vehicles | $ | 34.0 |
| | $ | 28.7 |
| | $ | 96.7 |
| | $ | 62.1 |
|
Real estate fund vehicles | 0.4 |
| | 0.8 |
| | 1.9 |
| | 0.5 |
|
Total performance fees | $ | 34.4 |
| | $ | 29.5 |
| | $ | 98.6 |
| | $ | 62.6 |
|
Under our arrangements with the historical owners and management team of AlpInvest, we generally do not retain any carried interest with respect to the historical investments and commitments to our AlpInvest fund vehicles that existed as of July 1, 2011 (including any options to increase any such commitments exercised after such date). We are entitled to 15% of the carried interest with respect to commitments from the historical owners of AlpInvest for the period between 2011 and 2020 and 40% of the carried interest in respect of all other commitments (including all future commitments from third parties).
The increase in performance fees for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 was primarily due to higher realizations in our carry funds in 2017. Additionally, our carry funds
appreciated 3% in the three months ended September 30, 2017 (excluding the impact of foreign currency, appreciation was 5% for the three months ended September 30, 2017) while appreciating 2% in the three months ended September 30, 2016.
The increase in performance fees for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to higher realizations in our carry funds in 2017. Overall, our carry funds appreciated 6% in the nine months ended September 30, 2017 (excluding the impact of foreign currency, appreciation was 14% for the nine months ended September 30, 2017) while appreciating 5% in the nine months ended September 30, 2016.
The $34.4 million of performance fees for the three months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•Co-investment Fund & Secondaries Fund (2012-2013) of $5.0 million,
•Co-investment Fund & Secondaries Fund (2014-2015) of $2.7 million,
•APG Partnership Fund (2009) of $2.6 million,
•APG Partnership Fund (2010) of $2.1 million, and
•Co-investment Fund & Secondaries Fund (2009-2010) of $1.8 million.
The $29.5 million of performance fees for the three months ended September 30, 2016 was driven primarily by performance fees recognized from the following funds:
•Co-investment Fund & Secondaries Fund (2009-2010) of $8.3 million,
•Co-investment Fund & Secondaries Fund (2012-2013) of $2.9 million,
•Co-investment Fund & Secondaries Fund (2010) of $2.3 million, and
•Co-investment Fund & Secondaries Fund (2014-2015) of $2.0 million.
The $98.6 million of performance fees for the nine months ended September 30, 2017 was driven primarily by performance fees recognized from the following funds:
•Co-investment Fund & Secondaries Fund (2009-2010) of $9.4 million,
•Co-investment Fund & Secondaries Fund (2012-2013) of $9.3 million,
•Co-investment Fund & Secondaries Fund (2014-2015) of $9.0 million,
•Partnership Fund (2008) of $6.0 million,
•APG Partnership Fund (2010) of $5.8 million,
•APG Partnership Fund (2009) of $5.8 million, and
•ASF V (Onshore) of $5.5 million.
The $62.6 million of performance fees for the nine months ended September 30, 2016 was driven primarily by performance fees recognized from the following funds:
•Co-investment Fund & Secondaries Fund (2012-2013) of $12.5 million,
•Co-investment Fund & Secondaries Fund (2009-2010) of $11.3 million,
•Co-investment Fund & Secondaries Fund (2014-2015) of $4.9 million, and
•Co-investment Fund & Secondaries Fund (2010) of $4.3 million.
Performance fees of $29.5 million for the three months ended September 30, 2016 are inclusive of performance fees reversed of approximately $0.6 million. Performance fees of $62.6 million for the nine months ended September 30, 2016 are inclusive of performance fees reversed of approximately $2.5 million. There were no significant performance fees reversed for the three and nine months ended September 30, 2017.
The appreciation in remaining value of our Investment Solutions carry funds for this segment are as follows:
|
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | 2016 | | 2017 | 2016 |
Carry funds | 3% | 2% | | 6% | 5% |
Note: The appreciation presented is a weighted average blend of the remaining investments in the respective carry funds within Investment Solutions. These carry funds include private equity and real estate investments in primary fund, co-investment and secondary strategies, which have different return profiles.
Net performance fees for the three months ended September 30, 2017 were $6.5 million, representing an increase of $3.1 million from $3.4 million in net performance fees for the three months ended September 30, 2016. Net performance fees for the nine months ended September 30, 2017 were $14.8 million, representing an increase of $6.7 million from $8.1 million in net performance fees for the nine months ended September 30, 2016. The increase in net performance fees for both periods was due to the higher appreciation of the carry funds for the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016.
Equity-based Compensation. Equity-based compensation was $2.1 million for the three months ended September 30, 2017, an increase of $0.5 million from $1.6 million for the three months ended September 30, 2016.
Equity-based compensation was $6.2 million for the nine months ended September 30, 2017, an increase of $1.1 million from $5.1 million for the nine months ended September 30, 2016.
Reserve for Litigation and Contingencies. Investment Solutions' (“IS”) share of the reserve for litigation and contingencies decreased $12.2 million for both the three and nine months ended September 30, 2017. The decrease was primarily related to IS' share of the $25 million reserve reversal related to the CCC litigation recognized in 2017, while IS recognized its share of the $100 million reserve in 2016 related to a commodities legal matter.
Fee-earning AUM as of and for the Three and NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
Fee-earning AUM is presented below for each period together with the components of change during each respective period.
| | | | | | | | | | | |
| As of June 30, |
| 2021 | | 2020 |
Investment Solutions | (Dollars in millions) |
Components of Fee-earning AUM (1) | | | |
Fee-earning AUM based on capital commitments | $ | 18,978 | | | $ | 14,244 | |
Fee-earning AUM based on invested capital (2) | 3,470 | | | 2,106 | |
Fee-earning AUM based on net asset value | 3,473 | | | 2,797 | |
Fee-earning AUM based on lower of cost or fair market value | 12,573 | | | 12,620 | |
Total Fee-earning AUM | $ | 38,494 | | | $ | 31,767 | |
|
| | | | | | | |
| As of September 30, |
| 2017 | | 2016 |
Investment Solutions | (Dollars in millions) |
Components of Fee-earning AUM (1) | | | |
Fee-earning AUM based on capital commitments | $ | 11,145 |
| | $ | 9,136 |
|
Fee-earning AUM based on invested capital (2) | 1,170 |
| | 1,202 |
|
Fee-earning AUM based on net asset value | 855 |
| | 215 |
|
Fee-earning AUM based on lower of cost or fair market value | 17,176 |
| | 17,542 |
|
Total Fee-earning AUM | $ | 30,346 |
| | $ | 28,095 |
|
(1)For additional information concerning the components of Fee-earning AUM, see “—Fee-earning Assets under Management.”(2)Includes amounts committed to or reserved for certain AlpInvest funds
| |
(1) | For additional information concerning the components of Fee-earning AUM, see “—Fee-earning Assets under Management.” |
| |
(2) | Includes amounts committed to or reserved for certain AlpInvest and Metropolitan carry funds. |
The table below provides the period to period rollforward of Fee-earning AUM.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Investment Solutions | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 39,287 | | | $ | 28,202 | | | $ | 36,398 | | | $ | 28,384 | |
Inflows (1) | 1,882 | | | 5,410 | | | 6,511 | | | 6,447 | |
Outflows (including realizations) (2) | (3,323) | | | (1,542) | | | (4,593) | | | (2,248) | |
Market Activity & Other (3) | 515 | | | (824) | | | 805 | | | (868) | |
Foreign Exchange (4) | 133 | | | 521 | | | (627) | | | 52 | |
Balance, End of Period | $ | 38,494 | | | $ | 31,767 | | | $ | 38,494 | | | $ | 31,767 | |
(1)Inflows represents limited partner capital raised by our carry funds or separately managed accounts for which management fees based on commitments were activated during the period and the fee-earning commitments invested in vehicles for which management fees are based on invested capital. Inflows exclude fundraising amounts during the period for which fees have not yet been activated, which are referenced as Pending Fee-earning AUM.
(2)Outflows represents the impact of realizations from vehicles with management fees based on remaining invested capital at cost or fair value, changes in basis for funds where the investment period, weighted-average investment period or commitment fee period has expired during the period, and reductions for funds that are no longer calling for fees. Distributions for funds earning management fees based on commitments during the period do not affect Fee-earning AUM. Outflows during the three and six months ended June 30, 2021 also reflect the sale of MRE on April 1, 2021, which had $2.3 billion of Fee-earning AUM as of March 31, 2021.
(3)Market Activity & Other represents realized and unrealized gains (losses) on portfolio investments in our carry funds based on the lower of cost or fair value and net asset value.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Investment Solutions | (Dollars in millions) | | (Dollars in millions) |
Fee-earning AUM Rollforward | | | | | | | |
Balance, Beginning of Period | $ | 28,468 |
| | $ | 27,227 |
| | $ | 27,054 |
| | $ | 28,191 |
|
Inflows, including Fee-paying Commitments (1) | 2,343 |
| | 2,433 |
| | 5,275 |
| | 5,013 |
|
Outflows, including Distributions (2) | (1,093 | ) | | (1,093 | ) | | (4,138 | ) | | (3,767 | ) |
Subscriptions, net of Redemptions (3) | — |
| | (582 | ) | | — |
| | (1,584 | ) |
Market Appreciation/(Depreciation) (4) | (108 | ) | | (208 | ) | | (280 | ) | | (530 | ) |
Foreign Exchange and other (5) | 736 |
| | 318 |
| | 2,435 |
| | 772 |
|
Balance, End of Period | $ | 30,346 |
| | $ | 28,095 |
| | $ | 30,346 |
| | $ | 28,095 |
|
(4)Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. | |
(1) | Inflows represent mandates where commitment fee period was activated and capital invested by carry fund vehicles outside the commitment fee period or weighted-average investment period. |
| |
(2) | Outflows represent distributions from carry fund vehicles outside the commitment fee period or weighted-average investment period and changes in fee basis for carry fund vehicles where the commitment fee period or weighted-average investment period has expired. |
| |
(3) | Represents subscriptions and redemptions in our fund of hedge funds vehicles. |
| |
(4) | Market Appreciation/(Depreciation) represents changes in the net asset value of our fund of hedge funds vehicles and realized and unrealized gains (losses) on our carry fund vehicles based on the lower of cost or fair value. |
| |
(5) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
Fee-earning AUM was $30.3 billion at September 30, 2017, an increase of $1.8 billion, or approximately 6%, compared to $28.5$38.5 billion at June 30, 2017.2021, a decrease of $0.8 billion compared to $39.3 billion at March 31, 2021. This was driven by inflows,outflows of $3.3 billion, including fee-paying commitmentsthe sale of MRE, which had Fee-Earning AUM of $2.3 billion due toas of March 31, 2021, as well as distributions in our AlpInvest carry funds. This decrease was partially offset by inflows of $1.9 billion primarily from new fee-paying commitments raised, the activation of previously raised mandates, and purchases in our AlpInvest vehicles, and foreign exchange gainsas well as appreciation of $0.7 billion from translating our euro-denominated AlpInvest Fee-earning AUM to USD. Partially offsetting this increase were outflows, including distributions, of $1.1 billion which were primarily attributable to our AlpInvest carry funds.$0.5 billion. Distributions from funds still in the commitment or weighted-average investment period do not impact Fee-earning AUM as these funds are based on commitments and not invested capital. Increases in fair value have an impact on Fee-earning AUM for Investment Solutions as fully committed funds are based on the lower of cost or fair value of the underlying investments.
Fee-earning AUM was $30.3$38.5 billion at SeptemberJune 30, 2017,2021, an increase of $3.2$2.1 billion, or approximately 12%6%, compared to $27.1$36.4 billion at December 31, 2016.2020. The increase was driven by inflows, including fee-paying commitments, of $5.3$6.5 billion due to activation of previously raised mandates and purchases in our AlpInvest vehicles,carry funds, and foreign exchange gains$0.8 billion of $2.4 billion from translating our euro-denominated AlpInvest Fee-earning AUM to USD. This wasappreciation. These increases were partially offset by outflows of $4.6 billion, including distributions,the sale of $4.1MRE, as well as $0.6 billion primarily inof negative foreign exchange activity from the translation of our AlpInvest carry funds.Fee-earning AUM from EUR to USD.
Fee-earning AUM was $30.3$38.5 billion at SeptemberJune 30, 2017,2021, an increase of $2.2$6.7 billion, or approximately 8%21%, compared to $28.1$31.8 billion at SeptemberJune 30, 2016.2020. The increase was driven by inflows, including fee-paying commitments, of $7.5$10.8 billion due to activation of previously raised mandates and purchases in our AlpInvest vehicles, foreign exchange gainscarry funds, as well as the MRE carry funds prior to the sale of $1.0MRE on April 1, 2021. Also driving the increase was $0.9 billion from translating our euro-denominated AlpInvest Fee-earning AUM to USD, and marketof appreciation of $0.8 billion in funds outside the investment period. This was partially offset by outflows, including distributions, of $6.5 billion primarily in our AlpInvest carry funds and net redemptions$1.1 billion of $0.6 billion inpositive foreign exchange activity from the translation of our previously held DGAM fund of funds vehicles.
AlpInvest Fee-earning AUM was $28.1 billion at September 30, 2016, an increase of $0.9 billion, or approximately 3%, comparedfrom EUR to $27.2 billion at June 30, 2016. This was driven by inflows, including fee-paying commitments of $2.4 billion, due to activation of previously raised mandates in our AlpInvest vehicles.USD. This was partially offset by outflows including distributions of $1.1$6.1 billion primarily from distributions in our AlpInvest fundcarry funds and the sale of funds vehicles and net redemptions in our DGAM fund of hedge funds vehicles of $0.6 billion. This was partially offset by inflows, including fee-paying commitments of $2.4 billion, due to activation of previously raised mandates in our AlpInvest vehicles.
Fee-earning AUM was $28.1 billion at September 30, 2016, a decrease of $0.1 billion compared to $28.2 billion at December 31, 2015. This was driven by outflows of $3.8 billion, primarily in our AlpInvest fund of funds vehicles, net redemptions in our DGAM fund of hedge funds vehicles of $1.6 billion, and market depreciation of $0.5 billion primarily in our AlpInvest fund of funds vehicles. This was partially offset by inflows of $5.0 billion, due to activation of previously raised mandates in our AlpInvest vehicles.MRE.
Total AUM as of and for the Three and NineSix Months Ended SeptemberJune 30, 20172021
The table below provides the period to period rollforwards of Available Capital and Fair Value of Capital, and the resulting rollforward of Total AUM.
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| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (Dollars in millions) |
Investment Solutions | | | |
Total AUM Rollforward | | | |
Balance, Beginning of Period | $ | 63,556 | | | $ | 58,108 | |
Inflows (1) | 1,248 | | | 4,446 | |
Outflows (including realizations) (2) | (5,270) | | | (7,371) | |
Market Activity & Other (3) | 4,765 | | | 10,807 | |
Foreign Exchange (4) | 349 | | | (1,342) | |
Balance, End of Period | $ | 64,648 | | | $ | 64,648 | |
(1)Inflows reflects the impact of gross fundraising during the period. For funds or vehicles denominated in foreign currencies, this reflects translation at the average quarterly rate, while the separately reported Fundraising metric is translated at the spot rate for each individual closing.
(2)Outflows includes distributions in our carry funds, related co-investment vehicles and separately managed accounts, as well as the expiration of available capital. Outflows also reflect the sale of MRE on April 1, 2021, which had $2.4 billion in Total AUM as of March 31, 2021.
(3)Market Activity & Other generally represents realized and unrealized gains (losses) on portfolio investments in our carry funds, related co-investment vehicles and separately managed accounts, the net impact of fees, expenses and non-investment income, as well as other changes in AUM. The fair market values for our Investment Solutions primary and secondary carry funds are based on the latest available valuations of the underlying limited partnership interests as provided by their general partners which typically has a lag of up to 90 days, plus the net cash flows since the latest valuation, up to June 30, 2021.
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| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| Available Capital | | Fair Value of Capital | | Total AUM | | Available Capital | | Fair Value of Capital | | Total AUM |
| (Dollars in millions) | | (Dollars in millions) |
Investment Solutions | | | | | | | | | | | |
Balance, Beginning of Period | $ | 15,764 |
| | $ | 29,902 |
| | $ | 45,666 |
| | $ | 14,294 |
| | $ | 28,798 |
| | $ | 43,092 |
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Commitments (1) | 1,739 |
| | — |
| | 1,739 |
| | 4,620 |
| | — |
| | 4,620 |
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Capital Called, net (2) | (1,187 | ) | | 1,207 |
| | 20 |
| | (3,077 | ) | | 2,954 |
| | (123 | ) |
Distributions (3) | 136 |
| | (2,631 | ) | | (2,495 | ) | | 232 |
| | (7,007 | ) | | (6,775 | ) |
Market Appreciation/(Depreciation) (4) | — |
| | 896 |
| | 896 |
| | — |
| | 2,352 |
| | 2,352 |
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Foreign Exchange and other (5) | 239 |
| | 977 |
| | 1,216 |
| | 622 |
| | 3,254 |
| | 3,876 |
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Balance, End of Period | $ | 16,691 |
| | $ | 30,351 |
| | $ | 47,042 |
| | $ | 16,691 |
| | $ | 30,351 |
| | $ | 47,042 |
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(4)Foreign Exchange represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. | |
(1) | Represents capital raised by our carry fund vehicles, including activation of new mandates, net of expired available capital. |
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(2) | Represents capital called by our carry fund vehicles, net of fund fees and expenses. |
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(3) | Represents distributions from our carry fund vehicles, net of amounts recycled. |
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(4) | Market Appreciation/(Depreciation) represents changes in the net asset value of our fund of hedge funds vehicles and realized and unrealized gains (losses) on fund investments, secondary investments, co-investments, and real estate fund vehicles. Fair market values for carry fund vehicles are based on the latest available valuations of the underlying limited partnership interests (in most cases as of June 30, 2017) as provided by their general partners, plus the net cash flows since the latest valuation, up to September 30, 2017. |
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(5) | Represents the impact of foreign exchange rate fluctuations on the translation of our non-U.S. dollar denominated funds. Activity during the period is translated at the average rate for the period. Ending balances are translated at the spot rate as of the period end. |
Total AUM was $47.0 billion at September 30, 2017, an increase of $1.3 billion or approximately 3%, compared to $45.7$64.6 billion at June 30, 2017. This2021, an increase of $1.0 billion, or approximately 2%, compared to $63.6 billion at March 31, 2021. The increase was driven by $1.7 billion of new commitments raised primarily in our AlpInvest carry funds, $1.2 billion of foreign exchange gains resulting from the translation of our Euro-denominated AlpInvest AUM to USD, and $0.9$4.8 billion of market appreciation primarily in our AlpInvest carry funds and inflows of $1.2 billion billion related to fundraising in our AlpInvest funds. This was partially offset by $2.6outflows of $5.3 billion, including the sale of MRE, which had $2.4 billion in Total AUM as of March 31, 2021, and distributions primarily in our AlpInvest carry funds, of which $0.1 billion were recallable.funds.
Total AUM was $47.0$64.6 billion at SeptemberJune 30, 2017,2021, an increase of $3.9$6.5 billion, or approximately 9%11%, compared to $43.1$58.1 billion at December 31, 2016. This2020. The increase was driven by $4.6 billion of new commitments raised primarily in our AlpInvest carry funds, $3.9 billion of foreign exchange gains resulting from the translation of our Euro-denominated AlpInvest AUM to USD, and $2.4$10.8 billion of market appreciation primarily in our AlpInvest carry funds and inflows of $4.4 billion related to fundraising in our AlpInvest funds. This was partially offset by $7.0outflows of $7.4 billion, including the sale of MRE, as well as $1.3 billion of distributions, primarily innegative foreign exchange activity from the translation of our AlpInvest carry funds, of which $0.2 billion were recallable.
Total AUM from EUR to USD.
Fund Performance Metrics
Fund performance information for our AlpInvestInvestment Solutions funds that have at least $1.0 billion in capital commitments, cumulative equity invested or total value as of SeptemberJune 30, 2017,2021, which we refer to as our “significant funds” is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund return information reflected in this discussion and analysis is not indicative of the performance of The Carlyle Group L.P.Inc. and is also
not necessarily indicative of the future performance of any particular fund. An investment in The Carlyle Group L.P.Inc. is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns. Primary and secondary investments in external funds are generally valued based on the proportionate share of the net assets provided by the third party general partners of the underlying fund partnerships based on the most recent available information which typically has a lag of up to 90 days. As a result, amounts presented may not include the impact of economic activity in the current quarter.
The following tables reflect the performance of our significant funds in our Investment Solutions business.
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| | | | TOTAL INVESTMENTS |
| | | | As of June 30, 2021 |
Investment Solutions (1)(8)(13) | | Vintage Year | Fund Size | Cumulative Invested Capital (2)(3) | Realized Value (3) | Remaining Fair Value(3) | Total Fair Value(3)(4) | MOIC (5) | Gross IRR (6)(10) | Net IRR (7)(10) | Net Accrued Carry/(Clawback) (12) |
| | | | (Reported in Local Currency, in Millions) |
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Main Fund VI - Fund Investments | | 2015 | € | 1,106 | | € | 984 | | € | 605 | | € | 1,241 | | € | 1,846 | | 1.9x | 27% | 25% | $ | 3 | |
Main Fund V - Fund Investments | | 2012 | € | 5,080 | | € | 5,363 | | € | 4,816 | | € | 5,919 | | € | 10,735 | | 2.0x | 20% | 19% | $ | 19 | |
Main Fund IV - Fund Investments | | 2009 | € | 4,877 | | € | 5,427 | | € | 7,645 | | € | 3,874 | | € | 11,519 | | 2.1x | 18% | 18% | $ | 2 | |
Main Fund III - Fund Investments | | 2005 | € | 11,500 | | € | 12,760 | | € | 19,547 | | € | 2,389 | | € | 21,936 | | 1.7x | 10% | 10% | $ | — | |
Main Fund II - Fund Investments | | 2003 | € | 4,545 | | € | 4,781 | | € | 7,447 | | € | 264 | | € | 7,711 | | 1.6x | 10% | 9% | $ | — | |
Main Fund I - Fund Investments | | 2000 | € | 5,175 | | € | 4,195 | | € | 6,880 | | € | 60 | | € | 6,940 | | 1.7x | 12% | 11% | $ | — | |
Main Fund VII - Secondary Investments | | 2020 | $ | 8,388 | | $ | 2,013 | | $ | 252 | | $ | 2,155 | | $ | 2,407 | | 1.2x | NM | NM | $ | 14 | |
AlpInvest Secondaries Fund VII | | 2020 | $ | 6,769 | | $ | 1,414 | | $ | 179 | | $ | 1,516 | | $ | 1,695 | | 1.2x | NM | NM | $ | 10 | |
Main Fund VI - Secondary Investments | | 2017 | $ | 6,017 | | $ | 4,928 | | $ | 1,545 | | $ | 5,348 | | $ | 6,892 | | 1.4x | 17% | 15% | $ | 51 | |
AlpInvest Secondaries Fund VI | | 2017 | $ | 3,333 | | $ | 2,725 | | $ | 808 | | $ | 2,949 | | $ | 3,757 | | 1.4x | 17% | 13% | $ | 34 | |
Main Fund V - Secondary Investments | | 2011 | € | 4,273 | | € | 4,143 | | € | 5,662 | | € | 1,678 | | € | 7,341 | | 1.8x | 21% | 19% | $ | 34 | |
AlpInvest Secondaries Fund V | | 2012 | $ | 756 | | $ | 652 | | $ | 753 | | $ | 317 | | $ | 1,070 | | 1.6x | 17% | 14% | $ | 14 | |
Main Fund IV - Secondary Investments | | 2010 | € | 1,859 | | € | 1,925 | | € | 3,187 | | € | 127 | | € | 3,315 | | 1.7x | 19% | 18% | $ | — | |
Main Fund III - Secondary Investments | | 2006 | € | 2,250 | | € | 2,328 | | € | 3,526 | | € | 61 | | € | 3,588 | | 1.5x | 11% | 10% | $ | — | |
Main Fund II - Secondary Investments | | 2003 | € | 998 | | € | 993 | | € | 1,812 | | € | 8 | | € | 1,820 | | 1.8x | 27% | 26% | $ | — | |
Main Fund VIII - Co-Investments | | 2021 | $ | 3,815 | | $ | 127 | | $ | — | | $ | 126 | | $ | 126 | | 1.0x | NM | NM | $ | —�� | |
AlpInvest Co-Investment Fund VIII | | 2021 | $ | 3,614 | | $ | 124 | | $ | — | | $ | 124 | | $ | 124 | | 1.0x | NM | NM | $ | — | |
Main Fund VII - Co-Investments | | 2017 | $ | 2,842 | | $ | 2,487 | | $ | 135 | | $ | 3,715 | | $ | 3,850 | | 1.5x | 23% | 19% | $ | 46 | |
AlpInvest Co-Investment Fund VII | | 2017 | $ | 1,688 | | $ | 1,500 | | $ | 75 | | $ | 2,291 | | $ | 2,366 | | 1.6x | 23% | 19% | $ | 31 | |
Main Fund VI - Co-Investments | | 2014 | € | 1,115 | | € | 937 | | € | 1,351 | | € | 1,078 | | € | 2,429 | | 2.6x | 28% | 26% | $ | 13 | |
Main Fund V - Co-Investments | | 2012 | € | 1,124 | | € | 1,029 | | € | 2,221 | | € | 790 | | € | 3,012 | | 2.9x | 29% | 27% | $ | 7 | |
Main Fund IV - Co-Investments | | 2010 | € | 1,475 | | € | 1,331 | | € | 3,244 | | € | 556 | | € | 3,799 | | 2.9x | 24% | 22% | $ | — | |
Main Fund III - Co-Investments | | 2006 | € | 2,760 | | € | 2,734 | | € | 3,734 | | € | 329 | | € | 4,063 | | 1.5x | 6% | 5% | $ | — | |
Main Fund III - Mezzanine Investments | | 2006 | € | 2,000 | | € | 1,950 | | € | 2,512 | | € | 165 | | € | 2,676 | | 1.4x | 10% | 9% | $ | — | |
Main Fund II - Mezzanine Investments | | 2004 | € | 700 | | € | 747 | | € | 1,030 | | € | 9 | | € | 1,040 | | 1.4x | 8% | 7% | $ | — | |
All Other Active Funds & Vehicles(9) | | Various | | $ | 6,751 | | $ | 2,703 | | $ | 6,648 | | $ | 9,351 | | 1.4x | 11% | 10% | $ | 61 | |
Fully Realized Funds & Vehicles | | Various | | € | 2,126 | | € | 4,803 | | € | 2 | | € | 4,805 | | 2.3x | 35% | 32% | $ | — | |
TOTAL INVESTMENT SOLUTIONS (USD)(11) | | $ | 79,994 | | $ | 99,448 | | $ | 39,972 | | $ | 139,420 | | 1.7x | 14% | 13% | $ | 250 | |
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| | | | | TOTAL INVESTMENTS |
| | | | | As of September 30, 2017 |
| Vintage Year | | Fund Size | | Cumulative Invested Capital (2)(8) | | Total Fair Value (3)(8) | | MOIC (4) | | Gross IRR (6)(10) | | Net IRR(7)(10) |
Investment Solutions (1) | (Reported in Local Currency, in Millions) |
Fully Committed Funds (5) | | | | | | | | | | | | | |
Main Fund I - Fund Investments | 2000 | | € | 5,174.6 |
| | € | 4,204.6 |
| | € | 6,911.1 |
| | 1.6x | | 12 | % | | 11 | % |
Main Fund II - Fund Investments | 2003 | | € | 4,545.0 |
| | € | 4,781.0 |
| | € | 7,546.5 |
| | 1.6x | | 10 | % | | 9 | % |
Main Fund III - Fund Investments | 2005 | | € | 11,500.0 |
| | € | 12,620.0 |
| | € | 20,020.3 |
| | 1.6x | | 10 | % | | 9 | % |
Main Fund IV - Fund Investments | 2009 | | € | 4,877.3 |
| | € | 4,884.2 |
| | € | 7,674.8 |
| | 1.6x | | 16 | % | | 16 | % |
Main Fund V - Fund Investments | 2012 | | € | 5,080.0 |
| | € | 3,607.8 |
| | € | 4,474.1 |
| | 1.2x | | 12 | % | | 11 | % |
Main Fund VI - Fund Investments | 2015 | | € | 1,106.4 |
| | € | 338.9 |
| | € | 338.1 |
| | 1.0x | | NM |
| | NM |
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Main Fund I - Secondary Investments | 2002 | | € | 519.4 |
| | € | 475.4 |
| | € | 896.0 |
| | 1.9x | | 57 | % | | 53 | % |
Main Fund II - Secondary Investments | 2003 | | € | 998.4 |
| | € | 995.9 |
| | € | 1,818.6 |
| | 1.8x | | 27 | % | | 26 | % |
Main Fund III - Secondary Investments | 2006 | | € | 2,250.0 |
| | € | 2,303.3 |
| | € | 3,473.5 |
| | 1.5x | | 11 | % | | 10 | % |
Main Fund IV - Secondary Investments | 2010 | | € | 1,859.1 |
| | € | 1,916.6 |
| | € | 3,228.5 |
| | 1.7x | | 20 | % | | 19 | % |
Main Fund V - Secondary Investments | 2011 | | € | 4,272.8 |
| | € | 3,612.5 |
| | € | 5,402.0 |
| | 1.5x | | 22 | % | | 20 | % |
Main Fund II - Co-Investments | 2003 | | € | 1,090.0 |
| | € | 898.7 |
| | € | 2,504.6 |
| | 2.8x | | 44 | % | | 42 | % |
Main Fund III - Co-Investments | 2006 | | € | 2,760.0 |
| | € | 2,738.1 |
| | € | 3,764.2 |
| | 1.4x | | 5 | % | | 5 | % |
Main Fund IV - Co-Investments | 2010 | | € | 1,475.0 |
| | € | 1,328.7 |
| | € | 3,461.1 |
| | 2.6x | | 24 | % | | 23 | % |
Main Fund V - Co-Investments | 2012 | | € | 1,122.2 |
| | € | 1,013.3 |
| | € | 2,342.1 |
| | 2.3x | | 34 | % | | 31 | % |
Main Fund II - Mezzanine Investments | 2004 | | € | 700.0 |
| | € | 748.9 |
| | € | 1,025.7 |
| | 1.4x | | 7 | % | | 7 | % |
Main Fund III - Mezzanine Investments | 2006 | | € | 2,000.0 |
| | € | 1,927.4 |
| | € | 2,601.3 |
| | 1.3x | | 10 | % | | 9 | % |
All Other Funds (9) | Various | | | | € | 1,958.7 |
| | € | 2,706.6 |
| | 1.4x | | 14 | % | | 11 | % |
Total Fully Committed Funds | | | | | € | 50,353.7 |
| | € | 80,189.1 |
| | 1.6x | | 13 | % | | 12 | % |
Funds in the Commitment Period (5) | | | | | | | | | | | | | |
Main Fund VI - Secondary Investments | 2017 | | € | 4,203.7 |
| | € | 597.7 |
| | € | 629.5 |
| | 1.1x | | NM |
| | NM |
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Main Fund VI - Co-Investments | 2014 | | € | 1,114.6 |
| | € | 912.4 |
| | € | 1,270.8 |
| | 1.4x | | 22 | % | | 20 | % |
Main Fund VII - Co-Investments | 2017 | | € | 2,254.3 |
| | € | 149.5 |
| | € | 148.9 |
| | 1.0x | | NM |
| | NM |
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All Other Funds (9) | Various | | | | € | 605.3 |
| | € | 770.6 |
| | 1.3x | | 20 | % | | 16 | % |
Total Funds in the Commitment Period | | | | | € | 2,264.9 |
| | € | 2,819.8 |
| | 1.2x | | 21 | % | | 17 | % |
TOTAL INVESTMENT SOLUTIONS | | | | | € | 52,618.6 |
| | € | 83,008.9 |
| | 1.6x | | 13 | % | | 12 | % |
TOTAL INVESTMENT SOLUTIONS (USD)(11) | | | | | $ | 62,094.2 |
| | $ | 97,957.2 |
| | 1.6x | | | | |
Note: Investment Solutions Fund Performance excludes(1)Includes private equity and mezzanine primary fund investments, secondary fund investments and co-investments originated by the AlpInvest team. Excluded from the performance information shown are a) investments that were not originated by AlpInvest, b) Direct Investments, which was spun off from AlpInvest in 2005, and c) LP co-investment vehicles advised by AlpInvest. As of June 30, 2021, these excluded investments represent $2.5 billion of AUM at AlpInvest.
(2)Represents the original cost of investments since inception of the fund.
(3)To exclude the impact of Metropolitan Real Estate investment vehicles. AsFX, all foreign currency cash flows have been converted to the currency representing a majority of September 30, 2017, these investment vehicles had athe capital committed to the relevant fund at the reporting period spot rate.
(4)Represents all realized proceeds combined with remaining fair value, before management fees, expenses and carried interest.
(5)Multiple of $1.2 billion.invested capital (“MOIC”) represents total fair value, before management fees, expenses and carried interest, divided by cumulative invested capital.
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(1) |
113
(6)Gross Internal Rate of Return (“Gross IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on investment contributions, distributions and unrealized value of the underlying funds, before management fees, expenses and carried interest at the AlpInvest level. (7)Net Internal Rate of Return (“Net IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value after management fees, expenses and carried interest. Fund level IRRs are based on aggregate Limited Partner cash flows, and this blended return may differ from that of individual Limited Partners. As a result, certain funds may generate accrued performance revenues with a blended Net IRR that is below the preferred return hurdle for that fund. (8)As used herein, ‘Main Funds’ are each comprised of (i) an anchor mandate(s) (i.e., generally the largest account(s) within a strategy’s investment program) and (ii) AlpInvest’s other advisory client mandates with investment periods that fall within the relevant investment periods under the mandate of the anchor mandate(s) (but do not overlap with more than one such investment period). AlpInvest’s commingled funds, AlpInvest Secondaries Fund VI (“ASF VI”), ASF VII and AlpInvest Co-Investment Fund VII (“ACF VII”) are part of the Main Funds. Mezzanine Main Funds include mezzanine investments across all strategies (i.e., Primary Funds, Secondaries, and Co-Investments). (9)Aggregate includes Main Fund VII - Fund Investments, Main Fund VIII - Fund Investments, Main Fund IX - Fund Investments, Main Fund X - Fund Investments, Main Fund XI - Fund Investments, Main Fund XII - Fund Investments, Main Fund IV - Mezzanine Investments, Main Fund V - Mezzanine Investments, all ‘clean technology’ private equity investments, all strategic co-investment mandates that invest in co-investment opportunities arising out of an investor’s own separate private equity relationships and invitations, all strategic capital mandates, any state-focused investment mandates, and all other investors whose investments are not reflected in a Main Fund. (10)For funds marked “NM,” IRR may be positive or negative, but is not considered meaningful because of the limited time since initial investment and early stage of capital deployment. For funds marked “Neg,” IRR is considered meaningful but is negative as of reporting period end. (11)For purposes of aggregation, funds that report in foreign currency have been converted to U.S. dollars at the reporting period spot rate. (12)Represents the net accrued performance fee balance/(giveback obligation) as of the current quarter end. Total Net Accrued Carry excludes approximately $1.1 million of net accrued carry which was retained as part of the sale of MRE on April 1, 2021. (13)"Main Fund" entries represent a combination of a commingled fund and SMA vehicles which together comprise a "program" vintage. Indented lines shown for AlpInvest Secondaries Funds VII, VI, V and AlpInvest Co-Investment Funds VII and VIII reflect a breakout of the commingled fund, which is part of the larger program vintage.
Includes private equity and mezzanine primary fund investments, secondary fund investments and co-investments originated by the AlpInvest team. Excluded from the performance information shown are a) investments that were not originated by AlpInvest, and b) Direct Investments, which was spun off from AlpInvest in 2005. As of September 30, 2017, these excluded investments represent $0.3 billion of AUM at AlpInvest.
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(2) | Represents the original cost of investments since inception of the fund.
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(3) | Represents all realized proceeds combined with remaining fair value, before management fees, expenses and carried interest.
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(4) | Multiple of invested capital (“MOIC”) represents total fair value, before management fees, expenses and carried interest, divided by cumulative invested capital. |
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(5) | Fully Committed funds are past the expiration date of the commitment period as defined in the respective limited partnership agreement. |
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(6) | Gross Internal Rate of Return (“Gross IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value before management fees, expenses and carried interest. |
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(7) | Net Internal Rate of Return (“Net IRR”) represents the annualized IRR for the period indicated on Limited Partner invested capital based on contributions, distributions and unrealized value after management fees, expenses and carried interest. |
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(8) | To exclude the impact of FX, all foreign currency cash flows have been converted to EUR at the reporting period spot rate.
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(9) | Aggregate includes Main Fund VII - Fund Investments, Main Fund VIII - Fund Investments, Main Fund I - Co-Investments, Main Fund I - Mezzanine Investments, Main Fund IV - Mezzanine Investments, Main Fund V - Mezzanine Investments, AlpInvest CleanTech Funds and funds which are not included as part of a main fund.
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(10) | For funds marked “NM,” IRR may be positive or negative, but is not considered meaningful because of the limited time since initial investment and early stage of capital deployment. For funds marked “Neg,” IRR is negative as of reporting period end.
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(11) | Represents the U.S. dollar equivalent balance translated at the spot rate as of period end.
|
Liquidity and Capital Resources
Historical Liquidity and Capital Resources
We have historically required limited capital resources to support the working capital and operating needs of our business. Our management fees have largely covered our operating costs and all realized performance fees,allocations, after covering the related compensation, are available for distribution to equityholders. Historically, approximatelyApproximately 95% – 97% of all capital commitments to our funds have beenare provided by our fund investors, with the remaining amount typically funded by Carlyle, our senior Carlyle professionals, advisors and other professionals.
Our Sources of Liquidity
We have multiple sources of liquidity to meet our capital needs, including cash on hand, annual cash flows, accumulated earnings and funds from our senior credit facility, including a term loan facility and a revolving credit facility with $750.0which has $775.0 million of available capacity as of SeptemberJune 30, 2017.2021. We believe these sources will be sufficient to fund our capital needs for at least the next twelve months. If we determine that market conditions are favorable after taking into account our liquidity requirements, including the amounts available under our senior credit facility, we may seek to issue and sell common units in a registered public offering or a privately negotiated transaction, or we may issue additional senior notes, other debt or preferred equity. In September 2017, we issued 16 million of our 5.875% Series A Preferred Units for net proceeds of $387.6 million.
Cash and cash equivalents. Cash and cash equivalents were approximately $1.4$1.6 billion at SeptemberJune 30, 2017.2021. However, a portion of this cash is allocated for specific business purposes, including, but not limited to, (i) performance allocations and incentive fee-related cash that has been received but not yet distributed as performance allocations and incentive fee-related compensation and amounts owed to non-controlling interests; (ii) proceeds received from realized investments that are allocable to non-controlling interests; and (iii) regulatory capital.
Corporate Treasury Investments. Corporate treasury investments were approximately $117.4 million at September 30, 2017. These investments represent investments in U.S. Treasury and government agency obligations, commercial paper, certificates of deposit, other investment grade securities and other investments with original maturities of greater than three months when purchased.
After deducting cash amounts allocated to the specific requirements mentioned above, the remaining cash and cash equivalents, including corporate treasury investments, is approximately $1.3$1.4 billion as of SeptemberJune 30, 2017.2021. This remaining amount will be used towards our primary liquidity needs, as outlined in the next section. This amount does not take into consideration ordinary course of business payables and reserves for specific business purposes.
Senior Revolving Credit Facility. The On February 11, 2019, the Company entered into an amendment and restatement of its senior credit facility includes $25.0 million in a term loan and $750.0 million in a revolving credit facility. The term loan andcapacity under the revolving credit facility is $775.0 million and is scheduled to mature on May 5, 2020.February 11, 2024. Principal amounts outstanding under the amended term loan and restated revolving credit facility accrue interest, at the option of the borrowers, either (a) at an alternate base rate plus an applicable margin not to exceed 0.75%0.50%, or (b) at LIBOR plus an applicable margin not to exceed 1.75% (2.49%1.50% per annum (1.35% at SeptemberJune 30, 2017)2021). As of June 30, 2021, there was no balance outstanding under the senior revolving credit facility.
The senior revolving credit facility is unsecured. We are required to maintain management fee earning assets (as defined in the amended and restated senior revolving credit facility) of at least $65.3$75.0 billion and a total leverage ratio of less than 3.0 to 1.0, in each case, tested on a quarterly basis. Non-compliance with any of the financial or non-financial covenants without cure or waiver would constitute an event of default under the senior revolving credit facility. An event of default resulting from a breach of certain financial or non-financial covenants may result, at the option of the lenders, in an acceleration of the principal and interest outstanding, and a termination of the senior revolving credit facility. The senior credit facility also contains other customary events of default, including
defaults based on events of bankruptcy and insolvency, nonpayment of principal, interest or fees when due, breach of specified covenants, change in control and material inaccuracy of representations and warranties.
Our balance sheet at September 30, 2017 reflects $25.0Global Credit Revolving Credit Facility. In December 2018, certain subsidiaries of the Company established a $250.0 million revolving line of credit, primarily intended to support certain lending activities within the Global Credit segment. The credit facility includes a $125.0 million line of credit with a one-year term, which was amended in December 2020 to extend its maturity to December 2021, and a $125.0 million line of credit with a three-year term. Principal amounts outstanding under our senior creditthe facility comprisedaccrue interest, at the option of $25.0 millionthe borrowers, either (a) at an alternate base rate plus applicable margin not to exceed 1.00%, or (b) at the Eurocurrency rate plus an applicable margin not to exceed 2.00%. As of term loanJune 30, 2021, there was no balance outstanding. On April 6, 2017, we borrowed $250 millionoutstanding under the revolving credit facility of our senior credit facility. This amount was repaid in full on June 2, 2017.
CLO Term Loans.Borrowings. For certain of our CLOs, the PartnershipCompany finances a portion of its investment in the CLOs through the proceeds received from term loans and other financing arrangements with financial institutions.institutions or other financing arrangements. The Partnership'sCompany’s outstanding CLO term loans consist of the following (Dollars in millions):
|
| | | | | | | | | | | | | | | |
Formation Date | | Borrowing Outstanding September 30, 2017 | | | Borrowing Outstanding December 31, 2016 | | | Maturity Date (1) | | Interest Rate as of September 30, 2017 | |
October 3, 2013 | | $ | — |
| (2) | | $ | 13.2 |
| (2) | | September 28, 2018 | | NA | (3) |
June 7, 2016 | | 20.6 |
| | | 20.6 |
| | | July 15, 2027 | | 3.10% | (4) |
February 28, 2017 | | 73.0 |
| | | — |
| | | September 21, 2029 | | 2.33% | (5) |
April 19, 2017 | | 22.8 |
| | | — |
| | | April 22, 2031 | | 3.24% | (6) (12) |
June 28, 2017 | | 23.1 |
| | | — |
| | | July 22, 2031 | | 3.25% | (7) (12) |
July 20, 2017 | | 24.4 |
| | | — |
| | | April 21, 2027 | | 2.84% | (8) (12) |
August 2, 2017 | | 22.8 |
| | | — |
| | | July 23, 2029 | | 3.10% | (9) (12) |
August 2, 2017 | | 20.6 |
| | | — |
| | | August 3, 2022 | | 1.75% | (10) |
August 14, 2017 | | 22.6 |
| | | — |
| | | August 15, 2030 | | 3.16% | (11) (12) |
| | $ | 229.9 |
| | | $ | 33.8 |
| | | | | | |
(1) Maturity date is earlier of date indicated or the date that the CLO is dissolved.
(2) Original borrowing of €12.6 million.
(3) Note paid off in the third quarter of 2017.
| |
(4) | Incurs interest at the weighted average rate of the underlying senior notes. Interest income on the underlying collateral approximated the amount of interest expense and was not significant for the three and nine months ended September 30, 2017 and 2016. |
| |
(5) | Original borrowing of €61.8 million; incurs interest at EURIBOR plus applicable margins as defined in the agreement. |
| |
(6) | Incurs interest at LIBOR plus 1.932%. |
| |
(7) | Incurs interest at LIBOR plus 1.923%. |
| |
(8) | Incurs interest at LIBOR plus 1.536%. |
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(9) | Incurs interest at LIBOR plus 1.808%. |
| |
(10) | Original borrowing of €17.4 million; incurs interest at LIBOR plus 1.75% and has full recourse to the Partnership. |
| |
(11) | Incurs interest at LIBOR plus 1.848%. |
| |
(12) | Term loan issued under master credit agreement. |
borrowings were $210.0 million and $356.1 million at June 30, 2021 and December 31, 2020, respectively. The CLO term loansborrowings are secured by the Partnership'sCompany’s investments in the respective CLO, have a general unsecured interest in the Carlyle entity that manages the CLO, and generally do not have recourse to any other Carlyle entity.
European CLO Financing.On February 28, 2017, a subsidiary As of June 30, 2021, $191.0 million of these borrowings are secured by investments attributable to The Carlyle Group Inc. See Note 5 of the Partnership entered into a financing agreement with severalunaudited condensed consolidated financial institutions under which these financial institutions provided a €61.8 million term loan ($73.0 million at September 30, 2017) to the Partnership. This term loan is secured by the Partnership’s investmentsstatements included in the retained notes in certain European CLOs that were formed in 2014 and 2015. This term loan will maturethis Quarterly Report on the earlier of September 21, 2029 or the date that the certain EuropeanForm 10-Q for more information on our CLO retained notes have been redeemed. The Partnership may prepay the term loan in whole or in part at any time after the third yearborrowings.
Senior Notes. Certain indirect finance subsidiaries of the date of issuance without penalty. Prepayment of the term loan within the first three years will incur a penalty based on the prepayment amount. Interest on this term loan accrues at EURIBOR plus applicable margins (2.33% at September 30, 2017).
Master Credit Agreement - Term Loans. In January 2017, the Partnership entered into a master credit agreement with a financial institution under which the financial institution expects to provide term loans to the Partnership for the Partnership to purchase eligible interests in CLOs. This agreement will terminate in January 2020. Any term loan to beCompany have issued under this master credit agreement will be secured by the Partnership’s investment in the respective CLO as well as any senior
management fee and subordinated management fee payable by each CLO. Any term loan will bear interest at LIBOR plus a weighted average spread and an applicable margin. Interest will be due quarterly.
3.875% Senior Notes. In January 2013, Carlyle Holdings Finance L.L.C., an indirect finance subsidiary of the Partnership, issued $500.0 million of 3.875% senior notes, due February 1, 2023 at 99.966% of par. Intereston which interest is payable semi-annually, on February 1 and August 1, beginning August 1, 2013.as discussed below. The senior notes are unsecured and unsubordinated obligations of Carlyle Holdings Finance L.L.C.the respective subsidiary and are fully and unconditionally guaranteed, jointly and severally, by The Carlyle Group L.P.the Company and each of the Carlyle Holdings partnerships. The indentureindentures governing each of the senior notes containscontain customary covenants that, among other things, limit Carlyle Holdings Finance L.L.C.the issuers’ and the guarantors’ ability, subject to certain exceptions, to incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The notes also contain customary events of default. All or a portion of the notes may be redeemed at our option, in whole or in part, at any time and from time to time, prior to their stated maturity, at the make-whole redemption price set forth in the notes. If a change of control repurchase event occurs, the notes are subject to repurchase at the repurchase price as set forth in the notes.
3.500% Senior Notes. In September 2019, Carlyle Finance Subsidiary L.L.C. issued $425.0 million of 3.500% senior notes due September 19, 2029 at 99.841% of par.
5.650% Senior Notes. In September 2018, Carlyle Finance L.L.C. issued $350.0 million of 5.650% senior notes due September 15, 2048 at 99.914% of par.
3.875% Senior Notes. In January 2013, Carlyle Holdings Finance L.L.C. issued $500.0 million of 3.875% senior notes due February 1, 2023 at 99.966% of par. In September 2018, we completed a tender offer to purchase $250.0 million in aggregate principal amount of these notes. As of June 30, 2021, $250.0 million of these notes remain outstanding.
5.625% Senior Notes.Notes. In March 2013, Carlyle Holdings II Finance L.L.C., an indirect finance subsidiary of the Partnership, issued $400.0 million of 5.625% Senior Notessenior notes due March 30, 2043 at 99.583% of par. Interest is payable semi-annually onIn March 302014, an additional $200.0 million of these notes were issued at 104.315% of par and September 30, beginning September 30, 2013.are treated as a single class with the already outstanding $400.0 million aggregate principal amount of these notes.
Subordinated Notes. In May 2021, Carlyle Finance L.L.C. issued $435.0 million aggregate principal amount of 4.625% subordinated notes due May 15, 2061. In June 2021, an additional $65.0 million aggregate principal amount of these subordinated notes were issued and are treated as a single series with the already outstanding $435.0 million aggregate principal amount. The subordinated notes are unsecured and unsubordinatedsubordinated obligations of Carlyle Holdings II Finance L.L.C.the issuer and are fully and unconditionally guaranteed, jointly and severally, on a subordinated basis, by The Carlyle Group L.P. andthe Company, each of the Carlyle Holdings partnerships.partnerships, and CG Subsidiary Holdings L.L.C., an indirect subsidiary of the Company. The indentureindentures governing the subordinated notes contains contain
customary covenants and financial restrictions that, among other things, limit Carlyle Holdings Finance II L.L.C.the issuers’ and the guarantors’ ability, subject to certain exceptions, to incur indebtedness ranking on a parity with the subordinated notes or indebtedness ranking junior to the subordinated notes secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease all or substantially all of their assets. The subordinated notes also contain customary events of default. All or a portion of the notes may be redeemed at our option, in whole or in part, at any time and from time to time on or after June 15, 2026, prior to their stated maturity, at the make-wholea redemption price set forthequal to their principal amount plus any accrued and unpaid interest to, but excluding, the date of redemption. If interest due on the Subordinated Notes is deemed to no longer be deductible in the notes. IfU.S., a change“Tax Redemption Event”, the subordinated notes may be redeemed, in whole, but not in part, within 120 days of control repurchasethe occurrence of such event occurs, the notes are subjectat a redemption price equal to repurchase at the repurchase price as set forth in the notes.
In March 2014, Carlyle Holdings II Finance L.L.C. issued $200.0 million of 5.625% Senior Notes due March 30, 2043 at 104.315% of par. These notes were issued as additional 5.625% Senior Notes due March 30, 2043 and are treated as a single class with the already outstanding $400.0 million aggregatetheir principal amount plus accrued and unpaid interest to, but excluding, the date of these senior notes.
Promissory Notes. On January 1, 2016,redemption. In addition, the Partnership issued a $120.0 million promissory note to BNRI as a result of a contingent consideration arrangement entered into in 2012 between the Partnership and BNRI as part of the Partnership's strategic investment in NGP (see Notes 5 and 7 to the unaudited condensed consolidated financial statements). Interest on the promissory note accrues at the three month LIBOR plus 2.50% (3.83% at September 30, 2017). The Partnershipsubordinated notes may prepay the promissory notebe redeemed, in whole, orbut not in part, at any time without penalty. The promissory note is scheduledprior to mature on January 1, 2022. In December 2016, the Partnership repurchased $11.2 millionMay 15, 2026, within 90 days of the promissory note.
Additionally, in June 2017, as part ofrating agencies determining that the settlement with investors in two commodities investment vehicles managed by an affiliate of the Partnership (discussed in Note 9Subordinated Notes should no longer receive partial equity treatment pursuant to the unaudited condensed consolidated financial statements)rating agency’s criteria, a “rating agency event”, at a redemption price equal to 102% of their principal amount plus any accrued and unpaid interest to, but excluding, the Partnership issued a seriesdate of promissory notes, aggregating to $53.9 million, to the investors of these commodities investment vehicles. Interest on these promissory notes accrues at the three month LIBOR plus 2% (3.33% at September 30, 2017). The Partnership may prepay these promissory notes in whole or in part at any time without penalty. These promissory notes are scheduled to mature on July 15, 2019.redemption.
Obligations of CLOs. Loans payable of the Consolidated Funds represent amounts due to holders of debt securities issued by the CLOs. We are not liable for any loans payable of the CLOs. Several of the CLOs issued preferred shares representing the most subordinated interest, however these tranches are mandatorily redeemable upon the maturity dates of the senior secured loans payable, and as a result have been classified as liabilities under U.S. GAAP, and are included in loans payable of Consolidated Funds in our unaudited condensed consolidated balance sheets.
Loans payable of the CLOs are collateralized by the assets held by the CLOs and the assets of one CLO may not be used to satisfy the liabilities of another. This collateral consists of cash and cash equivalents, corporate loans, corporate bonds and other securities.
Preferred Units. On September 13, 2017, we issued 16 million of our Preferred Units for net proceeds of approximately $387.6 million. We plan to use these proceeds for general corporate purposes, including to fund investments. Distributions on the Preferred Units are discretionary and non-cumulative. The Preferred Units may be redeemed at our option, in whole or in
part, at any time on or after September 15, 2022 at a price of $25 per Preferred Unit, plus declared and unpaid distributions. In addition, the Preferred Units may be redeemed at our option prior to September 15, 2022, upon the occurrence of change of control, tax redemption or rating agency events. Holders of the Preferred Units will generally have no voting rights and have none of the voting rights given to holders of our common units, except as otherwise provided in Carlyle's limited partnership agreement. Holders of the Preferred Units have no right to require the redemption of the Preferred Units and the Preferred Units do not have a maturity date. See Note 14 of our unaudited condensed consolidated financial statements for more information.
Realized performance fee revenue.Performance Allocation Revenues. Another source of liquidity we may use to meet our capital needs is the realized performance fee revenueallocation revenues generated by our investment funds. Carried interest isPerformance allocations are generally realized when an underlying investment is profitably disposed of and the fund'sfund’s cumulative returns are in excess of the preferred return. For certain funds, carried interest isperformance allocations are realized once all invested capital and expenses have been returned to the fund’s investors and the fund’s cumulative returns are in excess of the preferred return. Incentive fees earned on our CLO vehicles generally are paid upon the dissolution of such vehicles.
Our accrued performance feesallocations by segment as of SeptemberJune 30, 2017,2021, gross and net of accrued giveback obligations, are set forth below:
| | | | | | | | | | | | | | | | | |
Asset Class | Accrued Performance Allocations | | Accrued Giveback Obligation | | Net Accrued Performance Revenues |
| (Dollars in millions) |
Global Private Equity | $ | 6,679.7 | | | $ | (18.4) | | | $ | 6,661.3 | |
Global Credit | 231.9 | | | (2.6) | | | 229.3 | |
Investment Solutions (1) | 1,234.3 | | | — | | | 1,234.3 | |
Total | $ | 8,145.9 | | | $ | (21.0) | | | $ | 8,124.9 | |
Plus: Accrued performance allocations from NGP Carry Funds | | 1.1 | |
Less: Accrued performance allocation-related compensation | | (4,043.8) | |
| | |
Less: Deferred taxes on certain foreign accrued performance allocations | | (62.3) | |
Less: Net accrued performance allocations attributable to non-controlling interests in consolidated entities | | (14.5) | |
Net accrued performance revenues before timing differences | | 4,005.4 | |
| | |
Less/Plus: Timing differences between the period when accrued performance allocations are realized and the period they are collected/distributed | | 1.2 | |
Net accrued performance revenues attributable to The Carlyle Group Inc. | | $ | 4,006.6 | |
(1) The Company’s primary and secondary investments in external funds are generally valued based on its proportionate share of the net assets provided by the third party general partners of the underlying fund partnerships based on the most recent available information which typically has a lag of up to 90 days. As a result, amounts presented may not include the impact of economic activity in the current quarter.
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| | | | | | | | | | | |
Asset Class | Accrued Performance Fees | | Accrued Giveback Obligation | | Net Accrued Performance Fees |
| (Dollars in millions) |
Corporate Private Equity | $ | 2,130.9 |
| | $ | (9.8 | ) | | $ | 2,121.1 |
|
Real Assets | 624.3 |
| | (57.8 | ) | | 566.5 |
|
Global Market Strategies | 84.9 |
| | — |
| | 84.9 |
|
Investment Solutions | 658.5 |
| | — |
| | 658.5 |
|
Total | $ | 3,498.6 |
| | $ | (67.6 | ) | | $ | 3,431.0 |
|
Plus: Accrued performance fees from NGP | | 107.4 |
|
Less: Accrued performance fee-related compensation | | (1,803.8 | ) |
Plus: Receivable for giveback obligations from current and former employees | | 3.4 |
|
Less: Deferred taxes on accrued performance fees | | (65.6 | ) |
Less: Net accrued performance fees attributable to non-controlling interests in consolidated entities | | 1.8 |
|
Net accrued performance fees before timing differences | | 1,674.2 |
|
Less/Plus: Timing differences between the period when accrued performance fees are realized and the period they are collected/distributed | | (177.2 | ) |
Net accrued performance fees attributable to Carlyle Holdings | | $ | 1,497.0 |
|
As of September 30, 2017, theThe net accrued performance feesrevenues attributable to The Carlyle Holdings,Group Inc., excluding realized amounts, related to our carry funds and our other vehicles as of June 30, 2021, as well as the carry fund appreciation (depreciation), is set forth below by segment were as follows (dollars(Dollars in millions): |
| | | |
Corporate Private Equity: | |
Buyout | $ | 928.9 |
|
Growth Capital | 38.1 |
|
Total Corporate Private Equity | 967.0 |
|
Real Assets: | |
Real Estate | 303.9 |
|
Natural Resources | 134.8 |
|
Legacy Energy | (16.0 | ) |
Total Real Assets | 422.7 |
|
Global Market Strategies | 44.6 |
|
Investment Solutions | 62.7 |
|
Net accrued performance fees attributable to Carlyle Holdings | $ | 1,497.0 |
|
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| Carry Fund Appreciation/(Depreciation)(1) | | Net Accrued Performance Revenues |
| Quarter-to-Date | | Year-to-Date | | Last Twelve Months | |
| Q2 2020 | | | | | | | | Q2 2021 | | Q2 2020 | | Q2 2021 | | Q2 2020 | | Q2 2021 | |
Overall Carry Fund Appreciation/(Depreciation) | 5 | % | | | | | | | | 11 | % | | (3) | % | | 25 | % | | 1 | % | | 43 | % | | |
Global Private Equity(2): | | | | | | | | | | | | | | | | | | | $ | 3,631.6 | |
Corporate Private Equity | 13 | % | | | | | | | | 12 | % | | 3 | % | | 28 | % | | 7 | % | | 51 | % | | 3,213.2 | |
Real Estate | 2 | % | | | | | | | | 11 | % | | 1 | % | | 15 | % | | 6 | % | | 24 | % | | 376.3 | |
Natural Resources | 3 | % | | | | | | | | 9 | % | | (19) | % | | 17 | % | | (23) | % | | 23 | % | | 45.7 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Global Credit Carry Funds | 8 | % | | | | | | | | 8 | % | | (13) | % | | 16 | % | | (17) | % | | 32 | % | | 123.6 | |
| | | | | | | | | | | | | | | | | | | |
Investment Solutions Carry Funds (3) | (6) | % | | | | | | | | 12 | % | | (4) | % | | 28 | % | | 3 | % | | 47 | % | | 251.4 | |
| | | | | | | | | | | | | | | | | | | |
Net Accrued Performance Revenues | | | | | | | | | | | | | | | | | | | $ | 4,006.6 | |
(1) Appreciation/(Depreciation) represents unrealized gain/(loss) for the period on a total return basis before fees and expenses. The percentage of return is calculated as: ending remaining investment fair market value plus net investment outflow (sales proceeds minus net purchases) minus beginning remaining investment fair market value divided by beginning remaining investment fair market value. Amounts are fund only, and do not include coinvestments.
(2) Includes $3.6 million of net accrued clawback from our Legacy Energy funds.
(3) The Company’s primary and secondary investments in external funds are generally valued based on its proportionate share of the net assets provided by the third party general partners of the underlying fund partnerships based on the most recent available information which typically has a lag of up to 90 days. As a result, amounts presented may not include the impact of economic activity in the current quarter.
Realized investment income.Principal Investment Income. Another source of liquidity we may use to meet our capital needs is the realized principal investment income generated by our equity method investments and other principal investments. InvestmentPrincipal investment income is realized when we redeem all or a portion of our investment or when we receive or are due cash income, such as dividends or distributions. Certain of the investments attributable to The Carlyle HoldingsGroup Inc. (excluding certain general partner interests, strategic investments, and investments in certain CLOs) may be sold at our discretion as a source of liquidity. During the three months ended June 30, 2021, we sold approximately $142.5 million of investments in U.S. CLOs and used the proceeds to repay outstanding CLO borrowings (see Note 5 to the condensed consolidated financial statements).
Investments as of June 30, 2021 consist of the following:
| | | | | | | | | | | | | | | | | | | |
| Investments in Carlyle Funds | | Investments in NGP(1) | | | | Total |
| (Dollars in millions) |
Investments, excluding performance allocations | $ | 2,121.5 | | | $ | 374.9 | | | | | $ | 2,496.4 | |
Less: Amounts attributable to non-controlling interests in consolidated entities | (233.3) | | | — | | | | | (233.3) | |
Plus: Investments in Consolidated Funds, eliminated in consolidation | 161.4 | | | — | | | | | 161.4 | |
Less: Strategic equity method investments in NGP Management | — | | | (373.8) | | | | | (373.8) | |
Less: Investment in NGP general partners - accrued performance allocations | — | | | (1.1) | | | | | (1.1) | |
| | | | | | | |
Total investments attributable to The Carlyle Group Inc., exclusive of NGP Management | $ | 2,049.6 | | | $ | — | | | | | $ | 2,049.6 | |
(1) See Note 4 to our unaudited condensed consolidated financial statements.
Our investments as of June 30, 2021, can be further attributed as follows (Dollars in millions):
| | | | | |
| |
Investments in Carlyle Funds, excluding CLOs: | |
Global Private Equity funds(1) | $ | 807.0 | |
| |
Global Credit funds (2) | 742.1 | |
Investment Solutions funds (3) | 63.9 | |
Total investments in Carlyle Funds, excluding CLOs | 1,613.0 | |
Investments in CLOs | 345.7 | |
Other investments | 90.9 | |
Total investments attributable to The Carlyle Group Inc. | 2,049.6 | |
CLO loans and other borrowings attributable to The Carlyle Group Inc. (4) | (191.0) | |
Total investments attributable to The Carlyle Group Inc., net of CLO loans and other borrowings | $ | 1,858.6 | |
(1) Excludes our strategic equity method investment in NGP Management and investments in NGP general partners - accrued performance allocations.
(2) Includes the Company’s investment in Fortitude Re, which was contributed to Carlyle FRL, a Carlyle-affiliated investment fund, in June 2020 as discussed in Note 4 to the consolidated financial statements. This investment has a carrying value of $613.3 million as of June 30, 2021.
(3) The Company’s primary and secondary investments in external funds are generally valued based on its proportionate share of the net assets provided by the third party general partners of the underlying fund partnerships based on the most recent available information which typically has a lag of up to 90 days. As a result, amounts presented may not include the impact of economic activity in the current quarter.
(4) Of the $210.0 million in total CLO borrowings as of June 30, 2021 and as disclosed in Note 5 to the consolidated financial statements, $191.0 million are collateralized by investments attributable to The Carlyle Group Inc. The remaining $19.0 million in total CLO borrowings are collateralized by investments attributable to non-controlling interests.
Our Liquidity Needs
We generally use our working capital and cash flows to invest in growth initiatives, service our debt, fund the working capital needs of our business and investment funds and pay distributionsdividends to our unitholders.common stockholders.
In the future, we expect that our primary liquidity needs will be to:
•provide capital to facilitate the growth of our existing business lines;
•provide capital to facilitate our expansion into new, complementary business lines, including acquisitions;
•pay operating expenses, including compensation and compliance costs and other obligations as they arise;
•fund costs of litigation and contingencies, including related legal costs;
•fund the capital investments of Carlyle in our funds;
•fund capital expenditures;
•repay borrowings and related interest costs and expenses;
•pay earnouts and contingent cash consideration associated with our acquisitions and strategic investments;
•pay income taxes;taxes, including corporate income taxes following the Conversion;
make distributions•pay dividends to our common and preferred unitholders and the holders of the Carlyle Holdings partnership unitsstockholders in accordance with our distributiondividend policy, and;
•make installment payments under the deferred obligation to former holders of Carlyle Holdings partnership units,
which were exchanged in the Conversion, and;
•repurchase our units.common stock.
Preferred Unit Distributions. Distributions on
Common Stockholder Dividends. Our intention is to pay dividends to holders of our common stock in an amount of $0.25 per share of common stock ($1.00 per share annually), subject to the Preferred Units, when and if declared, will be payable quarterly on the 15th daydiscretion of March, June, September and December of each year, beginning December 15, 2017. Distributions on the Preferred Units are discretionary and non-cumulative. Theour Board of Directors and compliance with applicable law. For U.S. federal income tax purposes, any dividends we pay following the Conversion generally will be treated as qualified dividend income (generally taxable to U.S. individual stockholders at capital gain rates) paid by a domestic corporation to the extent paid out of our general partner has declared a quarterly distributionor current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, with any excess dividends treated as return of $0.375347 per Preferred Unitcapital to holders of record at the close of business on December 1, 2017, payable on December 15, 2017. The first distribution on the Preferred Units is calculated based on the date of original issuance.
Common Unit Distributions. With respect to distribution year 2017, the Board of Directors of our general partner has declared a distribution to common unitholders totaling approximately $104.3 million, or $1.08 per common unit, consisting of (i) $0.56 per common unit in respectextent of the third quarter of 2017, which is payable on November 16, 2017 to common unitholders of record on November 10, 2017, (ii) $0.42 per common unit in respect of the second quarter of 2017, which was paid in August 2017, and (ii) $0.10 per common unit in respect of the first quarter of 2017, which was paid in May 2017.
With respect to distribution year 2016, through November 2016, we paid cumulative distributions of approximately $117.3 million to common unitholders, consisting of (i) $0.26 per common unit in respect of the first quarter of 2016, which was paid in May 2016, (ii) $0.63 per common unit in respect of the second quarter of 2016, which was paid in August 2016, and (iii) $0.50 per common unit in respect of the third quarter of 2016, which was paid in November 2016.
Distributions to common unitholders paid during the nine months ended September 30, 2017 totaled $63.0 million, representing the amount paid in February 2017 of $0.16 per common unit in respect of the fourth quarter of 2016, the amount paid in May 2017 of $0.10 per common unit in respect of the first quarter of 2017, and the amount paid in August 2017 of $0.42 per common unit in respect of the second quarter of 2017. Distributions to common unitholders paid during the nine months ended September 30, 2016 totaled $98.5 million, representing the amount paid in March 2016 of $0.29 per common unit in
respect of the fourth quarter of 2015, the amount paid in May 2016 of $0.26 per common unit in respect of the first quarter of 2016, and the amount paid in August 2016 of $0.50 per common unit in respect of the second quarter of 2016.
It is Carlyle’s intention to cause Carlyle Holdings to make quarterly distributions to its partners, includingstockholder’s basis. The Carlyle Group L.P.’s wholly owned subsidiaries, that will enable The Carlyle Group L.P. to pay a quarterly distribution of approximately 75% of Distributable Earnings Attributable to Common Unitholders for the quarter. “Distributable Earnings Attributable to Common Unitholders” refers to The Carlyle Group L.P.'s share of Distributable Earnings, after an implied provision for current corporate income taxes (other than corporate income taxes attributable to The Carlyle Group L.P.) and preferred unit distributions, net of corporate income taxes attributable to The Carlyle Group L.P. and amounts payable under the tax receivable agreement. Carlyle’s general partner may adjust the distribution for amounts determined to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and its funds or to comply with applicable law or any of its financing agreements, or to provide for future cash requirements such as tax-related payments, giveback obligations and distributions to unitholders for any ensuing quarter. The amount to be distributed could also be adjusted upward in any one quarter.
Notwithstanding the foregoing, the declaration and payment of any distributionsdividends to holders of our common stock will be at the sole discretion of our general partner, whichBoard of Directors, and our dividend policy may change our distribution policybe changed at any time. Our general partner will take into account general economic and business conditions, our strategic plans and prospects, our business and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual restrictions and obligations, legal, tax and regulatory restrictions, other constraints on
With respect to distribution year 2021, the paymentBoard of distributions by usDirectors has declared a dividend to our common unitholdersstockholders totaling approximately $178.0 million, or by our subsidiaries to us, and such other factors as our general partner may deem relevant.
Because our wholly owned subsidiaries must pay taxes and make payments under the tax receivable agreement, the amounts ultimately distributed by us to our common unitholders are expected to be less, on a$0.50 per unit basis, than the amounts distributed by the Carlyle Holdings partnerships to the other limited partnersshare, consisting of the Carlyle Holdings partnershipsfollowing:
| | | | | | | | | | | | | | | | | |
Common Stock Dividends - Dividend Year 2021 |
Quarter | Dividend per Common Share | | Dividend to Common Stockholders | Record Date | Payment Date |
(Dollars in millions, except per share data) |
Q1 2021 | $ | 0.25 | | | $ | 88.7 | | May 11, 2021 | May 19, 2021 |
Q2 2021 | 0.25 | | | 89.3 | | August 10, 2021 | August 17, 2021 |
| | | | | |
| | | | | |
Total | $ | 0.50 | | | $ | 178.0 | | | |
With respect to distribution year 2020, the Board of Directors declared cumulative dividends to common stockholders totaling approximately $352.6 million, consisting of the following:
| | | | | | | | | | | | | | | | | |
Common Stock Dividends - Dividend Year 2020 |
Quarter | Dividend per Common Share | | Dividend to Common Stockholders | Record Date | Payment Date |
(Dollars in millions, except per share data) |
Q1 2020 | $ | 0.25 | | | $ | 87.2 | | May 12, 2020 | May 19, 2020 |
Q2 2020 | 0.25 | | | 88.3 | | August 11, 2020 | August 18, 2020 |
Q3 2020 | 0.25 | | | 88.4 | | November 10, 2020 | November 17, 2020 |
Q4 2020 | 0.25 | | | 88.7 | | February 16, 2021 | February 23, 2021 |
Total | $ | 1.00 | | | $ | 352.6 | | | |
Dividends to common stockholders paid during the six months ended June 30, 2021 totaled $177.4 million, including the amount paid in February 2021 of $0.25 per common share in respect of their Carlyle Holdings partnership units.the fourth quarter of 2020. Dividends to common stockholders paid during the six months ended June 30, 2020 totaled $174.6 million, including the amount paid in February 2020 of $0.25 per common share in respect of the fourth quarter of 2019.
Fund commitments. Commitments. Generally, we intend to have Carlyle commit to fund approximately 1%0.75% of the capital commitments to our future carry funds, although we may elect to invest additional amounts in funds focused on new investment areas. We may, from time to time, exercise our right to purchase additional interests in our investment funds that become available in the ordinary course of their operations. We expect our senior Carlyle professionals and employees to continue to make significant capital contributions to our funds based on their existing commitments, and to make capital commitments to future funds consistent with the level of their historical commitments. We also intend to make investments in our open-end funds and our CLO vehicles. Our investments in our U.S. and European CLO vehicles will comply with the risk retention rules as discussed in “Risk Retention Rules” later in this section.
Since our inception through SeptemberJune 30, 2017,2021, we and our senior Carlyle professionals, operating executives and other professionals have invested or committed to invest in or alongside our funds. Approximately 3% to 5% of all capital commitments to our funds are funded collectively by us and our senior Carlyle professionals, operating executives and other professionals. The current unfunded commitment of Carlyle and our senior Carlyle professionals, operating executives and other professionals to our investment funds as of SeptemberJune 30, 2017,2021, consisted of the following:following (Dollars in millions):
|
| | | |
Asset Class | Unfunded Commitment |
| (Dollars in millions) |
Corporate Private Equity | $ | 1,190.1 |
|
Real Assets | 900.6 |
|
Global Market Strategies | 573.9 |
|
Investment Solutions | 165.5 |
|
Total | $ | 2,830.1 |
|
| | | | | |
Asset Class | Unfunded Commitment |
| |
Global Private Equity | $ | 2,701.4 | |
| |
Global Credit | 346.6 | |
Investment Solutions | 301.2 | |
Total | $ | 3,349.2 | |
A substantial majority of the remaining commitments are expected to be funded by senior Carlyle professionals, operating executives and other professionals through our internal co-investment program. Of the $2.8$3.3 billion of unfunded commitments, approximately $2.5$2.8 billion is subscribed individually by senior Carlyle professionals, operating executives and other professionals, with the balance funded directly by the Partnership.Company.
Investments as of September 30, 2017 consist of the following (dollars in millions):
|
| | | |
Investments | $ | 1,480.9 |
|
Less: Amounts attributable to non-controlling interests in consolidated entities | (340.3 | ) |
Less: Strategic equity method investments in NGP Management | (396.5 | ) |
Less: Investment in NGP accrued performance fees | (107.4 | ) |
Investments excluding non-controlling interests and NGP | 636.7 |
|
Plus: investments in Consolidated Funds, eliminated in consolidation | 199.0 |
|
Total investments attributable to Carlyle Holdings, exclusive of NGP Management | $ | 835.7 |
|
Of the $835.7 million of total investments, approximately $229.9 million are financed with loans (see Sources of Liquidity earlier in this section). The financing of our CLO investments within the last year has caused our total investments to increase at a faster rate than in prior periods. We expect this trend to continue in the near term.
Repurchase Program. In February 2016,December 2018, the Board of Directors of the general partner of the Partnership authorized the repurchase of up to $200 million of common unitsstock and/or Carlyle Holdings units. Under this unitIn connection with the Conversion, in January 2020 our Board of Directors re-authorized the repurchase program units may be repurchasedwith regard to our common stock. In February 2021, the Board of Directors replenished the repurchase program to its limit of $200 million of common stock in aggregate from its maximum remaining repurchase amount of $139.1 million. This program authorizes the repurchase of shares of common stock from time to time in open market transactions, in privately negotiated transactions or otherwise. We expect thatDuring the majority of the repurchases under this program will be done via open market transactions. No units will be repurchased from our executive officers under this program. The timing and actual number of common units and/or Carlyle Holdings units repurchased will depend on a variety of factors, including legal requirements, price, and economic and market conditions. This unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. For the ninesix months ended SeptemberJune 30, 2017,2021, we have paid an aggregate of $0.2$25.0 million to repurchase and retire 14,190 unitsapproximately 0.6 million shares of common stock with all of the repurchases done via open market and brokered transactions. Since inceptionAs of June 30, 2021, $175.0 million of repurchase capacity remains under the program, we have paid an aggregate of $59.1 million to repurchase and retire 3,695,889 units.program.
Cash Flows
The significant captions and amounts from our consolidated statements of cash flows which include the effects of our Consolidated Funds and CLOs in accordance with U.S. GAAP are summarized below.
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
| (Dollars in millions) |
Statements of Cash Flows Data | | | |
Net cash provided by (used in) operating activities, including investments in Carlyle funds | $ | 595.3 | | | $ | (76.9) | |
Net cash used in investing activities | (11.7) | | | (23.7) | |
Net cash provided by (used in) financing activities | 69.7 | | | (160.0) | |
Effect of foreign exchange rate changes | (25.7) | | | (8.4) | |
Net change in cash, cash equivalents and restricted cash | $ | 627.6 | | | $ | (269.0) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| (Dollars in millions) |
Statements of Cash Flows Data | | | |
Net cash provided by operating activities | $ | 571.8 |
| | $ | 127.5 |
|
Net cash used in investing activities | (22.4 | ) | | (11.5 | ) |
Net cash provided by (used in) financing activities | 73.7 |
| | (73.3 | ) |
Effect of foreign exchange rate changes | 61.7 |
| | 9.1 |
|
Net change in cash and cash equivalents | $ | 684.8 |
| | $ | 51.8 |
|
Net Cash Provided by (Used In) Operating Activities. Net cash provided by (used in) operating activities includes the investment activity of our Consolidated Funds. Excluding this activity, net cash provided by operating activities was primarily driven by our earnings in the respective periods after adjusting for significant non-cash activity, including non-cash performance allocations and incentive fees, the related non-cash performance allocations and incentive fee related compensation, non-cash equity-based compensation, and depreciation, amortization and impairments, all of which are included in earnings.
Cash flows from operating activities during the six months ended June 30, 2021 and 2020, excluding the activities of our Consolidated Funds, were $580.7 million and $61.8 million, respectively. Operating cash inflows primarily include the receipt of management fees, and realized performance allocations and incentive fees, while operating cash outflows primarily include payments for operating expenses, including compensation and general, administrative, and other expenses. During both the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, net cash provided by operating activities primarily included the receipt of management fees and realized performance allocations and incentive fees, totaling approximately $1.7$1.4 billion and $1.8$1.1 billion, respectively. These inflows were offset by payments for compensation and general, administrative and other expenses of approximately $1.3$0.7 billion for both the ninesix months ended SeptemberJune 30, 20172021 and 2016.2020.
Cash used to purchase investments as well as the proceeds from the sale of such investments are also reflected in our operating activities as investments are a normal part of our operating activities. During the ninesix months ended SeptemberJune 30,
2017, 2021, investment proceeds were $297.7$398.2 million while investment purchases were $412.4$103.4 million. During the ninesix months ended SeptemberJune 30, 2016,2020, investment proceeds were $219.7$166.2 million as compared to purchases of $218.6$244.2 million.
The net cash provided by operating activities for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 also reflects the investment activity of our Consolidated Funds. For the ninesix months ended SeptemberJune 30, 2017,2021, purchases of investments by the Consolidated Funds were $2,129.7$2,700.4 million, while proceeds from the sales and settlements of investments by the Consolidated Funds were $2,135.6$2,426.9 million. For the ninesix months ended SeptemberJune 30, 2016,2020, purchases of investments by the Consolidated Funds were $1,707.8$1,046.4 million, while proceeds from the sales and settlements of investments by the Consolidated Funds were $873.9$1,088.6 million.
Net Cash Used In Investing Activities. Our investing activities generally reflect cash used for acquisitions, fixed assets and software for internal use, and changes in restricted cash.use. For the ninesix months ended SeptemberJune 30, 2017,2021, cash used in investing activities principally reflects purchases of fixed assets.assets, partially offset by proceeds received from the sale of MRE of $5.9 million. Purchases of fixed assets were $26.0$17.6 million and $13.3$23.7 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
Net Cash Used inProvided by (Used in) Financing Activities. Financing Net cash provided by (used in) financing activities are a net source of cash induring the ninesix months ended SeptemberJune 30, 20172021 and a net use2020, excluding the activities of cash inour Consolidated Funds, was $68.5 million and $(293.5) million, respectively. During the ninesix months ended SeptemberJune 30, 2016.
For2021, the nine months ended September 30, 2017, the PartnershipCompany received net proceeds of $387.6$484.2 million from the issuance of preferred units. See Note 14subordinated notes, and made $141.8 million of net repayments on borrowings used to finance a portion of our investments in the unaudited condensed consolidated financial statements for more information onCLOs. We made no borrowings or repayments under the preferred units.
revolving credit facilities during the six months ended June 30, 2021. For the ninesix months ended SeptemberJune 30, 2017,2020, the PartnershipCompany received net proceeds of $202.6$263.8 million from borrowings and made $295.6 million in repayments under the issuancerevolving credit facilities. The Company also paid $68.8 million in both January 2020 and 2021, representing the first and second annual installments of various CLO term loans. See Note 7the deferred consideration payable to former Carlyle Holdings unitholders in connection with the unaudited condensed consolidated financial statements for more information on these term loans.Conversion.
DistributionsDividends paid to our common unitholdersstockholders were $63.0$177.4 million and $98.5$174.6 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Distributions to the non-controlling interest holders in Carlyle Holdings were $163.1The Company paid $25.0 million and $300.9$26.4 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, to repurchase and retire 0.6 million and 1.1 million shares, respectively.
The net borrowings (payments) borrowings on loans payable by our Consolidated Funds during the ninesix months ended SeptemberJune 30, 20172021 and 20162020 were $(312.7)$(15.9) million and $339.7$134.6 million, respectively. Contributions from non-controlling interest holders were $87.7$44.4 million and $75.3$14.0 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, which relate primarily to contributions from the non-controlling interest holders in Consolidated Funds. For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, distributions to non-controlling interest holders were $74.0$42.9 million and $87.3$35.2 million, respectively, which relate primarily to distributions to the non-Carlyle interests in majority-owned subsidiaries.
Our Balance Sheet
Total assets were $11.7$19.6 billion at SeptemberJune 30, 2017,2021, an increase of $1.7$4.0 billion from December 31, 2016.2020. The increase in total assets was primarily attributable to increasesa $3.3 billion increase in accruedinvestments, including performance fees, cashallocation and cash equivalents and investments of $1,017.5 million, $684.8 million, and $373.9 million, respectively. These increases were partially offset by a decreasean increase in cash and cash equivalents held at Consolidated Funds of $566.1$0.6 billion. The increase in investments, including performance allocations, was largely driven by appreciation across our portfolio. The increase in cash was primarily due to the issuance of $500 million in subordinated notes and the deconsolidation inreceipt of management fees and realized performance revenues, partially offset by the three months ended September 2017payment of deferred consideration related to our acquisition of Carlyle Aviation Partners, payment of the total assetssecond installment of deferred consideration to the real estate VIE of $176.9 million.former Carlyle Holdings unitholders, and payments for bonuses and payroll, dividends and income taxes. Cash and cash equivalents including corporate treasury investments, were approximately $1.5$1.6 billion and $1.0 billion at both SeptemberJune 30, 20172021 and December 31, 2016.2020, respectively.
Total liabilities were $8.9$15.0 billion at SeptemberJune 30, 2017,2021, an increase of $0.4$2.3 billion from December 31, 2016.2020. The increase in liabilities was primarily attributable to increasesan increase in accrued compensation and benefits andof $1.3 billion due to the corresponding increase in accrued performance allocations as well as an increase in debt obligations of $513.3$336.6 million and $250.4driven by the issuance of $500 million respectively. These increases werein subordinated notes, partially offset by decreases in other liabilitiesthe repayment of Consolidated Funds and the deconsolidation in the three months ended September 2017 of the liabilities of the real estate VIE of $161.6 million and $203.9 million, respectively, from December 31, 2016 to September 30, 2017.our U.S. CLO term loans.
The assets and liabilities of the Consolidated Funds are generally held within separate legal entities and, as a result, the assets of the Consolidated Funds are not available to meet our liquidity requirements and similarly the liabilities of the Consolidated Funds are non-recourse to us. For example, as previously discussed, the CLO term loans generally are secured by the Partnership'sCompany’s investment in the CLO, have a general unsecured interest in the Carlyle entity that manages the CLO, and do not have recourse to any other Carlyle entity.
Our balance sheet without the effect of the Consolidated Funds can be seen in Note 1816 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. At SeptemberJune 30, 2017,2021, our total assets without the
effect of the Consolidated Funds were $7.4$13.3 billion, including cash and cash equivalents including corporate treasury investments, of $1.5$1.6 billion and net accrued performance feesrevenues of $1.5$4.0 billion.
Unconsolidated Entities
Our corporate private equity funds and certainCertain of our real estate funds have entered into lines of credit secured by their investors’ unpaid capital commitments or by a pledge of the equity of the underlying investment. These lines of credit are used primarily to reduce the overall number of capital calls to investors or for working capital needs. In certain instances, however, they may be used for other investment related activities, including serving as bridge financing for investments. The degree of leverage employed varies among our funds.
Off-balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements including sponsoring and owning limited or general partner interests in consolidated and non-consolidated funds, entering into derivative transactions, entering into operating leases and entering into guarantee arrangements. We also have ongoing capital commitment arrangements with certain of our consolidated and non-consolidated funds. We do not have any other off-balance sheet arrangements that would require us to fund losses or guarantee target returns to investors in any of our other investment funds.
In June 2021, the Company entered into agreements with financial institutions pursuant to which it provided the guarantee for revolving credit facilities of an investment fund that is actively fundraising in Global Private Equity segment. The maximum aggregate amount available under the facilities is $2.0 billion. These facilities expire upon the earlier of six months or at such time that the investment fund enters into a subscription credit facility with a maximum capacity of at least $2.0 billion. The Company has not funded any amounts under this guarantee to date, and believes the likelihood of any material funding to be remote.
For further information regarding our off-balance sheet arrangements, see Note 2 and Note 97 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Contractual Obligations
The following table sets forth information relating to our contractual obligations as of SeptemberJune 30, 20172021 on a consolidated basis and on a basis excluding the obligations of the Consolidated Funds:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Jul. 1, 2021 to Dec. 31, 2021 | | 2022-2023 | | 2024-2025 | | Thereafter | | Total |
| (Dollars in millions) |
Debt obligations (1) | $ | — | | | $ | 271.2 | | | $ | 16.6 | | | $ | 2,047.2 | | | $ | 2,335.0 | |
Interest payable (2) | 54.3 | | | 202.7 | | | 191.8 | | | 1,912.8 | | | 2,361.6 | |
Other consideration (3) | 1.6 | | | 196.4 | | | 83.8 | | | — | | | 281.8 | |
Operating lease obligations (4) | 27.8 | | | 121.3 | | | 106.8 | | | 397.9 | | | 653.8 | |
Capital commitments to Carlyle funds (5) | 3,353.5 | | | — | | | — | | | — | | | 3,353.5 | |
Tax receivable agreement payments (6) | — | | | 23.1 | | | 6.3 | | | 68.6 | | | 98.0 | |
Loans payable of Consolidated Funds (7) | 44.3 | | | 175.7 | | | 175.9 | | | 5,908.6 | | | 6,304.5 | |
Unfunded commitments of the CLOs (8) | 4.7 | | | — | | | — | | | — | | | 4.7 | |
| | | | | | | | | |
Consolidated contractual obligations | 3,486.2 | | | 990.4 | | | 581.2 | | | 10,335.1 | | | 15,392.9 | |
Loans payable of Consolidated Funds (7) | (44.3) | | | (175.7) | | | (175.9) | | | (5,908.6) | | | (6,304.5) | |
Capital commitments to Carlyle funds (5) | (2,819.3) | | | — | | | — | | | — | | | (2,819.3) | |
Unfunded commitments of the CLOs (8) | (4.7) | | | — | | | — | | | — | | | (4.7) | |
| | | | | | | | | |
Carlyle Operating Entities contractual obligations | $ | 617.9 | | | $ | 814.7 | | | $ | 405.3 | | | $ | 4,426.5 | | | $ | 6,264.4 | |
(1)The table above assumes that no prepayments are made on the senior notes and that the outstanding balance, if any, on the senior credit facility is repaid on the maturity date of the senior credit facility, which is February 11, 2024. The CLO term loans are included in the table above based on the earlier of the stated maturity date or the date the CLO is expected to be dissolved. See Note 5 to the unaudited condensed consolidated financial statements for the various maturity dates of the CLO term loans and senior notes. |
| | | | | | | | | | | | | | | | | | | |
| October 1, 2017 to December 31, 2017 | | 2018-2019 | | 2020-2021 | | Thereafter | | Total |
| (Dollars in millions) |
Debt obligations (including senior notes)(a) | $ | 6.7 |
| | $ | 47.2 |
| | $ | 133.8 |
| | $ | 1,329.9 |
| | $ | 1,517.6 |
|
Interest payable(b) | 16.6 |
| | 132.3 |
| | 128.0 |
| | 771.9 |
| | 1,048.8 |
|
Contingent cash and other consideration(c) | 8.5 |
| | 65.7 |
| | 3.3 |
| | — |
| | 77.5 |
|
Operating lease obligations(d) | 12.6 |
| | 96.0 |
| | 90.4 |
| | 334.6 |
| | 533.6 |
|
Capital commitments to Carlyle funds(e) | 2,830.1 |
| | — |
| | — |
| | — |
| | 2,830.1 |
|
Tax receivable agreement payments(f) | — |
| | 1.4 |
| | 26.0 |
| | 128.5 |
| | 155.9 |
|
Loans payable of Consolidated Funds(g) | 20.5 |
| | 162.8 |
| | 163.0 |
| | 4,371.4 |
| | 4,717.7 |
|
Unfunded commitments of the CLOs(h) | 0.2 |
| | — |
| | — |
| | — |
| | 0.2 |
|
Consolidated contractual obligations | 2,895.2 |
| | 505.4 |
| | 544.5 |
| | 6,936.3 |
| | 10,881.4 |
|
Loans payable of Consolidated Funds(g) | (20.5 | ) | | (162.8 | ) | | (163.0 | ) | | (4,371.4 | ) | | (4,717.7 | ) |
Capital commitments to Carlyle funds(e) | (2,480.2 | ) | | — |
| | — |
| | — |
| | (2,480.2 | ) |
Unfunded commitments of the CLOs(h) | (0.2 | ) | | — |
| | — |
| | — |
| | (0.2 | ) |
Carlyle Operating Entities contractual obligations | $ | 394.3 |
| | $ | 342.6 |
| | $ | 381.5 |
| | $ | 2,564.9 |
| | $ | 3,683.3 |
|
(2)The interest rates on the debt obligations as of June 30, 2021 consist of: 3.500% on $425.0 million of senior notes, 5.650% on $350.0 million of senior notes, 3.875% on $250.0 million of senior notes, 5.625% on $600.0 million of senior notes, 4.625% on $500.0 million of subordinated notes, 3.875% on $250.0 million under the revolving credit facility, and a range of approximately 1.36% to 8.11% for our CLO term loans. Interest payments assume that no prepayments are made and loans are held until maturity with the exception of the CLO term loans, which are based on the earlier of the stated maturity date or the date the CLO is expected to be dissolved.(3)These obligations represent our estimate of amounts to be paid on the contingent cash obligations associated with our acquisition of Carlyle Aviation Partners and other obligations, as well as the deferred payment obligations described below. In connection with the Conversion, former holders of Carlyle Holdings partnership units will receive cash payments aggregating to approximately $344 million, which is equivalent to $1.50 per Carlyle Holdings partnership unit exchanged in the Conversion, payable in five annual installments of $0.30, the second of which occurred during the first quarter of 2021. The payment obligations are unsecured obligations of the Company or a subsidiary thereof, subordinated in right of payment to indebtedness of the Company and its subsidiaries, and do not bear interest.
| |
(a) | The table above assumes that no prepayments are made on the CLO term loans, promissory notes or senior notes and that the outstanding balance on the revolving credit facility term loan is repaid on the maturity date of the senior credit facility, which is May 5, 2020. See Note 7 to the unaudited condensed consolidated financial statements for the various maturity dates of the CLO term loans, promissory notes and senior notes. |
| |
(b) | The interest rate on the debt obligations as of September 30, 2017 consist of: 3.875% on $500.0 million of senior notes, 5.625% on $600.0 million of senior notes, approximately 2.49% on $25.0 million remaining term loan under our senior credit facility, a range of approximately 1.75% to 3.25% for our CLO term loans, approximately 3.83% on $108.8 million of our NGP promissory note and approximately 3.33% on $53.9 million of our settlement promissory notes. Interest payments assume that no prepayments are made and loans are held until maturity. |
| |
(c) | These obligations represent our estimate of amounts to be paid on the contingent cash and other consideration obligations associated with our business acquisitions, strategic investment in NGP Management, payments related to the acquisition of secondary interests in Carlyle funds and other obligations. |
(4)We lease office space in various countries around the world and maintain our headquarters in Washington, D.C., where we entered into an amended non-cancelable lease agreement expiring on March 31, 2030. We entered into a new non-cancelable lease agreement expiring in 2036 for new office space in New York City. Our office leases in other locations expire in various years through 2032. The amounts in this table represent the minimum lease payments required over the term of the lease.
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(d) | We lease office space in various countries around the world and maintain our headquarters in Washington, D.C., where we lease our primary office space under a non-cancelable lease agreement expiring on July 31, 2026. Our office leases in other locations expire in various years from 2017 through 2032. The amounts in this table represent the minimum lease payments required over the term of the lease. |
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(e) | These obligations generally represent commitments by us to fund a portion of the purchase price paid for each investment made by our funds. These amounts are generally due on demand and are therefore presented in the less than one year category. A substantial majority of these investments is expected to be funded by senior Carlyle professionals and other professionals through our internal co-investment program. Of the $2.8 billion of unfunded commitments, approximately $2.5 billion is subscribed individually by senior Carlyle professionals, advisors and other professionals, with the balance funded directly by the Partnership. |
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(f) | Represents obligations by the Partnership’s corporate taxpayers to make payments under the tax receivable agreement. Holders of partnership units in Carlyle Holdings may exchange their Carlyle Holdings partnership units for common units in The Carlyle Group L.P. on a one-for-one basis. These exchanges may reduce the amount of tax that the corporate taxpayers would be required to pay in the future. The corporate taxpayers will pay to the limited partner of Carlyle Holdings making the exchange 85% of the amount of cash savings that the corporate taxpayers realize upon an exchange. See “Tax Receivable Agreement” below. |
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(g) | These obligations represent amounts due to holders of debt securities issued by the consolidated CLO vehicles. These obligations include interest to be paid on debt securities issued by the consolidated CLO vehicles. Interest payments assume that no prepayments are made and loans are held until maturity. For debt securities with rights only to the residual value of the CLO and no stated interest, no interest payments were included in this calculation. Interest payments on variable-rate debt securities are based on interest rates in effect as of September 30, 2017, at spreads to market rates pursuant to the debt agreements, and range from 0.78% to 8.91%. |
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(h) | These obligations represent commitments of the CLOs to fund certain investments. These amounts are generally due on demand and are therefore presented in the less than one year category. |
(5)These obligations generally represent commitments by us to fund a portion of the purchase price paid for each investment made by our funds. These amounts are generally due on demand and are therefore presented in the less than one year category. A substantial majority of these investments is expected to be funded by senior Carlyle professionals and other professionals through our internal co-investment program. Of the $3.3 billion of unfunded commitments, approximately $2.8 billion is subscribed individually by senior Carlyle professionals, advisors and other professionals, with the balance funded directly by the Company.
(6)In connection with our initial public offering, we entered into a tax receivable agreement with the limited partners of the Carlyle Holdings partnerships whereby we agreed to pay such limited partners 85% of the amount of cash tax savings, if any, in U.S. federal, state and local income tax realized as a result of increases in tax basis resulting from exchanges of Carlyle Holdings partnership units for common units of The Carlyle Group L.P. From and after the consummation of the Conversion, former holders of Carlyle Holdings partnership units do not have any rights to payments under the tax receivable agreement except for payment obligations pre-existing at the time of the Conversion with respect to exchanges that occurred prior to the Conversion. These obligations are more than offset by the future cash tax savings that we are expected to realize.
(7)These obligations represent amounts due to holders of debt securities issued by the consolidated CLO vehicles. These obligations include interest to be paid on debt securities issued by the consolidated CLO vehicles. Interest payments assume that no prepayments are made and loans are held until maturity. For debt securities with rights only to the residual value of the CLO and no stated interest, no interest payments were included in this calculation. Interest payments on variable-rate debt securities are based on interest rates in effect as of June 30, 2021, at spreads to market rates pursuant to the debt agreements, and range from 0.30% to 8.76%.
(8)These obligations represent commitments of the CLOs to fund certain investments. These amounts are generally due on demand and are therefore presented in the less than one year category.
Excluded from the table above are liabilities for uncertain tax positions of $17.7$25.1 million at SeptemberJune 30, 20172021 as we are unable to estimate when such amounts may be paid.
Contingent Cash Payments For Business Acquisitions and Strategic Investments
We have certain contingent cash obligations associated with our acquisition of Carlyle Aviation Partners and our strategic investment in Fortitude Re. For our acquisition of Carlyle Aviation Partners, the contingent cash payments relate to an earn-out of up to $150.0 million that is payable upon the achievement of certain revenue and earnings performance targets during 2020 through 2025, which are accounted for as compensation expense. We accrue the compensation liability over the service period. If earned, payments would be made in the year following the performance year to which the payments relate. In March 2021, we paid $49.9 million related to the Carlyle Aviation Partners earn-out for the performance period ended December 31, 2020.
For our strategic investment in Fortitude Re, the contingent cash payments relate to performance-based contingent cash consideration payable to Carlyle FRL for further payment to AIG following December 31, 2023. Based on the terms of the underlying contracts, the maximum amount that could be paid from contingent cash obligations associated with the acquisition of Carlyle Aviation Partners and the strategic investment in Fortitude Re as of June 30, 2021 is $195.1 million versus the amounts recognized on the balance sheet of $119.3 million.
Risk Retention Rules
The Dodd-Frank Act requires sponsors of asset-backed securities, including CLOs,We will continue to retain at least 5% ofcomply with the credit risk related to the assets that underlie asset-backed securities (referred to herein as the U.S. Risk Retention Rules). The U.S. Risk Retention Rules became effective on December 24, 2016 and apply to sponsors of CLOs issued thereafter. As a sponsor ofretention rules governing CLOs issued in Europe for which we currently comply with similar risk retention rules that have been in place since 2014. To comply with the U.S. Risk Retention Rules, we expect that we will contribute approximately $750 million to new CLOs issued over the next five years. Our contribution to the new CLOs will be funded throughare a varietysponsor, which require a combination of sources, including direct fundingcapital from the Partnership, fundingour balance sheet, commitments from senior Carlyle professionals, funding fromand/or third party investors, and limited recourse borrowing. The allocation of funding sources, and therefore the amount of capital required from the Partnership, will be determined in the future.
For additional information related to the U.S. Risk Retention Rules, see “—Regulatory changes in the United States could adversely affect our business and the possibility of increased regulatory focus could result in additional burdens and expenses on our business” within Item 1A of our 2016 Annual Report on Form 10-K.
financing.
Guarantees
See Note 97 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information related to all of our material guarantees.
Indemnifications
In many of our service contracts, we agree to indemnify the third-party service provider under certain circumstances. The terms of the indemnities vary from contract to contract, and the amount of indemnification liability, if any, cannot be determined and has not been included in the table above or recorded in our unaudited condensed consolidated financial statements as of SeptemberJune 30, 2017.2021.
Tax Receivable Agreement
Holders of partnership units in Carlyle Holdings (other than The Carlyle Group L.P.’s wholly-owned subsidiaries), subject to the vesting and minimum retained ownership requirements and transfer restrictions applicable to such holders as set forth in the partnership agreements of the Carlyle Holdings partnerships, may (subject to the terms of the exchange agreement) exchange their Carlyle Holdings partnership units for The Carlyle Group L.P. common units on a one-for-one basis. A Carlyle Holdings limited partner must exchange one partnership unit in each of the three Carlyle Holdings partnerships to effect an exchange for a common unit. The exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Carlyle Holdings. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of tax that Carlyle Holdings I GP Inc. and any other corporate taxpayers would
otherwise be required to pay in the future, although the IRS may challenge all or part of that tax basis increase, and a court could sustain such a challenge.
We have entered into a tax receivable agreement with the limited partners of the Carlyle Holdings partnerships that will provide for the payment by the corporate taxpayers to such parties of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the corporate taxpayers realize as a result of these increases in tax basis and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. This payment obligation is an obligation of the corporate taxpayers and not of Carlyle Holdings. While the actual increase in tax basis, as well as the amount and timing of any payments under this agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of our common units at the time of the exchange, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that as a result of the size of the transfers and increases in the tax basis of the tangible and intangible assets of Carlyle Holdings, the payments that we may make under the tax receivable agreement will be substantial.
See Note 2 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information related to our tax receivable agreement.
Contingent Obligations (Giveback)
Carried interest is ultimately realized when: (1) an underlying investment is profitably disposed of, (2) certain costs borne by the limited partner investors have been reimbursed, (3) the fund's cumulative returns are in excess of the preferred return, and (4) we have decided to collect carry rather than return additional capital to limited partner investors. Realized carried interest may be required to be returned by us in future periods if the funds' investment values decline below certain levels. When the fair value of a fund's investments remains constant or falls below certain return hurdles, previously recognized performance fees are reversed.
See Note 9 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information related to our contingent obligations (giveback).
Other Contingencies
In the ordinary course of business, we are a party to litigation, investigations, inquiries, employment-related matters, disputes and other potential claims. We discuss certain of these matters in Note 97 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Carlyle Common Units and Carlyle Holdings Partnership UnitsStock
A rollforward of theour common stock outstanding Carlyle Group L.P. common units and Carlyle Holdings partnership units from December 31, 20162020 through SeptemberJune 30, 20172021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares as of December 31, 2020 | | Shares Issued | | Shares Forfeited | | | | Shares Repurchased / Retired | | Shares as of June 30, 2021 |
The Carlyle Group Inc. common shares | 353,520,576 | | | 1,571,706 | | | — | | | | | (630,133) | | | 354,462,149 | |
| | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
| Units as of December 31, 2016 | | Units Issued - DRUs | | Units Forfeited | | Units Exchanged | | Units Repurchased / Retired | | Units as of September 30, 2017 |
The Carlyle Group L.P. common units | 84,610,951 |
| | 8,408,673 |
| | — |
| | 4,800,473 |
| | (14,190 | ) | | 97,805,907 |
|
Carlyle Holdings partnership units | 241,847,796 |
| | — |
| | (437,314 | ) | | (4,800,473 | ) | | — |
| | 236,610,009 |
|
Total | 326,458,747 |
| | 8,408,673 |
| | (437,314 | ) | | — |
| | (14,190 | ) | | 334,415,916 |
|
Shares of The Carlyle Group L.P.Inc. common unitsstock issued during the period from December 31, 20162020 through SeptemberJune 30, 20172021 relate to the vesting of the Partnership’s deferredCompany’s restricted commonstock units during the ninesix months ended SeptemberJune 30, 2017. Further, The Carlyle Group L.P. common units in the table above includes 7,782 common units that the Partnership is expected to acquire from Carlyle Holdings in future periods upon the vesting of certain of the Partnership’s unvested common units associated with the acquisition of the remaining 40% equity interest in AlpInvest in August 2013.
The Carlyle Holdings partnership units forfeited during the period from December 31, 2016 through September 30, 2017 relate to unvested Carlyle Holdings partnership units that were forfeited when the holder ceased to provide services to the Partnership.
The Carlyle Holdings partnership units exchanged relate to the exchange of Carlyle Holdings partnership units held by NGP and certain limited partners for common units on a one-for-one basis. Beginning with the second quarter of 2017, senior Carlyle professionals can exchange their Carlyle Holdings partnership units for common units on a quarterly basis, subject to the terms of the Exchange Agreement. We intend to facilitate an orderly exchange process to seek to minimize the impact on the trading price of our common units. During the three and nine months ended September 30, 2017, senior Carlyle professionals exchanged approximately 1.6 million and 4.6 million, respectively, of their Carlyle Holdings partnership units for common units.
The Carlyle Group L.P. common units and Carlyle Holdings partnership units repurchased during the period from December 31, 2016 through September 30, 2017 relate to units repurchased and subsequently retired as part of our unit repurchase program that was initiated in February 2016.2021.
The total unitsshares as of SeptemberJune 30, 20172021 as shown above exclude approximately 0.52.9 million common unitsshares in connection with the vesting of deferred restricted commonstock units subsequent to SeptemberJune 30, 20172021 that will participate in the common unitholder distributionshareholder dividend that will be paid in November 2017.August 17, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary exposure to market risk is related to our role as general partner or investment advisor to our investment funds and the sensitivities to movements in the fair value of their investments, including the effect on management fees, performanceincentive fees and investment income.income, including performance allocations. Although our investment funds share many common themes, each of our alternative asset management asset classes runs its own investment and risk management processes, subject to our overall risk tolerance and philosophy. The investment process of our investment funds involves a comprehensive due diligence approach, including review of reputation of shareholders and management, company size and sensitivity of cash flow
generation, business sector and competitive risks, portfolio fit, exit risks and other key factors highlighted by the deal team. Key investment decisions are subject to approval by both the fund-level managing directors, as well as the investment committee, which is generally comprised of one or more of the three founding partners, one “sector” head, one or more operating executives and senior investment professionals associated with that particular fund. Once an investment in a portfolio company has been made, our fund teams closely monitor the performance of the portfolio company, generally through frequent contact with management and the receipt of financial and management reports.
There was no material change in our market risks during the three months ended SeptemberJune 30, 2017.2021. For additional information, refer to our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our co-principalprincipal executive officersofficer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our co-principalprincipal executive officersofficer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our co-principalprincipal executive officersofficer and principal financial officer concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended SeptemberJune 30, 20172021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information required with respect to this item can be found under “Legal Matters” in Note 9,7, Commitments and Contingencies, of the notes to the Partnership’sCompany’s unaudited condensed consolidated financial statements contained in this quarterly report, and such information is incorporated by reference into this Item 1.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, see the information under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which is accessible on the SEC’s website at sec.gov.2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth repurchases of our common stock during the three months ended June 30, 2021 for the periods indicated:
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Period | (a) Total number of shares purchased | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced plans or programs | (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
| (Dollars in millions, except unit and per unit data) |
April 1, 2021 to April 30, 2021 (1) | — | | $ | — | | — | | $ | 190.0 | |
May 1, 2021 to May 31, 2021 (1)(2) | 349,961 | | $ | 42.86 | | 349,961 | | $ | 175.0 | |
June 1, 2021 to June 30, 2021 (1) | — | | $ | — | | — | | $ | 175.0 | |
Total | 349,961 | | | 349,961 | | |
(1)In February 2016, theDecember 2018, our Board of Directors of the general partner of the Partnership authorized the repurchase of up to $200 million of common unitsstock and/or Carlyle Holdings units. Under this unitIn January 2020 our Board of Directors re-authorized the December 2018 repurchase program which was publicly announced onwith regard to our common stock, and in February 10, 2016, units may be repurchased from time2021, our Board of Directors replenished the repurchase program to timeits limit of $200 million of common stock in open market transactions, in privately negotiated transactions or otherwise. We expect that the majority of repurchases under this program will be done via open market transactions. No units will be repurchased from our executive officers under this program.aggregate. The timing and actual number of shares of common units and/or Carlyle Holdings unitsstock repurchased will depend on a variety of factors, including legal requirements, price, and economic and market conditions. This unitshare repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. During
(2)All of the three months ended September 30, 2017, no unitsshares of common stock purchased during this period were repurchased. As of September 30, 2017, we had approximately $141 millionpurchased in remaining authorization under the unit repurchase program.open market and brokered transactions and were subsequently retired.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
None.
Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
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Exhibit No. | Description |
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Exhibit No. | Description |
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3.1 | |
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3.2 | |
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3.3 | |
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4.1 | |
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10.14.2 | |
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4.3 | |
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4.4 | |
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10.1+ | |
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10.222 * |
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10.331.1 * |
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10.4 | Amendment No. 2 to Exchange Agreement, dated as of September 13, 2017, among Carlyle Holdings I L.P., Carlyle Holdings II L.P. and Carlyle Holdings III L.P., related to the Exchange Agreement, dated as of May 2, 2012, among Carlyle Group Management L.L.C., The Carlyle Group L.P., Carlyle Holdings I GP Inc., Carlyle Holdings II GP L.L.C., Carlyle Holdings II Sub L.L.C., Carlyle Holdings III GP L.P., Carlyle Holdings I L.P., Carlyle Holdings II L.P., Carlyle Holdings III L.P. and the limited partners of each of Carlyle Holdings I L.P., Carlyle Holdings II L.P. and Carlyle Holdings III L.P. (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K (File No. 001-35538) filed with the SEC on September 13, 2017). |
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31.1 * | |
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31.2 * | |
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31.3 * | |
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31.4 * | |
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32.1 * | |
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32.2 * | |
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32.3 * | |
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32.4 * | |
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99.1101.INS | Inline XBRL document. |
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101.INS101.SCH | XBRL Instance Document. |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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*104 | Filed herewith.The cover page from The Carlyle Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
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* | Filed herewith. |
+ | Management contract or compensatory plan or arrangement in which directors and/or executive officers are eligible to participate. |
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The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | | | | | | | |
| | The Carlyle Group L.P.Inc. |
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Date: July 29, 2021 | | By: | | Carlyle Group Management L.L.C.,
its general partner
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Date: October 31, 2017 | | By: | | /s/ Curtis L. Buser |
| | Name: | | Curtis L. Buser |
| | Title: | | Chief Financial Officer |
| | | | (Principal Financial Officer and Authorized Officer) |